Pob study notes

Sections to focus on:

● Section 3
● Section 4
● Section 5
● Section 7
● Section 10

Section 3- Establishment of a Business

- Entrepreneur: These are people who come up with ideas that they believe will
benefit the economy and takes the risk of creating it.

Role of the entrepreneur in decision making

- Conceptualizing
- Planning
- Accessing Funds
- Organizing
- Evaluating business performance

Characteristics of an Entrepreneur
- Creative
- Innovative
- Flexible
- Goal Orientation
- Risk-taker
- Persistent
- Persevering

Roles of Entrepreneur
- Establishment of Jobs for themselves and others in the economy
- Improves the standard of living
- It helps to build the economy
- Provides goods & services that society needs in order to satisfy their needs & wants
- Contributing to Nation Building
- They take part in environmental activities to help give back to the environment
- They also help to contribute to society by helping to develop the economy
- Collaborating to achieve shared objectives
Why start a business?
- To make money
- To provide employment
- To be your own boss
- To put your ideas into the world
- Increase income
- -increased control of working life

Steps for establishing a Business

- Conceptualisation-This is the formulation of the idea of what to produce.

- Research-This is a market probe to determine if the business is needed and if
there are sufficient persons/organizations to make operations viable.
Questionnaires, interviews etc can gather information. Data is then analyzed
and a decision is made.
- Identification of resources: Financial Resources, Human Resources &
Material
- Creation of Business Plan: This plan shows how the business will be
organized, giving information on projected sales, production cost, and
projected profis.
- Acquisition of funds-Getting money from relevant sources to purchase
equipment, and materials, pay staff (if any)
- Operation of Business-Once all the necessary factors of production are in
place, the business can commence operation.
Business Plan

A business plan is a complete description of a business and its plans for the next one to
three years.

Reasons for a Business Plan

- Attract investors
- To determine whether or not a business is feasible
- Guide the operation of the business

Elements of a business plan

- Executive Summary: This is a very important element of the business plan. It gives a
brief overview of key features within a business. It gives information about the
owner's educational background, and work experiences. Normally written at the last
section of the plan to be written.

- Operational plan: This contains important details about the business and its objectives.
This helps to give a clear picture of the proposed business and how it will run. The
plan will also include details like the name of the business and the address of its
company offices along with the aims and objectives of the business as well as the
personnel, suppliers, and equipment necessary.
 - Business Opportunity: Focuses on the specific products or services that the business
offers and what makes ut stand out.

- Marketing Plan: Highlights the target market, product description, business strategies,
goals & objectives
- A financial forecast should give an in-depth description of the finances predicted for
the business including sources of finance, sales, costings (what are the expected cost
to produce a product?), profit/loss, cashflow forecasts.
- Expansion: The business plan must give an indication of future plans.

Sources of Information
- Primary Research
This includes gathering information from direct sources such as the customers
themselves. Methods used to collect primary information includes:
a) sampling
b) questionnaires
c) interviews
d) observation
e) survey
- Secondary Research
This is information gathering from what has already been compiled and
documented by others. It includes: a) books
b) website information
c) newspapers
d) consumer review magazines

Feasibility Study
The Feasibility Study is an analysis of the viability of a business idea and an
examination of the different aspects of operating a business. It will show
whether the business is a worthwhile business opportunity.

The reason why a feasibility study is important:

- To ascertain the viability
- To be aware of the possible costs attached to the project
- For possible sources of finance

There is a major necessity for all types of planning in operating a business. Managers
have to create different levels of plans for the different levels of activities in the business.
Those levels are:
▪ Short-term plans (Operational) – These are plans for day-to-day activities.
▪ Medium-term plans (Tactical) – These are plans set at the department level and may
cover periods of over one year.
▪ Long-term plans (Strategic) – These are major decisions and long-range plans for the
organization.

regulatory practices instituted by the government for the establishment and conduct of
different types of business

- Environmental policies: These are the commitment of organizations or governments

to obey laws and regulations concerning environmental issues. They are policies made
to regulate resource use to reduce pollution and protect both human and welfare, and
the natural systems of the environment.
- Consumer Protection Agencies: This agency stops unfair and fraudulent business
practices by collecting complaints and doing investigations. They also develop rules
to maintain fair market prices and educate consumers.
- Monetary and Fiscal policies:
The Monetary policy involves the management of interest rates and the total supply of
money in circulation in the business.
Fiscal policy is a collective term for the taxing and spending actions done by the
government to influence aggregate demand in the economy.

Factors that determine the location of a business:

▪ Geographical
▪ Availability
▪ Infrastructure
▪ Power and water
▪ Transportation
▪ Health facilities
▪ Telecommunications
▪ Labour supply
▪ Government regulation

Collateral
- Collateral is money or property that is pledged as security/guarantee for
repayment of a loan. It is required by lending institutions to act as a safeguard
in case the loan is not repaid by the borrower.

Different types of collateral

- Property: homes and real estate
- Stocks: secured by your stock or shares
- Bonds: use of government bonds through a third party
- Money: cash
- Life insurance policies
- Appliances
The value of the collateral
 The value of the collateral is the market value of anything used as collateral to support
a loan. If the asset begins to lose value (depreciate), then the borrower would need to
supply additional assets to either acquire or repay their loans.

Section 4: Legal Aspect of Business

What is a contract?
- A contract is a legally binding agreement between two parties that is enforced
by law.

Two types of contracts

- Simple Contracts
- Specialty Contracts

What are simple contracts?

- Simple contracts do not need a written deed. They may be oral, written, or implied.
e.g.

Characteristics of a simple contract

- Consideration: A promise or action made by one party for the promise or action
made by another.
- Competence of parties: Parties should be adults of sound mind.
- Intention to create legal relations: For contracts, the intent is to enter a legally
binding agreement.
- Offer and acceptance – The offeror is bound in a contract if someone accepts.
Acceptance is the agreement made to accept the terms and conditions in the contract.

What are specialty contracts?

- Specialty contracts must be written, sealed, and deliver.
e.g. mortgages, insurance & sale of land

Characteristic include:
- The contract must be signed by both parties and sealed.
- A deed or contract must be delivered by the offeror.

Things to remember:
- A counter offer is a rejection of the original offer.
- A breach of contract is where a party /parties fail to keep their part of the
contract.
- Misrepresentation is a statement made by a party that is not true.
- Insurance: providing coverage for an unforeseen event. E.g. flood, fire etc
 - Assurance: providing coverage for an event MUST occur. E.g death
Types of assurance
- Whole life/permanent policy out: whenever a person dies regardless of how
long they lived.
- Endowment: pays out a lump sum.

Ways how a contract is terminated:

- Death: one party might die and cause termination to the contract.
- Breach: one party breaks the contract by failing to carry out their side of the
agreement.
- Frustration:
- Lapse of time: by not meeting the deadline, the contract is then terminated
- Performance: one party is not performing up to standard to their side of the agreement

Reasons why documentation is necessary for business transactions

- For providing a written record to prevent confusion in the future.
- As proof of activity as a record that such transaction did take place.
- For providing important statistical data for firms to carry out various calculations for
taxation and auditing purposes.
- The government may require proper documents from the firm to satisfy requirements
for their taxation and auditing process.

Business documents
- Pro Forma Invoice: an invoice sent by a supplier at the request of a prospective
purchaser.
- Stock Card: once goods are received, the stock cards are updated pr new ones are
added.
- Purchase Requisition: Helps to control the movement of stock. It informs the
organization of how much of the stock is used and who they were used by.
- Statement of Accounts: A summary of a purchaser's transaction with the supplier
over a set time period.
Section 5: Production

Factors of Production:

-
Land – also called natural resources. (e.g. bauxite, oil, gold and diamonds, rivers,
and lakes)
- Labour – also called human resources.
Labour is divided as follows:
- Skilled – engineer, computer operator, doctor, teacher
- Semi-skilled – driver, domestic servant, data entry operator, plumber, mechanic
- Unskilled – watchmen, vendors, laborer
- Labour-intensive firms use more people and less machinery whereas capital-
intensive firms use more machinery and technology, and fewer people.

Capital is also called man-made resources. l refers to money and all other assets employed
in the process of production such as building, machinery, equipment, and stock

Natural Resources of Caribbean Territories

Country Natural Resources Related Industry

Trinidad & Tobago Asphalt Asphalt

Oil Petroleum
Natural Gas Energy
Sun, Sea, Sand Tourism
Clay Construction
Cocoa Food/Cocoa

Jamaica Bauxite Aluminum

Gypsum Construction
Marble Construction

Guyana Bauxite Aluminum

Forestry Construction
Gold, Silver Jewellery
.

What is Production?
- Production is the act of creating or manufacturing something.
What is production?
- Productivity is the relationship between the amount of human and other resources
used and the amount of outpu that is produced.
Formulas

-Productivity= Output (goods and services)/ Input ( Workers, money, machines, raw
materials)
- Labour Productivity= Output (goods and services)/ No. of employees

The importance of productivity

- Human Resources comprises the labor force which is all the mental and physical
efforts used in the creation of goods and services. The higher the labour productivity,
the more efficient the employees are working in a business.
- Value and importance of labour – Human resources are the most important asset in
a company required for accomplishing its goals. The production of goods and services
requires some form of labour.

Factors affecting the labour supply

- Rate of growth of the population – if the population is growing and migration is

constant then the labour supply in the country will increase.
- The structure of the population – an ageing or very young population would mean a
smaller labour supply.
- Cultural patterns – if women are not allowed to work the availability of labour will
be adversely affected.
- Economic conditions–in some countries the family wage may be sufficient and thus
wives may not be required to work.
- Mobility of labour – the movement of people to another place to work will affect the
labour supply. People tend to move to areas with greater amenities such as good
schools, recreational and shopping facilities.
- The quality of the labour force – if the population has the appropriate skills and is
healthy this would be reflected in the labour force

Methods used to improve the productivity of labour:

▪ Improve education and skills training
▪ Making more employees specialize in a particular skill
▪ Increasing wages and other financial incentives
▪ Improving the management functions such as motivating, instructing and delegating
▪ Improving the health of workers by providing health care benefits
▪ Improving working conditions
Capital’s use in producing other goods:
Both fixed and working capital is required for production and can be very expensive and
must be used very efficiently. To undertake production that labour would not complete
promptly (e.g. deep-sea drilling). This requires some form of technology or machinery to get
the job done.

Types of capital:
- Fixed capital – items that remain in the business for a long time. (e.g. plant and
equipment, machinery)
- Working capital – items that are used in the day-to-day operations of the business.
(e.g. stock, cash)
- Venture capital – a type of financing that investors provide to startup businesses.

Types of production:
- Extractive (agriculture, mining, fishing) – Also called primary production is an
activity that involves extracting from our natural resources. It is the first stage of
production.
- Construction (building) – Also called secondary production and is the second stage
of production. It involves using raw materials to be converted into finished goods.
- Manufacturing (assembling, refining) – Another form of secondary production
where raw materials are used to assemble products or refine into finished goods and
services.
- Service (transport, communication, tourism) – Also referred to as tertiary production
and can be a direct service (serving fish) or commercial service (transporting fish).
This is the final stage of production.

Levels of production:
- Subsistence – Geared towards satisfying basic needs. Most persons are engaged in
agricultural activities and produce just enough for a person and his family. Production
is not very efficient.
- Domestic consumption – At this level, surplus goods and services are used within
the domestic or national community. This stage does not involve any imports or
exports.
- Surplus – At this level, countries can produce for the domestic community and still
have excess or surplus production. Usually found in countries with large supplies of
raw materials and advanced technology.
- Export – At this level trade develops with other countries due to excess production.
The export level should be the aim of all producers due to the level of foreign
earnings that can be obtained.
What is Cottage Industry?
- Cottage Industry is a small-scale business that is usually operated out of a person's
home.

Characteristics of Cottage Industry

- Small scale (makes very little goods for a small amount of customers)
- Mainly manual (people work mainly with their hands)
- Home-based
- Family members are usually workers

Advantages of Cottage Industries

-
- Labour costs are low since family members are employed.
- Creates employment opportunities for persons with specialized skills.
- Meets the damnd for souvenirs for tourists
- Little to no location cost

Functions of small business

- Creates employment
- Provides services that large firms are not willing to produce
- Niche market (a subset of the market on which a specified product is focused)

Advantages
- Introduces a new product and idea
- Increased competition for larger firms
- Generate employment and income, especially in rural areas

Disadvantages
- The business lacks expertise in certain areas.
- Owners find it difficult sourcing finance
- Limited ability to service customers due to unavailable resources

Examples of internal growth:

- Opening other outlets
- Employing more workers
- Increasing capital

Examples of external growth:

- Joint ventures (a business arrangement in which 2 or more parties agree to pool
their resources to accomplish a specific task or goal)
- Mergers (an agreement that unites 2 existing companies into one new company)
 -Takeovers/acquisitions (a takeover is a special form of acquisition that occurs when a
company takes control of another company without the acquired firm’s agreement.

Difference between Small businesses and Cottage industries

Small Business Cottage Industries

- Usually have their own location - Tend to be set up in the home itself.
separate from home

- Small businesses tend to have paid - Aided by family members who may
employees not be paid for their services

- Have very formalized production - Tend to use simple utensils found in

methods and have invested in the home
equipment

What are linkage industries?

- Linkage industries are industries that are connected with other industries in which the
output (finished product) of one becomes the input (raw material) of another. The
linkage may be backward or forward.
- Forward Linkage- This is when one industry supplies goods or provides services to
another.
- Backward linkage- This is where a business gets its raw materials to produce its goods
or services.

Benefits of Linkage Industries

- Allow businesses or industries to have guaranteed sales for their products.
- Industries will be able to have a reliable source for raw materials.
- Businesses will be able to do well and provide needed employment for persons within
the country.

Section 7 : Logistics and Supply chain

What is logistics?
- Logistics is the commercial activity of transporting goods to customers. It is the
management flow of things between the point of origin and the point of consumption
Components of logistics
- Storage of goods (Warehouses are buildings used for storing goods used by
producers)
 - Forward (from producer to consumer) and reverse flow of goods (from
consumption to point of origin)
- Insurance ( Goods could get stolen or destroyed and so it is important that goods are
covered so that the business can compensate in case)
- Flow of information for logistical management (There needs to be constant
communication among the different parties involved in the supply chain)

What is a supply chain operation?

- Supply chain operations include the systems, structures, and processes to plan and
execute the flow of goods and services from supplier to consumer.

Activities involved in supply chain operations:

▪ Transportation of natural resources
▪ Movement and storage of raw materials
▪ Processing of raw materials and components into finished goods
▪ Storage of work-in-progress and finished goods
▪ Delivering the finished product from point of origin to point of destination

The distribution chain

- Manufacturer: the person who converts the raw materials onto finished goods or
services.
- Wholesaler: the person that stores the goods and then sells them to the relailer (also
packaging and labeling)
- Retailer: the person that sells the goods to the end consumer
- Consumer: the person who uses the end product.

Multimodal transport
- Multimodal transport refers to a situation where goods are transported under a single
contract. The carrier is responsible for the entire carriage, even though it is performed
by several modes of transport.

Intermodal transport
- Intermodal transport involves using several modes of transport where each of the
stages will involve a contract with a different carrier. The goods are sealed in one
container for the whole journey.
Modes of transport

Types of Transport Advantages Disadvantages

Air -Cheap when carrying -Expensive when carrying

small valuable items. heavy goods and fuel is
- Quick expensive

Rail -Cheaper for bulk -Expensive to install

-Slow

Road - Fast for short -Expensive for long

distances distances.
- Can reach all -Traffic jams cause delays
destinations within
a country

Marine -Cheap - Slow

Suitable for bulky and
heavy goods

Pipeline -Best to transport water, -High installment cost

oil or gas

Transport Documents

- Import license – an international document given by the government to the

manufacturer or trader, permitting to trade with other countries.
- Bill of lading – a document that represents the title of goods while in transit. It is the
receipt for goods shipped. It is issued as evidence of the contract of carriage.
- Airway bills – this document is used in the transportation of goods by air.

The role of transport in marketing:

- To fast-track sourcing of commodities.
- Ensure security of supply.

Cost reduction Importance of transport in domestic, regional and foreign trade:

- It brings the goods from producers to final consumers
- It carries raw materials and food to the factory
- It increases employment
- It makes a variety of goods available to consumers
Advantages of Supply Chains
 - Better quality of life (People can enjoy more goods from a wider range of
sources, giving more choices and variety, often at lower prices)
- New and Innovative job opportunities (new jobs are created through supply
chain work)
- Wealth Creation (Effective supply chains enable countries to become
wealthier, which in turn means that standards of living can rise)

Disadvantages/Challenges
- Globalisation
- Natural Disasters
- Counterfeiting
- Rapid product obsolescence

Impacts of logistics and supply chain operations:

- Logistics improve competitiveness
- Competitive advantage, allows a business to outperform its competitors.
- Comparative cost advantage outsourcing through Second Party, Third-Party, Fourth
Party (eg. imported concentrates)

Problems encountered in distribution:

- Relationship between the availability of airport, harbour, docking facilities and the
efficient distribution of goods
- Delayed shipping
- Spoilage
- Misdirection of goods
- Inadequate warehousing facilities
- Lack of proper security measures
- Industrial unrest
- Ineffective communication

Measures to mitigate problems, including but not limited to:

- Government intervention – adequate funding for port facilities and improvement of
roadwork.
- Communication networks including the use of the internet among all parties should
be implemented.
- Insurance to cover losses
- Selecting the most appropriate channel of distribution based on product
- Use handling services with a good reputation
- Avoid handling large stocks.
- Careful labelling and documentation 8. Employing a security company, use of
security cameras
Forms of Technology
- Global Positioning System (GPS): A satellite navigation system used to locate your
destination or current position.
- Geographic Information System (GIS): – designed to capture, store, analyze, manage
and present geographic data
- Portnet – for fast and reliable connections
- Telemarketing, e-commerce
- Global logistics providers such as FedEx, DHL, and Amazon Logistics
- Logistics hubs such as ones in Jamaica

Chapter 10- Technology and the Global Business Environment

Business Technology

- Business technology refers to the application of science, data, engineering and

information for business purposes, such as the achievement of economic and
organizational goals. The main element of technology is the idea of change, and how
it can affect business and society.
information Communication Technology (ICT) ICT is considered to be all uses of digital
technology that exist to help individuals, businesses and organizations use information. So ICT is
concerned with the storage, retrieval, manipulation, transmission or receipt of digital data.

The Role of ICT in Business

- Storage of data – Most business records can now be stored in a central digital
database or a set of Microsoft Word files.
- Retrieval of data – Employees often need to retrieve records to find key information,
such as customer address or whether a bill has been paid on time. -
- Manipulation of data – This involves adding to data or changing it so that it is better
organized and easier to read. Records can be added to or altered quickly by making a
few simple entries on a keyboard.
- Transmission or receipt of data – ICT makes it very easy to send and receive data,
such as emails.

Ways in which technology has influenced banking and commerce

- Through electronic commerce (E-commerce)- using the internet, individuals are now
able to make transitions via the world wide web without having to visit a bank.
- Through the introduction of Automatic Teller machines (ATMs) and Automated
Banking machines (ABMs) which facilitates deposits and withdrawals of funds
withouting needing to go to the bank..
 - The practice of online bankingwhich enables customers to access their accounts from
home and other locations by using electronical devices.
Types of ICT used in business

Traditional Tools
- Microsoft Word
- Microsoft Excel
- Database Software: Microsoft Access
- Presentation Software: PowerPoint and Prezi
- Graphics Software: Adobe and Photoshop

Specialist Applications
- Quick books
- Computer Aided Design (CAD)
- Management Information Systems (MIS)

Digital Communication Technologies

- The internet
- Mobile technology (cell phones)

Difference between E-commerce and E-business

- E-Commerce refers to conducting online transactions while E-Business encompasses

all the business activities and services conducted using the web.

Ways in which technology can improve business:

- Speed and time (helps to carry out operationsmuch more quickly)

- Easier storage management (large quantity of information can be stored)
- Improved sharing of information (information can be easily shared through LANs
and the internet)
- Automation – the use of a wide range of technologies that reduce human intervention

Benefits of technology to businesses:

- Reach more potential customers and develop business relationships with potential
customers
- Provide better service to customers by providing more customer focused experiences
- Streamline operations, reduce costs, improve efficiency, maximise profits, and
minimise wastage
- Allow customers to better guide the business (getting their feedbacks on their services
and way on how to improve the business)
 - Support better relationships with key partners
- Reduce costs
- Maximize profits
- Streamline operations

Consequences of unethical use of ICT:

- Security
- Privacy
- Intellectual property infringement
- Impact on humans
- Distraction

What is the standard of living?

- Standard of living refers to those factors that indicate a country’s wealth.

Indicators of a country’s standard of living:

- Level of consumption of goods and services
- Average disposable income of the population
- Level of national ownership of capital employed
- Access to modern technology ▪
- Level of investment in research and technology

What is the quality of life?

- Quality of life refers to the extent to which the population of the country enjoys the
benefits of its wealth.

Indicators of a country’s quality of living:

- The extent of security enjoyed
- Availability of educational, health and recreational activities (greater access to these
will improve the quality of life.)
- Diet and nutrition (If people are not having healthy meals, then their diet and nutition
will be poor and the quality of life will fall)
- Life expectancy (Averge number of years a person is expected to live for)
- Access to public utilities such as electricity, potable water, technology
- Rate of infant mortality (death among infants)

Definitions:
- National Income (NI) – The total monetary value of all goods and services.
- Gross Domestic Product (GDP) – The total monetary value of goods and services
produced within a country’s borders in a specific time period.
- Gross National Product (GNP) – The total monetary value of goods and services
produced using ONLY the resources owned by residents of a country, regardless of
wherever these resources are located.
 - Per Capita Income (PCI) – Average income earned per person in a given area.

What is economic growth?

- The economic growth of a country may be seen as an increase in the productive
capacity of the economy. It provides a means of achieving higher living standards as
more goods and services are provided

What is economic development?

- Economic development may be seen as the reduction and eventual elimination of
unemployment, underemployment, poverty and inequalities in the distribution of
wealth and income.

Factors affecting growth and development:

- Rate of investment
- Rate of increase in the working population
- Technical training and education
- Migration
- Government expenditure

How education can improve the workforce leading to increased output:

- It helps to improve the knowledge and skills of the workforce.
- Better educated people are more able to adapt to changes that are necessary for a
developing economy.
- Education makes people more literate, which is important for communication skills.

Reasons why countries trade with each other:

- A country may not be able Cto produce the goods and services they need in quantities
or of the quality that they require.
- One country may not be endowed with certain assets or have the natural resources
such as land, labour, capital or enterprise to produce the goods that they need.
- A country may not have the climate to grow certain foods and have to depend on
trade to get them. (e.g. Wheat in the United States, Apples in Canada)
- International Trade allows for foreign investment allowing one country to invest
money in foreign companies and other assets.

Major Economic Institutions and Systems

- Carribbean Community (Caricom)- Its objective is to promote economic
integration and cooperation among its members, to ensure that the benefits of
integration are equitably shared and to coordinate foreign policy.
- Functions include: to improve the standard of living; working for coordinated and
sustained economic development.
 - Caribbean Single Market Economy (CSME)- It is an arrangement among the
CARICOM states for the creation of a single enlarged economic space through the
removal of restrictions resulting in the free movement of goods, services, capital, and
technology.
- Caribbean Development Bank (CDB)- The CDB is a financial institution that
helps Caribbean nations finance social and economic programmes in its member
states.
- International Bank for Reconstruction and Development (IBRD) -The IBRD is
an international financial institution and the largest development bank.
- The bank aim is to reduce poverty in middle-income and creditworthy poorer
countries by giving development through loans, guarantees and risk management
product

- World Bank - The world bank is an international financial institution that provides
loans and grants to the government of low and middle-income countries to pursue
capital projects.
- International Monetary Fund (IMF) -The International Monetary Fund is an
international organization that aims to promote international financial stability and
monetary cooperation. It also facilities international trade and helps to reduce global
poverty. g)
- World Trade Organization (WTO) - The WTO is the only international
organization that deals with the global rules of trade. Their main objective is to ensure
that trade flows as smoothly, predictably and freely as possible.

- Organization of American States (OAS) -The OAS is primarily focused on

promoting democracy, coordinating security and law enforcement operations,
providing technical and financial assistance for development projects, and monitoring
human rights through the inter-American legal system.

The impact that each of these institutions/agreements can have on the Caribbean:
- Lead to economic growth and development by providing a single space for the
production of competitive goods and services.
- It can attract investment opportunities.
- Access to more affordable raw materials or goods and services.
- Better chance of developing at a faster pace by sharing expertise and resources.
- Cooperating in areas of health, education and technology.

Major economic problems in the Caribbean:

- Unemployment – in some cases even underemployment.
- Population density – is the number of individuals per unit geographic area.
- Migration – the movement of people to foreign countries.
- Debt burden – external debts incurred by the government of developing countries.
- Sourcing Capital and raw materials
 - Economic dualism – where some countries are more technologically advanced while
others are technologically retarded

Possible solutions to economic problems:

- Access to Foreign Direct Investment (FDI) – when foreign investors setup up a
business in the country.
- Development of human resources – training and education.
- Development of manufacturing, distribution and export sectors
- Development of technology to generate economic activity

Foreign investment can be split up into two main types:

- Foreign Direct Investment – an investment in the form of a controlling ownership in a
business in one country by an entity based in another country

- . Foreign Indirect Investment – involves corporations, financial institutions and

private investors buying stakes in foreign companies that trade on a stock exchange. It
includes not only equity instruments such as stocks, but also debt instruments such as
bonds.

Positive impacts of foreign investment in the Caribbean:

- Helps reduce the unemployment rate
- Increases government’s revenue through taxation
- Helps to improve the balance of payment
- Increases capital

Negative impacts of foreign investment in the Caribbean:

- Most of the profits are sent to the foreign country
- In the long run, the balance of payments will deteriorate
- Foreign investment has the potential to create a dual economy

What is the balance of trade?

- Balance of trade (BOT) is the difference between a country’s total imports of goods
and services for a period. It is an important element of the balance of payments.
- When the export is greater than import, it is said to be favourable as a surplus has
been experienced.
- When the export is less/imports are greater than exports, the difference is said to be
unfavourable or adverse and a loss or deficit has been experienced.

What is the balance of payments?

- Balance of payments (BOP) is a tabulation of all credit and debit transactions
of the country with foreign countries during a specific period.
The balance of payments is a statement recording the difference of all payments made to
foreign countries and the total payments received from them.

The balance of payments includes:

- Current account – this records the trade in goods and services.
- Capital account – this records flows for investment and saving.

Correcting an unfavourable balance of payments:

- Drawing on the IMF
- Soliciting loans from abroad
- Borrowing from another country
- Selling assets
- Devaluation
- Drawing on reserves
- Import control
- Quotas