Concept of Business Environment and Business Ownership

Study Session 1 The Concept of Business
MODULE ONE
THE CONCEPT OF BUSINESS, ENVIRONMENT AND BUSINESS

OWNERSHIP
1.1 Learning Outcomes:
After studying this module you should be able to;
• Define business.
• Describe business environment
• Discuss the components of the business environment
• Differentiate between internal and external environments
• Discuss environmental analysis
• Outline and explain the various stages of environmental analysis
• Discuss the various types of business organisations/ownership
• State the advantages and disadvantages of the various forms of ownership
• Differentiate between Entrepreneur and Entrepreneurship
• State characteristics of successful entrepreneurs
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Introduction
Are you a business man or woman? Can you think of any business man or woman you know?
Do you know what business men and or women do even if you are not one? Your response
would probably be that they engage in trading or buying and selling? Well then, let us see
what this unit has in stock. In this unit you will learn the concept and definition of business,
state the purpose of business while an insight will be drawn into the Nigerian economy and
business objectives and the classification of business will also be dealt with.
Learning Outcomes for Study Session 1

When you have studied this session, you should be able to:
1.1. Define and use correctly all of the key words printed in bold (SAQ 1.4)
1.2. Define Business and State the Purpose of Business (SAQ 1.4)
1.3. Explain the Nigerian Economy and Business(SAQ 1.1)
1.4. Summarise the Business Economic foundations (SAQ 1.3)
1.5. Describe the different Categories or Classification of Business (SAQ 1. 2)
1.1 Definition of Business

Business has been defined in various ways by various schorlars. Some authors have defined
Business as “an organisation set up to make profit”; others described it as “an organization
consisting of a person or a group of persons who produce and distribute goods and services
for private profit”. It has also been viewed as an economic system in which goods and
services are exchanged for one another or money, on the basis of their perceived worth
(BusinessDictionary.com, 2010). Karimu (1992) defines Business as “the sum of all the
activities involved in the creation and distribution of goods and services for private profit”. It
is also conceived as a legally recognized organization. Business could be referred to as: an
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enterprise, business enterprise, commercial enterprise, company, firm, organization,

profession or trade operated for the purpose of earning a profit by providing goods or
services, or both to consumers, businesses and governmental entities (Sullivan and Sheffrin,
2003; AllBusiness.com., 2010). Business is therefore any legal means of satisfying human
wants with the motive of profit. When people engage in illicit deals and make abnormal
income it is not business. When people engage in criminal and fraudulent activities to enrich
themselves it is not business. Business must be seen as rendering legal services or producing
goods at a cost.
1.2 The Purpose for business

Every human activity has a purpose or else it will not be useful. I am sure you have a purpose
for living or you are living to fulfil a purpose. Likewise, the major essence or purpose of
business is the supply of goods and services in order to satisfy the societal needs (Isimoya,
2005). The aggregation of people in a place will necessitate the need for goods and services.
Needs, going by Abram Maslow’s hierarchy of needs, could be physiological, psychological
security, social/belongingness, esteem or self actualization. It is expected that these needs
will be provided by the institutions best suited to provide them. For instance, essential and
infrastructural needs will be provided by the state (local, state and federal), belongingness or
friendship needs will be provided by the family and the society one belongs to, spiritual need
which may fall under social or belongingness need will be supplied by the church etc. In the
same vein, business will provide economic goods and services to satisfy human wants. This
human wants may cut across the various hierarchy of needs as stated by Abram Maslow and
the others. For instance, business people who are into the manufacturing of cars realized the
importance of class and status distinction (esteem needs) and decided to segment the market
for cars. The richest of the rich go for the hummer cars and the likes, while the poor go for
fairly used (tokunbo) cars and the likes. The motives for satisfying needs by the various
institutions differ. As you know an institution like the church is spiritually motivated,
government is politically motivated, while business is profit-motivated. A business cannot
long exist if it does not make profit to enhance its existence. Possible the first few months of
business operation may not see the profit rolling in, but for its long term sustenance and
existence, it must make profit. Every institution therefore serves a purpose in terms of need
satisfaction.
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• You have just learnt the meaning of business. Do you think someone hired to
kill another for a pay is into business?
o No. Hire killing for a pay is an illegal deal and does not reflect the true
meaning of business.
1.3 Brief history of business development in Nigeria

Trade or business is as old as man itself. In the primitive era or Stone Age, individual family
units provided goods and services through what is called trade by barter where someone who
needs meat exchanges his own produce, say yam with a hunter who probably requires the
yam. The means for exchange today is through the accepted Nigerian currency or any other
currency in which the business is transacted. In the pre-colonization era, trade went on
successfully in the historical kingdom or empires such as Kanem-Bornu, Oyo and Benin.
The economy thrived on agriculture, craft and commercial activities. Trans-saharan trade
also flourished with the Portuguese where nations traded in commodities such as gold, ivory,
kolanuts, salt, shares, in exchange for items that were brought in by the Portuguese. When
Britain colonized Nigeria, trade with the British was bolstered while the British industrialists
needed raw materials such as palm oil, groundnuts and cocoa (which were cheaply produced
in West Africa) for their industries. They also needed trading outlets, i.e. commercial
opportunities for their finished goods. The nation’s economic and trading activities were
controlled by the Europeans. With the indigenization decree of 1972 and government’s direct
involvement in ownership of business, the control has shifted from Europeans to Nigerians
(Isimoya, 2005). The Nigeria Enterprises Promotion Decree of December 1989 permits
a 100% foreign ownership in any new venture except those involved in the production of
arms and ammunitions (UHY, 2008). The Nigeria Free Trade Zone Act established the
Nigerian Export Processing Zone Authority (NEPZA). In the Free Trade Zones
(FTZ’s), as renamed in 2001, all products and services are designated for export with
specific exceptions . Enterprise zones are exempted from custom duties, local taxes and
foreign exchange restrictions, and qualify for incentives – tax holidays, rent free land, no
strikes or lockouts, no quotas in the EU or US markets (UHY, 2008).
1.4 Business and Economic Foundations

Economics is the study of how resources are distributed for the production of goods and
services within a social system (Ferrell, Hirt and Ferrell, 2008). The types of resources
available as you know are the natural resources, human resources and financial resources.
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The natural resources include land, forests, minerals, water, and other things that are not
made by people; the human resources which is essentially labour is the physical and mental
abilities that people use to produce goods and services. People working in an organization are
the human resources of that organisation. Financial resources referred to as capital are the
funds used to acquire the natural and human resources needed to provide products. These
resources are also called the factors of production because they are used to produce goods
and services.
Economic Systems
An economic system describes how a given society distributes its resources to produce goods
and services. What is important in economics is how to satisfy the unlimited yearning for
goods and services in a world of limited or scarce supply of resources. Different economic
systems attempt to resolve this basic issue in diverse ways. The various economic systems
though different in the handling of the distribution of resources must address three crucial
issues as expressed by Ferrell et al (2008) thus;
1. What goods and services to be produced, and how much of each will satisfy
consumers’ needs?
2. How goods and services will be produced, who will produce them, and with what
resources will they be produced? and
3. How are the goods and services to be distributed to the consumers?
There are basically three types of economic systems found in the world today. These are
Communism, Socialism, and Capitalism.
Communism by Karl Marx (1818-1883) was first described as a society in which the people,
without regard to class, own all the nation’s resources. In Karl Marx’ ideal political-
economic system, everyone contributes according to ability and receives benefits according
to need. In this type of economy, the people (through the government) own and operate all
business and factors of production. Central government planning determines what goods and
services satisfy citizens’ needs, how the goods and services are produced, and how they are
distributed. This system was previously practiced in Russia, Poland, Hungary, and other
Eastern European nations. However, no true communist economy exists today that satisfies
Marx’s ideal. Or can you name one?
Socialism is closely related to communism. Socialism is an economic system in which the
government owns and operates basic industries such as postal service, telephone, utilities,
transportation, health care, banking, and some manufacturing, but individuals own most
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businesses. Central planning determines what basic goods and services are produced, how
they are produced, and how they are distributed. Individuals and small businesses provide
other goods and services based on consumer demand and the availability of resources. As
with communism, citizens are dependent on the government for many goods and services.
Examples of socialist nations are Sweden, India, and Israel. They are democratic and
recognize basic individual freedoms. Citizens can vote for political offices, but central
government planners usually make decisions about what is best for the nation.
Capitalism or free enterprise is an economic system in which individuals own and operate
the majority of businesses that provide goods and services. Competition, supply, and demand
determine which goods and services are produced, how they are produced, and how they are
distributed. The United States, Canada, Japan, and Australia are examples of economic
systems based on capitalism. There are two forms of capitalism: pure capitalism and
modified capitalism. In pure capitalism also called a free-market system, all economic
decisions are made without government intervention. This economic system was first
described by Adam Smith in “the Wealth of Nations” (1776). Smith, often called the father of
capitalism, believed that the invisible hand of competition best regulates the economy. On the
other hand, modified capitalism states that the government intervenes and regulates business
to some extent. One way of doing this is through enactment of laws and policies on the
economy. This can be viewed as what is referred to in today’s world as the Mixed
Economies. No country practices a pure form of communism, socialism, or capitalism,
although most tend to favour one system over the others. Most nations operate as mixed
economies, which have elements from more than one economic system.
• Each nation develops along one economic system or the other. Can you say on
which system Nigerian’s economy is built?
o Nigeria’s economic system is built on modified capitalism or mixed economic

system because government intervenes and regulates business to some extent.
1.5 The Nigerian Economy and Business

Remember that in the preceding section, you were asked to name Nigeria’s economic system.
Now study it in the following segment.
Nigeria runs a mixed economy which is an economic system that is in between a capitalist
(free market or free enterprise) economy and a socialist (pure planned) economy. A mixed
economy entails that the government accepts a degree of ownership of the means of
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production, e.g. land and capital, and also influences the key economic variables like interest
rate, exchange rate and the maintenance of sound financial regulations. Government is also
involved in direct supply of utilities like water, electricity, roads, power, postal services,
telecommunication, etc. These are vital economic institutions whose activities are very basic
to the total economic system.
Government involvement in the provision of goods and services (both as commercially-
oriented as well as socially-oriented) is stated in the Nigerian Second National Development
Plan (1970-74:75) where the reason for public enterprise or state owned enterprise
establishment is given thus:
Their (Public enterprise) primary purpose is to stimulate and accelerate
National economic development under conditions of capital scarcity and
structural defects in private business organizations. There are
also basic considerations arising from the dangers of leaving vital
sectors of the national economy to the whims of the private sector
often under the direct and remote controls of foreign large scale
industrial companies.
The mixed economy also has its legal backing in the 1979 Nigerian Constitution which states
that “the state shall control the national economy in such a manner as to secure the maximum
welfare, freedom and happiness of every citizen on the basis of social justice, equality of
status, and opportunity; the state shall manage the major sectors of the economy (defence,
currency, export/import, aviation, military, railway, mineral resources, etc., and may take
active part in other sectors like education, electricity, water resources, agriculture, etc)”.
It is evident from the above, that in Nigeria the state and her agencies, as well as the private
investors, are involved in the supply of goods and services that meet the society’s needs. The
objective of the state obviously is to promote maximum welfare, freedom and happiness, as
stated in the constitution, while that of private business investors is to maximize profit. The
effect of government objective is felt in the provision of essential services, infrastructural
facilities, and employment opportunities among others. Aside from the generally accepted
profit motive of private business, Isimoya (2005) states that there are other objectives of
business and this include:
i. Innovation: introduction of new products or services
ii. Productivity: Business aims at enhancing productivity i.e. the ratio of input to output.
An increase in productivity can be measured in terms of output per labour
employed, and output per capital employed, which show the extent to which the
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business is able to effectively utilize a set of resources to achieve the highest

possible value of output.
iii. Employees’ satisfaction: Business seeks to enhance employees’ satisfaction, so as to
optimize contributions to business well-being.
iv. Shareholders’ Satisfaction: increase in dividends and reduction in business risk
exposures.
v. Social responsibility: Business aims at identifying with the locality in which it
operates.
vi. Stakeholders’ Satisfaction: Apart from employees and shareholders who are directly
involved in the running of business, there are other stakeholders every business
outfit strives to satisfy, such as:
- Consumers: These are people who buy the goods and services produced.
- Suppliers: They supply the inputs to business
- Distributors: They distribute the goods produced by business
- Government: The government legally regulates the business operations so
that individual’s rights would not be infringed upon.
- Pressure Groups/General Public: They are the recipients of all that the
business produces and assess the positive and possible negative impacts on the
society.
1.6 Categorization of Business

Business has been classified in various ways by various people. In this study, business shall
be classified using the type of customers, type of goods produced and industry characteristics
as stated by Isimoya (2005).
a. Type of customers: The customers of a business may either be end-users or those
who use the products to further their own production. In this case, the output of one
business becomes the input of another. For instance, an ice block producer will
require nylon produced by plastic companies to be able to fill water in it and produce
ice block. In a situation like this, the former, whose output is used as input by the
other, is an intermediate/industrial goods producer while the other whose product goes
to the end-users are called consumer goods producers. From the example given, the
nylon producer is an intermediate/industrial goods producer while the ice block
producer could be termed the consumer goods producer.
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b. Type of Goods Produced: Business can be classified according to the kind of goods
produced. Some business produce goods that are termed durable or specialty goods,
e.g. machines, electrical appliances, motor vehicles, aeroplanes, etc., while other firms
produce non-durable or convenience goods that are consumed within relatively short
periods of time, such as food items, cigarettes and paper products.
c. Industry Type: Businesses can be classified by industry characteristics thus:
i) Extractive Industry: This is a group of business firms whose primary
activities involve mining, fishing, forestry, farming, quarrying, drilling, etc.
ii) Manufacturing Industry: This is composed of businesses whose primary
purpose is to convert items (goods) in the crude state to a more useful state.
The manufacturing group gets the inputs (raw materials) from the extractive
industry, and then processes either by reshaping or refining them to enhance
their utility.
iii) Construction Industry: This comprises businesses involved in building
infrastructure like roads, bridges, houses, office blocks, seaports and airports,
stadia, to mention but a few.
iv) Commercial Industry: The activities engaged in these organizations serve as
facilitators of business. Examples are the banks, insurance companies,
wholesale and retail trade organizations, real estate companies, transportation
firms, etc.
v) Service Industry: This is another segment of business in our country. The
service industry is growing in importance with every passing day. Unlike the
basic industries, the service industry does not produce physical goods, yet it is
very productive through services which are demanded and paid for by
consumers and businesses alike. Examples are entertainment and recreation,
hotels and lodging, laundry and general cleaning, engineering and other
professional services, as well as automobile repair. Others are educational
institutions, religious and social organizations, medical and health services
business and domestic services.
• Supposing your company decides to engage in the cleaning of offices for other
companies and individuals for a pay, what kind of industry does that fall
within and how many ways can you classify your kind of business?
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o The cleaning business will fall under the service industry, and can be
classified using the industry type or customers’ type.
1.7 Why Study Business

Every purposeful activity must have a reason. For example you must have a reason for
enrolling in a degree programme. You must also have a reason for choosing business
administration as a course of study. Can you state your reason for studying business?
Read further. Studying business can help you develop skills and acquire knowledge to
prepare for your future career, regardless of whether you plan to work for a multinational
firm, start your own business, work for a government agency, or manage or volunteer at a
non-profit organization (Ferrell, Hirt & Ferrell, 2008). The business field offers a variety
of interesting and challenging career opportunities throughout the world such as human
resources management, finance, production and operations, wholesaling and retailing and
many more.
The study of business helps us to understand better the many business activities that are
necessary to provide satisfying goods and services and that these activities have their cost.
For instance most businesses charge a reasonable price for their products to ensure that
they cover their production costs, pay their employees, provide their owners with a return
on their investment, and perhaps give something back to their local communities.
The activities of business help generate the profits that are essential not only to individual
business and local economies but also to the good or betterment of the world at large.
Without profit, business will find it difficult, if not impossible to expand its scope, buy
more raw materials, hire more employees, attract more capital, and create additional
products that in turn make more profits and fuel the global economy.
Summary of Study Session 1

In this Study Session, you have learnt the concept of business and the various definitions
of business. Business was defined as any legal means of satisfying human wants with the
aim of making profit. You have also examined the purpose for business which includes
the provision of goods and services with a profit motive as well as satisfying other
stakeholders. The brief history of business development in Nigeria as well as the
economic foundations of business and the various economic systems was briefly
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examined. Business was categorized according to its customer type, good or product type,
and industry characteristics.
Self Assessment Questions for Study Session 1

Having completed this study session, can you now assess how well you have achieved its
learning outcomes by answering the following essay and multiple choice questions.
Essay
SAQ 1.1 (tests Learning Outcomes 1.3)
Give a brief account of the Nigerian economy and business

Write short notes of not more than three sentences each on the different categories or
classification of business
Outline and illustrate the economic foundations of business
SAQ 1.4 (tests Learning Outcomes 1.1 and 1.2)
Define Business and state the purpose of business
Multiple Choice Questions

Fill in the gaps with the most appropriate option.
1. ................ is a group of business firms whose primary activities involve mining,

drilling, forestry, farming, quarrying etc.
(a) Construction Industry
(b) Manufacturing industry
(c) Extractive industry
(d) Service industry
2. .................. can be viewed as an economic system in which goods and services are
exchanged for one another or money, on the basis of the perceived worth.
(a) Business
(b) Contract
(c) Marketing
(d) Commerce
3. One of these is not a method of classifying business
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(a) types of customers

(b) types of goods produced
(c) industry characteristics
(d) company’s name
4. This industry does not produce physical goods but yet very productive through work
done for others which are demanded and paid for by customers.
(a) Extractive industry
(b) Service industry
(c) Commercial Industry
(d) Construction industry
5. All the following are objectives of business except

(a) Enhance employees’ satisfaction
(b) Focus on customer satisfaction
(c) Utility creation
(d) make profit any how
Questions 1 2 3 4 5
Answers C A D B D
References and Suggestions for further readings

1. Ferrell, O. C., Hirt. G. And Ferrell, L. (2008). Business A Changing World. 6th Ed.
New York, McGraw Hill Pub.
2. http://www.businessdictionary.com/searchterms.php?q=What+is+business#ixzz1lryKNdYR
3. http://www.allbusiness.com/glossaries/business/4959436-1.html
4. Isimoya, A. O. (2005). Nigerian Business Environment: An Introduction. Lagos.
Concept Publications Ltd.
5. Urbach Hacker Young (UHY) 2008. Doing Business in Nigeria
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Should you require more explanation on this study session, please do not hesitate to contact
your e-tutor via the LMS.
Are you in need of General Help as regards your studies? Do not hesitate to
contact the DLI IAG Center by e-mail or phone on:
iag@dli.unilag.edu.ng
08033366677
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Study Session 2 The Business Environment
Introduction
In study session 1 we looked at the concept of business, economic foundations on which
business was built and the classification of business. Every business operates within a given
environment, the environment affects business and business also affects the environment.
Business and the environment have a symbiotic relationship. Since business and environment
are interrelated, it is important for you as a business student to understand the inter-
relatedness so as to position your self properly for business decision making in a changing
environment. In this study session, you will be exposed to the meaning of business
environment and the components of business environment. You will also learn the
composition of the two major environment (the internal and external environment) and be
able to differentiate between the two. The importance or need for business managers to
understand their environment will also be examined while not leaving out the characteristics
of business environment. Please read on.
Learning Outcomes
After studying this session, you should be able to;
2.1 Define and use correctly all of the key words printed in bold (SAQ 2.1 and 2.3)
2.2 Define Business Environment (SAQ 2.3)
2.3 State the components of business environment (SAQ 2.3)
2.4 Distinguish between internal and external environment (SAQ 2.1)
2.5 Explain the importance of understanding the environment (SAQ 2.2)
2.6 List and explain the three characteristics of business environment (SAQ 2.4)
2.1 The Concept of Environment

We all live in an environment and also work in different environments. Some environments
are friendly, others are not. Our environment affects the way we live and work. It is known
that the environment also affects our health or well being. We need to comprehend our
environment in order to live and operate effectively. For instance, businesses in the south
west region of Nigeria tend to be enjoying more friendly business environment than those in
the Niger Delta or the South South region of Nigeria which has been experiencing unrest,
disturbances, kidnap, hostage holding and the likes. In the recent time, businesses in
especially the North Central region of Nigeria may be relocating or folding up due to killings,
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bombings, and general unrest existent there now. The environment is no longer conducive for
doing business.
Environment literally means the surroundings, external objects, influences or circumstances

under which someone or something exists (Kazmi, 1999). The environment within which
something exists exhibits certain characteristics which have been identified by Kazmi (1999)
to be: complexity, dynamism, multifaceted and far-reaching impact. In the context of
business, the environment refers to the sum of internal and external forces operating in an
organization.
2.2 The Concept of Business Environment

The business environment is simply the surroundings within which a business exists.
Business environment embraces all institutions, organisations and individuals whose
activities have an impact, whether directly or indirectly, on business behaviour (Ifechukwu,
1986). The type of business activity that exists in a particular place or community, state or
country is to a great extent determined by the law, beliefs, needs and attitudes of that
community. The interrelationship between business and the community where it operates
constitutes the environment. Business environment differs from state to state, region to
region, and country to country. Some environment may be favourable while others may be
hostile.
• The environment of business cannot be said to be the same in states, regions and
countries. If you are asked to situate your business in Nigeria choosing from the two
regions earlier mentioned (South West and South South) which of the regions would
you prefer and why?
o I would prefer the South west region for now because of the relative peace which
exists in the environment. The South South region is still witnessing unrest and
disturbances.
2.3 Components of the Business Environment – An overview

Business environment has been classified by different scholars using various bases or criteria.
However, it should be noted that the business environment is made up of the internal and the
external environment. The external environment is further divided into two - Macro and
Micro Environment. The macro environment is regarded as the general environment while
the micro environment is regarded as the specific or task environment. The internal
environment could be termed the controllable environment while the external environment is
seen as uncontrollable. These environments are discussed briefly below.
2.3.1 Internal Environmental Factors
The internal environmental factors refer to those factors over which the management of the
business has control, at least in the short run; this is why it is also called the controllable
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environment of the business. The internal environment of business is made up of all those
physical and social factors within the boundaries of the business, which impart strengths or
cause weaknesses of a strategic nature and are taken directly into consideration in the
decision-making behaviour of the business. Strengths are inherent capacities, which a
business can use to gain strategic advantage over its competitors; they are the internal strong
points of the business such as: its core skills, competencies and expertise. While weaknesses
are inherent limitations or constraints, which create strategic disadvantages, they are the
internal factors that are lacking in the business. A successful manager will find ways of
overcoming the weaknesses and convert them into strengths (Ifechukwu, 1986; Kazmi, 1999;
Business-Plan, 2010).
The internal environment of the business is made up of micro-environmental factors such as

organizational goals and objectives, specific technologies utilized by component units of the
organization, the size, types and quality of personnel, its administrative units, and the nature
of the organization’s product/service (Ifechukwu, 1986). The nature of a business internal
environment is also determined by the organizational resources, organizational behaviour,
strengths, weaknesses, synergistic relationships and distinctive competence (Kazmi, 1999).
In Kazmi’s (1999) view:
Organizational resources are the physical and human resources used as inputs in the
organization to create outputs.
Organizational behaviour is the manifestation of the various forces and influences

operating in the internal environment of an organization.
Strengths are inherent capabilities that give strategic advantage.
Weaknesses are inherent limitations or constraints, which create strategic disadvantage.
Synergy is an idea that a combined effort is greater than mere summation of the efforts of the
individual parts. The result of working together of two or more people, organisations, or
things is usually greater than the sum of their individual effects or capabilities.
Distinctive competence: The specific ability possessed by a particular organization that

distinguishes it from others.
Organizational capability: This is the inherent capacity or ability of an organization to use

its strengths, and overcome its weaknesses in order to exploit opportunities and face threats in
its external environment. The component of the environment is depicted in figure 1.1 below.
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Fig. 1.1: Components of the Business Environment
Source: http://courseware.finntrack.eu/tutors/strat_cases_teaching.html
2.3.2 External Environmental Factors
An organization operates within the larger framework of the external environment that shapes
opportunities and poses threats to the organization. The external environment is a set of
complex, rapidly changing and significant interacting institutions and forces that affect the
organization's ability to serve its customers. External forces are not controlled by an
organization but they may be influenced or affected by the organization. It is necessary for
organizations to understand the environmental conditions because they interact with strategy
decisions. The external environment has a major impact on the determination of marketing
decisions. Successful organizations scan their external environment so that they can respond
profitably to unmet needs and trends in the targeted markets.
Internally, an organization can be viewed as a resource conversion machine that takes inputs
(labour, money, materials and equipment) from the external environment (i.e., the world
outside the boundaries of the organization), converts them into useful products, goods, and
services, and makes them available to customers as outputs. The organization must
continuously monitor and adapt to the environment if it is to survive and prosper.
Disturbances in the environment may spell profound threats or new opportunities. The
successful organization will identify, appraise, and respond to the various opportunities and
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threats in its environment. The external environment is divided into two – macro and micro
environment. The macro environment is referred to as the general or remote environment
while the micro environment is seen as the specific or task or operating environment. Read
further to see the description of these environments.
2.3.2.1 Macro environment (General or Remote Environment)
The external macro environment consists of all the outside institutions and forces that have
an actual or potential interest or impact on the organization's ability to achieve its objectives.
This includes the economic, technological, political, legal, social, cultural, demographic and
ecosystem. Though non-controllable, these forces require a response in order to keep positive
actions with the targeted markets. An organization with an environmental management
perspective takes aggressive actions to affect the forces in its marketing environment rather
than simply watching and reacting to it.
Economic Environment The economic environment consists of factors that affect consumer
purchasing power and spending patterns. Economic factors include business cycles, inflation,
unemployment, interest rates, and income. Changes in major economic variables have a
significant impact on the marketplace. For example, income affects consumer spending
which affects sales for organizations. According to Engel's Laws, as income rises, the
percentage of income spent on food decreases, while the percentage spent on housing remains
constant.
Technological Environment The technological environment refers to new techniques or

methods which are used to create new product and market opportunities. Technological
developments are the most manageable uncontrollable forces faced by marketers.
Organizations need to be aware of new technologies in order to turn these advances into
opportunities and a competitive edge. Technology has a tremendous effect on life-styles,
consumption patterns, and the economy. Advances in technology can start new industries,
radically alter or destroy existing industries, and stimulate entirely separate markets. The
rapid rate at which technology changes have forced organizations to quickly adapt in terms of
how they develop, price, distribute, and promote their products.
Political and Legal Environment Organizations must operate within a framework of

governmental regulation and legislation. Government relationships with organizations
encompass subsidies, tariffs, import quotas, and deregulation of industries. You can readily
recall the subsidy removal strategy of the present government (January 2012) and the reasons
advanced for it. The political environment includes governmental and special interest groups
that influence and limit various organizations and individuals in a given society.
Organizations hire lobbyists to influence legislation and run advocacy adverts that state their
point of view on public issues. Special interest groups have grown in number and power over
the last three decades, putting more constraints on businesses. The public expects
organizations to be ethical and responsible. In the U.S. for instance, an example of response
by marketers to special interests is the green marketing, the use of recyclable or
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biodegradable packing materials as part of marketing strategy. The major purposes of

business legislation include protection of companies from unfair competition, protection of
consumers from unfair business practices and protection of the interests of society from
unbridled business behaviour.
Demographic Environment Demographics tell marketers who current and potential

customers are, where they are, and how many are likely to buy what the marketer is selling.
Demography is the study of human populations in terms of size, density, location, age, sex,
race, occupation, and other statistics. Changes in the demographic environment can result in
significant opportunities and threats presenting themselves to the organization. Major trends
for marketers in the demographic environment include worldwide explosive population
growth, a changing age, ethnic and educational mix, new types of households, and
geographical shifts in population.
Social/Cultural Environment Social/cultural forces are the most difficult uncontrollable

variables to predict. It is important for businesses as well as marketers to understand and
appreciate the cultural values of the environment in which they operate. The cultural
environment is made up of forces that affect society's basic values, perceptions, preferences,
and behaviours. Changes in social/cultural environment affect consumer behaviour, which
affects sales of products. Trends in the cultural environment include individuals changing
their views of themselves, others, and the world around them and movement toward self-
fulfilment, immediate gratification, and secularism.
Ecosystem Environment The ecosystem refers to natural systems and its resources that are
needed as inputs by businesses or that are affected by business activities. Green marketing or
environmental concern about the physical environment has intensified in recent years. To
avoid shortages in raw materials, organizations can use renewable resources (such as forests)
and alternatives (such as solar and wind energy) for non-renewable resources (such as oil and
coal). Organizations can limit their energy usage by increasing efficiency. Goodwill can be
built by voluntarily engaging in pollution prevention activities and natural resource.
2.3.2.2 Micro (Specific or Task or Operating) Environment
The external microenvironment consists of forces that are part of an organization's marketing
process but are external to the organization. These micro environmental forces include the
organization's market, competitors, producer-suppliers, and its marketing intermediaries.
While these are external, the organization is capable of exerting more influence over these
than forces in the macro environment.
The Market Organizations closely monitor their customer markets in order to adjust to
changing tastes and preferences. A market consists of people or organizations with wants to
satisfy, money to spend, and the willingness to spend it. Each target market has distinct
needs, which should be monitored. It is imperative for an organization to know their
customers, how to reach them and when customers' needs change in order to adjust its
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marketing efforts accordingly. The market is the focal point for all marketing decisions in an
organization.
Suppliers: Suppliers are organizations and individuals that provide the resources needed to
produce goods and services. They are critical to an organization's marketing success and an
important link in its value delivery system.
Marketing Intermediaries: Like suppliers, marketing intermediaries are an important part

of the system used to deliver value to customers. Marketing intermediaries are independent
organizations that aid in the flow of products from the marketing organization to its markets.
The intermediaries between an organization and its markets constitute a channel of
distribution or value chain. These include middlemen (wholesalers and retailers who buy and
resell merchandise). Physical distribution firms help the organization to stock and move
products from their points of origin to their destinations. Warehouses store and protect the
goods before they move to the next destination. Marketing service agencies help the
organization target and promote its products. The agencies include marketing research firms,
advertising agencies, and media firms. Financial intermediaries help finance transactions and
insure against risks and include banks, credit unions, and insurance companies. Figure 1.2
below shows the business in a web of the external environmental factors.
Fig. 1.2: Business and External Environment
Source:http://courseware.finntrack.eu/tutors/strat_cases_teaching.html
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• In what class of environment would technological and demographic changes fall?
o Technological and demographic changes reside within the macro (general or remote)
environment of business.
• Thinking back at our discussion of the environment, briefly explain the two major
components of business environment.
o The two major components of business environment are the internal and the external
environments. The internal environments is regarded as the controllable environment
and consist of those factors (physical and social) within the specific business, which
either strengthens or cause weaknesses of a strategic nature to the business while the
external environments comprise the general or remote as well as the specific or task
environment peculiar to a particular business.
2.4 Importance of understanding the environment

The Manager’s job cannot be accomplished in a vacuum within the organization. There are a
number of factors both internal as well as external which jointly affect managerial decision-
making. It is therefore very important for the manager to understand and evaluate the impact
of the business environment due to the following reasons:
♦ The present and future viability of an enterprise is impacted by the

environment. For instance no television manufacturer would be expected to survive
by making only Black and White television sets when consumer preference has
clearly shifted to colour television sets.
♦ The cost of capital and the cost of borrowing - two key financial drivers of any
enterprise are impacted by the external environment. The ability of a business to
fund its expansion plan by raising money from the stock markets depends on the
prevalent public mood towards investment in stock markets.
♦ The availability of all key inputs like skilled labour, trained managers, raw
materials, electricity, transportation, fuel etc are a factor of the business
environment.
♦ Increasing public awareness of the negative aspects of certain industries like
hand woven carpets (use of child labour), pesticides (damage to environment in the
form of chemical residues in groundwater), and plastic bags (choking of sewer
lines) have resulted in the slow decline of some industries.
♦ Finally, the environment offers the opportunities for growth and profits. For
e.g. when the insurance and aviation industry was thrown open to the private sector,
the new entrant could easily build on the expectations of the public.
2.5 Characteristics of Business Environment

The environment of business exhibits the following characteristics:
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Dynamism: The business environment is not static. It is dynamic and as such changes
continuously. This is because of the interactions of the various factors that make up the
business environment.
Complexity: The business environment is not simple; it is complex by virtue of the various
components that comprise it and the interactions and interrelationships among these factors.
Multifaceted: The business environment is many-sided. It can be viewed from many angles
by the parties involved. Hence, an occurrence that is viewed as strength to an organization
may be perceived as a weakness by another.
Far-reaching impact: The happenings in the business environment can have enormous
impact on the organization. It could have the ripple effect. This is because the business
environment can be conceived as a system, specifically an open system made up of different
components that interact and interrelate with one another. Hence, once there is a problem or
development with one aspect/sector, it could have far-reaching impact on the other
aspects/sectors (Kazmi, 1999).
By virtue of the above characteristics, it is important for the manager to monitor the business
environment constantly. Thus, it is of fundamental importance for the manager to monitor
both the key macro-environmental forces (demographic/economic, technological,
political/legal and social/cultural) and micro-environmental forces (customers, competition,
distribution channels, and suppliers) that will affect their ability to earn profits in the market
place (Kotler, 1995). These macro-environmental forces and micro-environmental forces are
the components of the business environment.
• In how many ways can you describe the characteristics of business environment as
proffered by Kazmi (1999)?
o The characteristics of environment can be described in four ways. The environment is

dynamic, complex, multi-faceted and has far-reaching impact.

You have learnt in this unit the concept of environment and business environment; identified
the components of business environment as internal and external, while also listing the
characteristics of business environment. The importance of understanding business
environment was also treated.
Self Assessment Questions

Having read through this study session, it will be appropriate for you to test your
understanding of the session. Now take time to go through the essay and multiple choice
questions to see how far you have assimilated.
Page 22 of 204
Essay
In three sentences distinguish between internal and external environment

Give four reasons why it is important for a manager to understand the environment of
business
Define business environment and state the components of the environment
What are the characteristics of business environment? List and explain the four characteristics

Choosing the appropriate options fill in the gaps in the following questions.
1. .............. environment is regarded as the general environment while ...............

environment is regarded as the specific or task environment.
(a) Micro, Macro
(b) Macro, Micro
(c) Micromacro, Macromicro
(d) Macromicro, Micromacro
2. .................. environment is termed as controllable environment while the ...............

environment is seen as uncontrollable.
(a) External, Internal
(b) Internal, External
(c) None of the above
(d) All of the above
3. ......................literally means the surroundings, external objects, influences or

circumstances under which someone or something exists.
(a) Society
(b) Environment
(c) Community
(d) Neighbourhood
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4. ....................... embraces all institutions, organisations and individuals whose activities

have an impact, whether directly or indirectly, on business behaviour.
(a) Business environment
(b) Economic environment
(c) Political Environment
(d) Sociocultural environment
5. Business environment is made up of ...........................

(a) Internal environment only
(b) External environment only
(c) Internal and External environment
(d) macro environment
Questions 1 2 3 4 5
Answers B B B A C
References and Suggestions for futher readings

Business-Plan (2010). “Swotanalyse|SWOTAnalysis”.
http://www.businessplan.co.za/swotanalyze.html
Ifechukwu, J.A.O. (1986), Business Management: Principes and Practice, 2nd Edition,
Goldland Business Co. Ltd., Yaba, Lagos
Kazmi, A. (1999), Business Policy. New Delhi: Tata McGraw-Hill Publishing Co. Ltd.
Kotler, P. (1995). Marketing-Management, Analysis, Planning, Implementation, and
Control. New Delhi; 8th Ed., Prentice Hall of India private Limited.
Page 24 of 204
08033366677
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Study Session 3 Business and Environmental Interdependence
Introduction
The environment of business is a complex and dynamic one. It embraces actions of all
individuals, groups, organizations that have direct or indirect dealing with the operations of a
business organisation. The activities of these stakeholders affect business and in the same
vein business activity affects the interest groups. Business cannot operate in isolation because
it requires the environment to succeed; likewise, the environment needs the products and
services supplied by business. This explains the give and take relationship between business
and its surrounding.
The environment of a business means both the internal and external forces influencing the
business decisions. The external environment contains the economic, social, political and
technological forces. They are outside the control of the business and the business can do
little to change them. Therefore, for a business to survive and grow, the managers must
understand the nature and dynamics of is environment and those factors which its
environment reacts to easily. Business environment includes both specific and general forces.
Specific forces (such as investors, customers, competitors and suppliers) affect individual
enterprises directly and immediately in their day day-to-day working. General forces (such as
social, political, legal and technological conditions) have impact on all business enterprises
and thus may affect an individual firm only indirectly. Business environment is a relative
concept since it differs from country to country and even region to region. Political
conditions in Nigeria for instance, differ from those in South Africa or Ghana. Similarly,
demand for Ankara material may be fairly high in Nigeria but it may not be demanded in
India.
Learning Outcomes for Study Session 3

When you are through with studying this session, you should be able to:
3.1 Define and use correctly all the key words printed in bold (SAQ 3.2 and 3.4)
3.2 Mention the participants within the business environment (SAQ 3.3)
3.3 Explain the interdependence and interrelatedness of business and its environment (SAQ
3.1)
3.4 Describe environmental analysis (SAQ 3.2)
3.5 Explain the various stages of environmental analysis (SAQ 3.2)
3.6 Discuss the purposes of environmental analysis and state the areas of environmental
uncertainties (SAQ 3.4)
3.1 Participants in the Business Environment
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Those whose activity affects the business operation in one way or another constitute the
participants or the environment of business. These include:
The state (institutions) which regulates the economy as well as consume the goods
and services.
Individuals i.e. consumers of goods and services, employees or labour in the
organisations, entrepreneur or providers of capital.
Business organisations i.e. competitors, primary suppliers of inputs and services used
for production, distribution and retailing of the goods and services.
• Who are the participants within a given business environment?

o The participants are the individuals, state and business organizations.
3.2 Interdependence and Interrelatedness of Business and its

environment
No business operates in a vacuum. It relates with its environment. The business environment
as stated earlier is ever changing. The change may be hostile or friendly, positive or negative.
Either way, it brings opportunity or threat to the business organization. Decisions of business
organizations cannot be taken without proper analysis of the internal and external
environmental factors. This shows that there is a relationship existing between business and
these factors. Ability to appreciate this interdependence is crucial to understanding business
and ways to achieve success. As discussed in the previous session if you would recall, the
internal environment of a company includes the factors which are within the company and
under the control of the company like product, price, organizational culture, leadership, and
manufacturing (quality). The external factors which include the operating environment are
not under the control of the company and comprise the social environment, economic,
technological, political/Legal conditions (government regulations and policies), suppliers,
competitors of the company, resources in an economy (e.g. access to finance), general public,
trade unions, press and demographics of people. Now, let us see how these factors relate with
business. Read on.
3.3 Relationship of the External Factors with Business

The regulatory environment which comes in form of government policies and the degree of
intervention in the economy, the political climate (amount of government activity), political
stability and risk, wage laws, environmental protection laws, worker safety laws, union laws,
copyright and patent laws, anti-monopoly laws and all laws that concern business (be they
favourable or not) can impact on business in various ways. Such ways may include
compelling business to draw up an insurance policy for workers, meet certain requirements
before exporting or importing, pay certain tariffs for engaging in certain business deals, insist
that certain business be cited in certain areas due to nature of the business, among others. All
these affect the firm’s level of success but depending on its strategy and ability to utilize its
strength while playing down on its weakness. Again, if the political climate is unstable, or
there is a dictatorial leadership, long term planning may become difficult for businesses.
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Programme of government at that instance may not be favourable to business. When for
instance, there is stability in government and policies are favourable because government is
sensitive to the plight of business, this usually will boost business activities as business
operators would not fail to take advantage of the opportunity such situations provide.
Economic factors include accessibility to funds, interest rates, taxation, economic growth,
inflation, GDP per capita, unemployment, and exchange rates. For example, higher interest
rates may deter investment because it costs more to borrow, a strong currency may make
exporting more difficult because it may raise the price in terms of foreign currency. Again,
inflation may provoke higher wage demands from employees and raise costs. Growing
unemployment may reduce demand for a firm’s services e.g. the business of dry cleaning
suits may not be booming so much due to massive retrenchment of bank workers, and higher
national income growth may boost demand for a firm's products and vice versa. In addition,
the provision of necessary infrastructure such as good roads, rail, airway, water, electricity
usually aids business activities since operators will have easy access to raw materials and also
distribution of their products.
Social factors which, for instance, include changes in attitudes, taste and preferences, beliefs,
customs of a people and social trends can impact on the demand for a firm's products and the
availability and willingness of individuals to work. In Zamfara State for instance, the
hospitality business and demand for alcohol is on the decrease due to the declaration of the
state as a “Sharia” state. This has changed the attitude of the inhabitants toward patronizing
that kind of business since it is believed it is unacceptable and against the Sharia law. In the
UK for example, the population has been ageing. This has increased the costs for firms who
are committed to pension payments for their employees because their employees are living
longer. It also means some firms will be recruiting older employees to tap into this growing
labour pool. The ageing population also has impact on demand, for example; demand for
sheltered accommodation and medicine has increased whereas demand for toys is falling.
Technological factors entail the dynamism in discovery and application of new technologies
which create new products and new processes. MP3 players, computer games, online
gambling and high definition TVs are all new markets created by technological advances.
Online shopping, bar coding and computer aided design are all improvements to the way we
do business as a result of better technology. Technology can reduce costs, improve quality as
a result of innovation. These developments can benefit consumers as well as the organisations
providing the products. A new and better technology in a particular kind of business can
reduce the patronage of other operators in that line of business that do not follow the trend.
Other micro or operating environmental factors such as consumers or customers, competitors,

trade union, suppliers, press, etc. are so vital that business cannot ignore them. Customers for
instance are the sole reason for the existence of a business. If a business refuses to note the
needs of its customers, it does that at its own peril. Likewise, the activities of competition
cannot be overlooked. Those who operate similar or substitute type of business are always
alert to the business movement of competitors. The extent of efficiency of suppliers and
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distributors of a business will affect the firm’s level of success in its operations. The support
of the press and other mass media is very important just like the activities of the trade unions
and consumerist movement should not be overlooked since they all contribute to the success
or otherwise of a business enterprise.
The success of a company therefore depends on the rate at which it is attuned to happenings
around it. An adaptive and innovative firm is one that grasps the opportunities that interaction
or changes within the environment brings as well as protects it from environmental threats.
3.4 Closed and Open Systems

The systems approach to business and management is based on the general system theory.
The theory states that to understand fully the operation of an entity, the entity must be viewed
as a system.
A system is a number of interdependent parts functioning as a whole for some purpose. The
concept of "wholeness" is very important in general system analysis. The system must be
viewed as a whole and modified only through changes in its parts. Before modifications of
the parts can be made for the overall benefit of the system, a thorough knowledge of how
each part functions and the interrelationships among the parts must be present. That is, there
is need to understand the interdependence of its parts. There are two types of system: the
closed system and the open system.
The closed system is one that is not influenced by, and does not interact with its
environments. Such systems are mostly mechanical and have predetermined motions or
activities that must be performed regardless of the environment. The open system on the
other hand is one that is influenced by, and is continually interacting with its environment. As
Isimoya (2005) puts it, an open system is a set of interrelated components that function
together, within constraints, towards a common goal.
Businesses operate an open system which is composed of a number of parts that function
interdependently to achieve a purpose. In a business system, there is interaction between the
business components and the environment to create synergy which is greater than the sum of
its part. As a productive system the firm depends on its environment to provide inputs which
it transforms to produce outputs which in turn depends on the environment to accept. That is
to say, business interacts and takes advantage of the opportunities presented by its
environment, while getting the inputs in form of labor, material, capital, and suppliers from
the environment, and the environment benefits on the other hand by consuming the
businesses output. These environments have been discussed at length in the previous section.
See fig. 1.3 below for further illustration.
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Fig. 1.3. Business and its Environmental Elements

Technology
Demography
Trade
Union
Politics
Goods and
Competitive Services
General
Organisation
Public Govt.
(Industry)
Agencies
Suppliers
Organisation’s
Pollutions
transformation Outputs
Materials Labour of inputs into Wages to
finished goods Labour
Capital
Profits to Legal
Competitive Investor
Environment
Press
Financial
Community
Consumerism
Societal Economic
Culture
Social
Environment
Source: Isimoya (2005) Nigerian Business Environment: An Introduction
3.5 Environmental Analysis

In order to ensure that a business responds positively to the various factors in existence in an
environment, it becomes imperative for an analysis of such environment. Therefore,
environmental analysis is the study of the organizational environment to pin point
environmental factors that can significantly influence organizational operations. It involves
thorough preliminary analysis of the environmental problems, impact and performance, in
relationship to the activities of an organization. Every management must analyse and appraise
its business environment on a continuous basis for the following reasons:
The external environment always gives indications of opportunities and threats

where they exist. The success or failure of any organization is in most cases
rolled up in its external environment.
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Top management must analyse and appraise the environment in order to be

ready to suitably respond to challenges produced by it or innovate when
necessary particularly to outwit competition.
In order to perform an environmental analysis, it is important to have a good understanding of

how organizational environments are structured. This is basically the first step in carrying out
any analysis. For the purposes of environmental analysis, the environment of an organization
can be divided into three distinct levels: Internal, operating and general environment.
Environmental analysis must be total. The exercise must be carried out in such a way that the
environment is viewed at the same time and not piece meal. Effort must be made by the
management of the organization to minimize the occurrence of the unexpected by scanning
the environment as much as possible.
Environmental analysis must be a continuous process rather than being periodic as done in
some organizations. When it is done on a continuous basis, firms are able to identify possible
threats and warning signals early which may not be possible in periodic exercise.
• Your organisation sent you to investigate the product pushed to the market by a
competing organisation. Why do you think you are sent out and of what benefit is that
to your organisation?
o I am sent out because my organisation wants me to get information concerning the

market and competitor environment. This is to enable them do an analysis of the
environment to be able to respond appropriately to competition.
3.6 Stages of Environmental Analysis

Environmental analysis is relatively qualitative and involves identifying, scanning, analyzing
and forecasting of the environmental variables. Some frameworks of environmental analysis
have received large amounts of attention in the world of business management literature, such
as SWOT analysis and PEST analysis.
(i) Identifying: This is the first step to environmental analysis. To measure and/or
improve the relative position of the business to the intrinsic environmental factors, one must
first identify those factors that affect the business. This will need to be done at various
internal levels, the company level, the regional level, the domestic level and the global level.
While several frameworks exist as an aid to this step of identification (such as SWOT and
PEST), they are merely tools that remind the identifier to consider certain types of factors.
(ii) Scanning: How does one scan for qualitative factors that have already been
identified? Scanning, in the context of environmental analysis, refers to the process of
distinguishing which of the identified factors have the most effect. Not all of the factors
identified in the first step will carry the same weight, and the recognition of environmental
factors most significant to the business will assist in rendering a course of improvement.
(iii) Analyzing: The next step in environmental analysis is to analyze the effect the
relevant environmental variables have on different levels of the business, including the
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business at large. Whichever tool or tools that are chosen, the information will be collected
and analyzed. Brainstorming, reviewing historical data, pulling departmental heads and
managers serves to collect information that will be used for statistical analysis. Types of
analysis include mean, mode, correlation and regression, among others. The methods of
statistical analysis chosen will vary based upon what is being analyzed and the form held by
the data itself.
(iv) Forecasting: Once the environmental variables have been identified, deemed
significant and analyzed, it becomes necessary to forecast the effect that the said variables
would have in the future. This is the primary function of the analysis of current and historical
data. By looking at the trend each significant environmental variable is forecasted and a
strategic report can be created, from which management can develop a business strategy in
response thereto.
• How would you define environmental analysis?

o Environmental analysis is the study of the organizational environment in order to
identify environmental factors that can significantly influence organizational
operations.
3.7 Types of Environment

There are environments that keep changing and are unpredictable while there are also those
that are static. In this segment we will focus on these two types of environment. They are the
dynamic and the stable environment.
Dynamic Environment: A business environment is dynamic if it keeps on changing whether

in terms of technological improvement, shifts in consumer preferences or entry of new
competition in the market. This ultimately has impact on competition and this brings about
the challenge of survival of some business organizations. Managers who monitor changes in
the environment and take necessary steps to adjust are usually not taken by surprise if there is
any sudden change in some factors such as technology, laws and market.
Stable Environment: Business environment is stable if the forces operating in the

environment are not subject to sudden change and are predictable with high degree of
certainty. In such situation, market demand is devoid of fluctuation and is usually predictable.
However, it is important to point out that in real life; it is difficult to find such environment.
3.8 Purposes of Environmental Analysis

1. Environmental analysis will help the management to understand what is
happening both inside and outside the organization and to increase the
probability that the organizational strategies developed will appropriately
reflect the organizational environment.
2. It helps the organization to identify opportunities early and at the same time
exploit them instead of losing them to competitors.
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3. It helps management identify threats and early warning signals. The entry of a
new company into a market usually sends a signal to others in that market and
this most often brings about improvement in the quality of their products, and
aggressive advertising etc.
4. It improves performance. An organization that continuously monitors its

environment and adopts suitable business practices will not only improve its
present performance but also continue to succeed in the environment.
5. It helps the organization to cope with rapid changes in the environment. All
types of enterprises are facing increasingly dynamic environment. In order to
effectively cope with these significant changes, managers must understand and
examine the environment and develop suitable courses of action.
• Do you think there is need to carry out environmental analysis? If yes, give two
reasons.
o Yes, there is need to carry out environmental analysis. The reason is it can help
management to identify opportunities and threats to the organization, and help them
to cope with rapid changes within the environment
3.9 Environmental Uncertainty

Business environment is largely uncertain as it is very difficult to predict future
happenings, especially when environmental changes are taking place too frequently.
These areas of uncertainty may include:
Changes in taste of consumers for a particular product or service are a major area of
environmental uncertainty in business. Typical examples are changes in fashion style
among women. Wearing of jeans trousers has become fashionable today among ladies
compared to skirts in the past.
Changes in technology. In a competitive business environment, technology is the key

to development. Today the use of computer has replaced typewriters. Information
technology today has gone so advanced through the introduction of internet that the
world has become a global village. Virtually any information can be obtained on the
internet.
Changes in research and development. If you check the world today, you will
discover that there are many new discoveries as a result of research and development.
A lot of practices or beliefs are more or less erased due to new findings. For instance,
the use of bleaching creams by ladies is now on the decrease since the pronouncement
that skin cancer disease can be contacted through the use of such creams. For business
operators in that line of business, that is a loss. For business organizations that
produce syringes for injection, business may be booming because research has also
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shown that two people must not use the same syringe for injection otherwise the
HIV/AIDS disease may be transferred from a carrier to another person.
• In what areas of business environment can uncertainty occur?
o Uncertainty can occur in the area of changes in taste, changes in technology and
changes in research development

In this session, you have learnt the interrelationship and interdependence of business and its
environment, identified the various participants in a business environment and examined the
relationship of the various factors with business. The review of system approach to business
and management suggests business operates as an open system. In carrying out
environmental analysis, a total and complete look must be made of the environment which
will enable the management to minimize the possibility of the unexpected happenings.
Likewise, the analysis must take place on a regular basis to monitor the environment well
and equip it with adequate information to respond to changes.

As you have completed this study session do you think you can recall all that you have
learnt? Now try your hands on the following MCQ and Essay questions to see how far you
can go. Try answering the questions without aid from the text, and then you can check to see
the correct thing.
Essay
Briefly explain with the aid of a diagram the relationship between business and its external
environment.
What is environmental analysis? List and explain the various stages of environmental
analysis
Identify the participants within the business environment?
State briefly the purposes of environmental analysis and areas of
uncertainty in business
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Choose the correct option that best suits the sentence.
1. Those whose activity affects the business operation in one way or another constitute
the participants or the environment of business.
(a) True
(b) False
(c) Non
2. That the environment of business is a complex and dynamic one means

(a) the environment is ever changing
(b) the environment is stable
(c) the environment is predictable
(d) the environment is ever changing and may be unpredictable.
3. The business environment embraces actions of all that have direct or indirect dealing
with the operations of a business such as
(a) Organizations
(b) Groups
(c) Government agencies
(d) all the above
4. ................ system is one that is not influenced by, and does not interact with its
environments
(a) The Open system

(b) The closed system
(c) Both open and closed
(d) None
5. The system that is influenced by, and is continually interacting with its environment is
…
(a) Open system
(b) Closed system
(c) Generic system
(d) both closed and open
6. One of the purposes of environmental analysis is to

(a) identify opportunities early and at the same time exploit them instead of losing
them to competitors.
(b) Detect mistakes of competitors
(c) Come up with one’s plan without bothering about competitors
(d) None of the above
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7. Business environment is ............... if the forces operating in the environment is not

subject to sudden change and is predictable with high degree of certainty.
(a) Unstable
(b) Stable
(c) Dynamic
(d) all of the above
8. One of the stages of environmental analysis includes
(a) classifying
(b) dividing
(c) identifying
(d) stratifying
9. ....................... involves thorough preliminary analysis of the environmental
problems, impact and performance in relationship to the activities of an organization.
(a) Competitor analysis
(b) Customer analysis
(c) Environmental Analysis
10. ......................... must analyse and appraise the environment in order to be ready to
suitably respond to challenges produced by it or innovate when necessary particularly
to outwit competition.
(a) top level management
(b) Middle level management
(c) Lower level management
(d)) all of the above
1 2 3 4 5 6 7 8 9 10
Ques
Answers A D D B A A D C C D
References/Suggestions for further reading

AllBusiness.com (2010). “Business Definition for: business”.
Business Glossary.http://www. allbusiness.com/glossaries/business/4959436-1.html.
Retrieved, 17 August, 2010.
Aluko, M., O. Odugbesan, G. Gbadamosi, L. Osuagwu (1998), Business Policy and
Strategy, Lagos, Ikeja: Pumark Nig. Ltd.
BusinessDictionary.com (2010). “Business: Definition”.
http://www.businessdictionary.com/definition/business.html.Retrieved,17August,
2010.
Business-Plan (2010).”Swotanalyse|SWOT Analysis”. http://www.business-plan.
co.za/swotanalyse.html.
Ferrell, O. C., Hirt. G. And Ferrell, L. (2008). Business A Changing World. New York;
Page 36 of 204
6th Ed., McGraw Hill Pub.

Ifechukwu, J.A.O. (1986), Business Management: Principes and Practice, Lagos; 2nd
Edition, Goldland Business Co. Ltd.
Isimoya, A. O. (2005). Nigerian Business Environment: An introduction. Lagos;
Concept Pub. Ltd.
Olusemore, G. A. (2006). Essentials of Small Business Management. Lagos; CIBN Press
Ltd.
Pearce, J.A. and Robbinson, R.B. (2007). Strategic Management: Formulation,
Implementation and Control. 10th Edition, New York; Mc Graw Hill.
Page 37 of 204
08033366677
Page 38 of 204
Study Session 4 Forms of Business Ownership
Introduction
You have seen a number of businesses all around, some small, medium and large. Some
operate using their names without registering with government, while others register their
business name. The form or type of registration done by an organization and the number of
people involve determine the classification of such business. Some businesses are described
as sole proprietorship, while others are partnerships. When you consider some of the
disadvantages of sole proprietorship and partnership and particularly the limitation in raising
capital and the unlimited liability associated with them, it is important to consider other
alternatives that are likely to overcome these shortcomings and have the advantages of raising
higher level of capital and also safeguard the owners from loosing their private property.
These alternatives are private and public limited liability companies. The focus of this study
session is to examine these various forms of business ownership and discuss in details their
mode of operation as well as sources of funds.
Learning Outcomes for study session 4

At the end of this study session, you should be able to:
4.1 Define and use correctly all of the key words printed in bold (SAQ 4.1, 4.2, and 4.5)
4.2 Define sole proprietorship and state advantages and disadvantages of sole proprietor
(SAQ 4.1)
4.3 Discuss the types of partnership and list their advantages and disadvantages (SAQ 4.2)
4.4 Enumerate the sources of capital for sole proprietor and partnership (SAQ 4.1, 4.2)
4.5 Distinguish between private liability company and public liability company (SAQ 4.4,
4.5)
4.6 Differentiate between public corporation and Cooperative Societies using their features
(SAQ 4.3)
4.7 List the advantages and disadvantages of private liability and public liability company
(SAQ 4.6)
4.8 Enumerate the sources of capital for private and public liability company (SAQ 4.5 and
4.6)
4.1 Sole proprietorship
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If you start a business yourself without involving others, then you are a sole proprietor. Read
the definition below.
Sole proprietorship is a type of business that is wholly owned by one person. The business
belongs to just one owner who has no partners or any other shareholder. The business owner
is personally liable for the entire firm’s obligations, that is, the owner bears all the costs and
keeps all the profits. The company may or may not be registered with regulatory authority
that is, Corporate Affairs Commission (CAC). When a company does not register with
relevant regulatory authority, it may not be able to transact any business with any government
agency or well established companies. In addition, an unregistered company cannot operate
any bank account. Since cash is scarcely paid for goods supplied, it is advisable for a sole
proprietorship to register especially if such owners desire to grow his/her business.
4.1.2 Advantages of a Sole Proprietorship
• A sole proprietorship is a business that can be easily established.

• Capital requirement is small.
• Decision making process is quick.
• There are no strict regulations governing the establishment of a sole proprietorship.
• It is a form of business well-suited for small companies with informal business
structure.
• All profits belong to the business owner.
• There is privacy in conducting business affairs.
• There is close relationship between owner and customers.
4.1.3 Disadvantages of a Sole Proprietorship

• One major disadvantage of sole proprietorship is that the owner is responsible for all
the business’s debts and liabilities. If the assets of the business are not adequate to
pay back the debts of the business, the personal belongings of a sole trader would be
used in paying back such debts. For example, if the business borrows from the bank
and subsequently cannot repay the loan, the bank has a claim against the business
owner and his personal belongings. Thus, a sole proprietorship has unlimited liability.
• Problem of business continuity in the event of death of the business owner.
• Inadequacy of capital.
• Business expansion is limited to owner’s capital.
• Unregistered business name can not do business with government agencies and some
well established companies.
• Inability to keep bank account in the name of an unregistered business name.
• List and explain two advantages and one major disadvantage of a sole proprietorship.
o Two advantages of sole proprietorship are: the capital requirement for setting up
business is small and there are no strict regulations governing the establishment of
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sole proprietorship. On the other hand, a major disadvantage of sole proprietorship

is that the owner is responsible for all the business’s debts and liabilities if the
assets of the business cannot pay back the debts of the business.
4.1.4 Sources of capital of a sole proprietorship
The sole proprietor can obtain his capital from the following sources:
• Personal savings
• Loans from friends, cooperative societies etc
• Trade creditors
• Loans and overdrafts from banks
• Grants and loans from Government
4.2 Partnership
This is a business owned by two or more persons who have agreed to abide by a Partnership
Agreement otherwise known as Partnership Deed. A partnership usually comprises of
between 2 and 20 persons. The Partnership Deed will set out how management decisions are
to be made and the proportion of the profits that each partner is entitled to. The Partners then
pay personal income tax on their share of the profits.
Partnership like sole proprietorship also faces the challenge of unlimited liability. If the
business runs into financial difficulties, each partner can be held responsible for all the
business debts and not just his or her contributions to the partnership. The moral therefore is
‘know thy partner’.
The life span of the partnership depends on the agreement signed by the partners involved.
Many professional businesses are organized as partnerships, for example, large accounting,
and legal and even management consulting firms. If eventually these companies and their
financing requirements grow too large for them to continue as partnerships, they may
reorganize into corporations.
4.2.1 Types of partnerships
There are different types of partnership arrangements. Below are some examples.
Limited Partnership
This is a type of partnership which is formed and registered under the Limited Partnership
Act. In a limited partnership, there must be one general partner with unlimited liability and
one limited partner whose liability is limited to the amount invested. The limited partners
cannot take equal part in management and administration of the business but can have access
to the account of the partnership.
Characteristics of Limited Partnership
A limited partner cannot participate in the management of the business.
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Liability is limited but there must be a partner with unlimited liability.
It must be registered.
General (Ordinary) Partnership
In this type of partnership, partners have equal responsibilities and risks in the business. All
partners are agents of the firm and they share the responsibility of running the business.
Hence they are liable to the full extent of the debts of the firm. The liability of members is
unlimited.
Characteristics of General Partnership
All the partners have unlimited liability.
Partners are agents of the enterprise.
They have equal responsibility in management.
They have equal powers.
Active Partnership
Partners under this type of partnership arrangement take active part in the management and
administration of the partnership business. Partners contribute to the financing and formation
of the business, take active roles in the day-to-day running of the enterprise and they earn
salaries as agreed in the partnership deed.
Nominal (Quasi) Partnership
This is a type of partnership where a nominal partner contributes only his name to the
formation of the business. He neither contributes capital nor takes part in the management of
the firm. A nominal partner must be a distinguished personality within the society as his
name must surely increase the reputation and possibly the goodwill of the partnership
business. A nominal partner would share in the profits and or debts of the firm as specified in
the Partnership Act of 1980.
Dormant Partnership
A dormant partner takes no part in the conduct and management of the partnership business.
He will contribute capital and share from the profit but will not engage in the day-to-day
running of the business. A dormant partner is not exonerated from the debts of the enterprise
and would share in any liability in the event of wrong decisions by the active partners.
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4.2.2 Formation of Partnership

Persons entering into partnerships usually express their intention in a partnership agreement
known as Deed of Partnership. The Deed of Partnership is defined as agreements, rules and
regulations guiding the members of a partnership.
The agreement contains the following rules and regulations:
1. The names of the partners.
2. The name of the firm.
3. The nature of the business formed.
4. The rights and duties of each partner.
5. The proportion in which capital is to be provided.
6. Whether interests should be paid on capital or not.
7. The signatories to the firm’s accounts.
8. The sharing of profits, provisions for drawings and payment of salaries to partners.
9. Duration of the partnership.
10. The circumstances under which the partnership shall be dissolved.
11. The method of admission of new partners.
12. The objective of the firm.
• This partner contributes and shares from the profit and loss but does not take part in
the conduct and management of the business. What kind of partner is this?
o He is a dormant partner
4.2.3 Advantages of partnership
The following advantages exist.

♦ Sufficient Capital: unlike sole proprietorship whose capital is limited to the
investment of only one person, a partnership is able to generate adequate capital
because it involves more persons who can provide more sources of funds for the
business.
♦ Increase in production efficiency as a result of increase in capital and
management.
♦ Better management through combination of skills and abilities and joint
decision making that is, putting heads together to take joint decisions.
♦ Privacy: partnerships are not compelled by law to publish their annual
accounts for public consumption.
♦ Sharing of risks and liabilities reduces individual burdens
♦ Higher chances of continuity
♦ No legal formalities required
♦ Specialization in management
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♦ Improved access to loan facilities
4.2.4 Disadvantages of partnership
• Unlimited liability
• The business is not a legal entity
• Limited growth: growth potentials are dependent on the managerial abilities of the
partners
• Disagreement between partners can end the business
• There is risk of dissolution of the business through death, insanity or bankruptcy
• The business may still not be able to raise sufficient capital required to run the
business.
• If you were asked to make a choice between being a sole proprietor and joining a
partnership will you prefer a partnership? Give two major reasons each why you will
prefer it and why you may not.
o I will prefer a partnership because it will give room for adequate Capital because it
involves more persons who can provide more sources of funds for the business.
Again there will opportunity for better management through combination of
skills and abilities.
4.2.5 Sources of Capital for Partnerships
a. Personal contributions from partners, either equally or in agreed proportion

b. Loans and overdrafts
c. Trade creditors
d. Undistributed profits retained in the business
e. Admission of new partners.
• Uche, Jessica, Daniel, and Pascal are into a partnership. What are the sources of
capital open for them? List at least three sources.
o The sources of capital available for the partnership may be their personal
contributions either equally or in agreed proportion. They can choose to obtain loans
and overdrafts from the bank or admit a new partner who will bring in more money.
4.3 Reasons for the existence of small scale business units

1. Small capital requirements
2. Easy to establish, no stringent formalities required
3. Provision of incentive for hard work. Ownership instills pride and drive for success
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4. They enjoy customers’ loyalty that ensures continued patronage

5. Flexible policies to meet changing needs of customers
6. Low overhead costs
7. Some serve the needs of larger firms
8. They meet special needs of customers
4.4 Limited Liability Companies

A limited liability company is a legal entity created by the association of a number of
persons in accordance with the law, for the purpose of pooling their capital together in order
to set up a business venture. Examples of limited liability companies are Dunlop Nigeria Plc,
Julius Berger Nigeria Plc and Evans Medical Plc. There are two types of Limited Liability
Company. They are the Private and Public Limited Liability Companies.
4.4.1 Formation of a limited liability company
There are three major steps involved in the formation of a limited liability company. These
are as follows:
1. The promoters devise a means of capitalization, bearing in mind the cost of formation, assets to be
bought and working capital required.
2. Secure the services of a solicitor to prepare certain documents to be filed with the registrar of
companies. These documents are - Memorandum of Association, Article of Association, and
Statement of Nominal Capital.
3. The documents are stamped and lodged with the registrar of companies.
4.4.2 Private Limited Liability Company
The Private Limited Liability Company is a type of Limited Liability Company which by its
articles of association restricts the rights to transfer its shares. The number of shareholders ranges
from 2 to a maximum of 50. A private limited liability company cannot invite the public to subscribe
to its shares and the name of the company must end with ‘Limited’ e.g. Bluebird Nigeria Limited.
Features of a private limited liability company
Ownership – it is owned by between 2 and 50 shareholders
Objective is to make profit
Source of Capital – provided by shareholders in the form of shares which are not sold to the general
public
Liability – shareholders have limited liability. Personal assets are protected by law.
Legal Entity – the business is a separate legal entity and is different from the owners of the business.
The business can sue or can be sued in its own name without involving the owners.
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Continuity – there is continuity of business even in the event of death or withdrawal of a shareholder.
Shares are not easily transferable.
Management – managed by a Board of Directors appointed by shareholders.
• Suggest major steps to forming a limited liability company
o The first major step will be to ascertain the means of raising capital for assets and
working capital. The second will be to engage the services of a lawyer to prepare
documents for the registration and thirdly to stamp and lodge the documents with the
registrar of companies.
Sources of finance for a private limited liability company
1. Loans and overdrafts from banks

2. Shares raised by shareholders
3. Equipment leasing
4. Retained profits
5. Trade Credits
6. Hire purchase – pay by instalments
Advantages of private limited liability company
1. Large capital
2. Has legal entity – can sue or be sued
3. Shareholders have limited liability
4. Continuity of existence
5. Efficient management
6. Large profits
7. Possibility of expansion
8. Enjoys internal economies of large scale production
Disadvantages of private limited liability company
1. Shares are not sold to public which acts as a limitation for expansion
2. Shares are not easily transferable
3. Payment of corporate tax
4. Lack of personal contact
5. Delay in decision making
4.4.3 Public Limited Liability Company
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This type of Limited Liability Company must have a minimum of 2 persons as shareholders;
there is no prescribed maximum number of shareholders. It is one whose articles of
association allow the public to subscribe to its shares. It allows the shares to be transferred
and the name of the public company must end with ‘Plc’ e.g. Zenith Bank Plc, Guinness
Nigeria Plc and First Bank Nigeria Plc. This type of company is otherwise known as Joint
Stock Company.
Features of Public Limited Liability Company
1. Ownership – minimum of 2 and an unlimited maximum number of shareholders.

2. It is a legal entity
3. Perpetual existence
4. Has limited liability
5. Formation – special formalities must be followed before registration. Incorporation is
secured by filing the Article of Association and Memorandum of Association with the
6. Preparation of Annual Accounts which must be audited and published annually
7. Specific line of business must be carried on as specified in the object clause
8. Separation of ownership from management
Advantages of public limited liability company
1. Legal entity
2. Perpetual existence
3. Limited liability
4. Large capital
5. Transferability of shares
6. Availability of loan facility
7. Economies of large scale in production
8. Democracy in management
9. Owners are separated from management
10. Employees can become co-owners
11. Recruitment of experts
12. Opportunities for research programme
Disadvantages of public limited liability company
1. Lack of privacy
2. Conflict of interest
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3. Slow decision making process

4. Difficult to establish
5. Separation of owners from control
6. Payment of large corporate tax
7. Lack of flexibility
8. Large capital requirement
9. Decrease in personal interest
Sources of finance for public limited liability company
1. Loans and overdrafts

2. Sales of shares
3. Sales of debentures
4. Bills of Exchange
5. Equipment leasing
6. Retained profits
7. Trade creditors
8. Hire purchase
1.4.3 Similarities between Private and Public Limited Liability Companies
1. Both are legal entities i.e. both can be sued or sued in their own names
2. Both companiess shareholders have limited liabilities. In the event of liquidation, the
shareholders can only lose the value attached to the shares they own.
3. Continuity of existence is high for both types of companies as death or withdrawal of
a shareholder cannot affect the operations of the company.
4. Both companies can plough back part of their profits into the company
5. Both are capable of pooling large capital together to set up a business
6. Both companies appoint director for the proper and efficient management of the
business.
7. Both has minimum of two shareholders.
4.4.4 Differences between Private and Public Limited Liability Companies
The differences between private and public limited liability companies are summarized in
Table 1.1below.
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Table1.1 Differences between Private and Public Limited Liability Companies
Private Limited Liability Company Public Limited Liability Company

1. Shares are not easily transferable, except with Shares are easily transferable
the consent of other members
2. Shares are not quoted on the stock exchange Shares are quoted on the stock exchange
3. Uses Ltd after the name of the company. Uses ‘Plc’ after the name of the company
4. Does not issue Debenture stocks Can issue Debenture stocks
5. Does not need Certificate of Trading to Requires Certificate of Trading to commence
commence business business
6. Public not allowed to subscribe for its shares Public is allowed to subscribe for its shares
7. Small or medium in size and has limited capital Usually large size and large capital
8. Enjoys some level of privacy as it does not There is no privacy as the annual accounts must be
publish accounts for the use of the public published and made available to the public
9. Has a maximum number of 50 owners There is no limit on the maximum number of
owners
10. Owned and controlled by those who contributed Owned by shareholders and controlled by Board of
the capital Directors elected by them
• State two each of the similarities and differences of private and public limited liability
companies.
o The similarities of private and public limited liability companies lie in the fact that
both are legal entities (they can be sued or sued in their own names); and both are
capable of pooling large capital together to set up a business. On the other hand, two
of their differences are that for public limited liability companies, shares are easily
transferred while it is difficult to transfer shares with the private limited liability
company. Again, public limited liability company requires certificate of trading to
commence business while the private limited liability does not require certificate of
trading to commence business.
Table 1.2 below summarizes the differences between partnership and public limited liability
companies
Table 1.2 Differences between Partnership and Public Limited Liability Companies
Features Partnership Public Limited Liability Company

1. Legal Entity Has no separate legal entity Has separate and distinct legal entity
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2. Liability Has unlimited liability Has limited liability

3. Membership Minimum 2 and maximum 20 Minimum 2 and no limitation on
maximum
4. Ownership Not separate from management. Ownership separated from management.
Owned and controlled by partners. Owned by shareholders and managed by
Board of Directors
5. Formation Rights are regulated by Deeds of Governed by Memorandum of
Partnership as they are not Association as they are incorporated
incorporated
6. Auditing No audit of account Law prescribes an annual audit and
publication of accounts
7. Perpetuity Death or withdrawal of a partner can Company enjoys perpetual continuity
bring it to an end
8. Raising of capital Done through members’ Done through issuance of shares to the
contributions public
4.5 Public Corporation

This is also known as Public Enterprise or Statutory Corporation, it is a large scale business
organization set up, owned and financed by the government of a country. The function of
Public Corporation is to provide services to the members of the public. They cater for the
welfare of the people and are run by the government through the tax paid by the people.
Public Corporations are established by Acts of Parliament or Decrees and are controlled by
Board of Directors appointed by government. They are not set up to make profits but to
provide special services to the public. Examples include Nigerian Ports Authority (NPA),
Nigerian Railway Corporation (NRC), Nigerian National Petroleum Corporation (NNPC),
Nigerian Telecommunications Limited (NITEL), and Federal Radio Corporation of Nigeria
(FRCN). However, the commercialization process had introduced the need to make profit
into this class of corporation.
1.5.1 Characteristics of public corporation
1. Ownership – owned and financed by the government.

2. Establishment – established by Act of Parliament or Decree.
3. Objective – to provide essential services to the generality of the people.
4. Legal Entity – it can be sued or sue in its own right.
5. Management – managed by Board of Directors who are appointed by government.
6. Profit Objectives – Public corporations are set up not to make profit but to provide
goods and services to the people.
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7. Government and tax payers bear the risks.

8. High capital requirement – requires large capital to set up.
9. Employees are public servants and are treated as such.
10. Accountability – Board of Directors are accountable to the government that set up the
corporation.
• A public limited liability company is same as public corporation. Do you agree? If
no, how is a public corporation different from public limited liability? State at least
two distinctive characteristics of public corporations.
o A public corporation is different from a public limited liability company. Public

corporation is owned and financed by the government, it is established by an Act of
Parliament or Decree, and the objective is to provide essential services to the
generality of the people. The public limited liability company is owned by individuals
and the public and is motivated towards profit making.
4.5.2 Advantages of public corporation
1. Provision of infrastructural facilities e.g. roads, schools and railways.

2. Availability of large capital.
3. Continuity of existence.
4. Development of major capital projects e.g. rural electrification.
5. Avoidance of exploitation of consumers.
6. Creation of higher standards.
7. Accountability to the public.
8. Legal entity.
9. Caters for the interests of workers.
10. Provision of employment opportunities.
11. Generation of revenue e.g. water rates, electricity bills.
12. Enjoyment of large scale production.
4.5.3 Disadvantages of public corporation
1. It requires huge capital.

2. Government interference e.g. appointment of unqualified and incompetent people as
board members.
3. Inefficiency in operations.
4. Danger of monopoly.
5. Bureaucratic tendencies.
6. Corruption and mismanagement.
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7. High level of wastage.

8. Lack of initiative.
9. Lack of privacy.
4.5.4 Problems associated with Public Corporations
1. Political instability.
2. Frequent government interference.
3. Lack of qualified personnel.
4. Negative attitude of workers.
5. High level of embezzlement.
6. Favouritism in appointments.
7. Political victimization.
8. Practice of sectionalism and ethinicism.
4.5.5 Sources of finance to public corporation
1. Loans and overdrafts.

2. Internally generated revenue.
3. Grant from government.
4. Grants from international financial institutions.
5. Grants from foreign countries.
Table 2.3 below depicts the differences between public corporation and public limited
liability.
Table 2.3 Differences between Public Corporation and Public Limited Liability Companies
Features Public Corporation Public Limited Liability Company

1. Ownership The government Shareholders
2. Formation Act of Parliament or Decree Incorporation
3. Control Government appoints Board of Shareholders elect Board of Directors
Directors
4. Capital Government and through grants Shares and debentures
5. Aim Provision of essential services Profit making objective
Page 52 of 204
4.6 Cooperative Societies

A cooperative society is a voluntary business organization in which a group of individuals
with common interest pool their resources together to promote the economic welfare of their
members in production, distribution and consumption of goods and services.
4.6.1 Features of cooperative societies
1. Formation – two or more persons but no stipulated maximum number.

2. Ownership – owned by people of common interest, hence may be restricted as some
conditions need to be met before becoming a member.
3. Objective – promote and advance the interest of their members by rendering services to
them.
4. Management – control and management is vested in elected committees whose members
must be members of the society.
5. Capital – raised through voluntary contributions from members.
6. Perpetual existence – continuity exists.
7. Registered as a Limited Liability – the liability is limited to the shares held by
individual members.
8. Democratic in nature.
• This organization involves a group of people with similar interest pooling their
resources together to promote the economic welfare of their members.
o The cooperative society
4.6.2 Types of cooperative societies
There are many types but basically they are formed in relation to trade, while some are
formed for thrift, credit and investment purposes. Examples are:
♦ Farmers Cooperative Societies
♦ Consumers Cooperative Societies
♦ Fishermen Cooperative Societies
♦ Transport Cooperative Societies
♦ Multipurpose Cooperative Societies
♦ Cooperative Thrift and Credit Societies
♦ Cooperative Investment & Credit Societies
Page 53 of 204

In this study session you have gone through the definition of sole proprietorship and the
advantages and disadvantages of sole proprietorship. We have also examined partnership and
types of partnership as well as the advantages and disadvantages of partnership form of
business. The sources of capital for both sole proprietorship and partnership were also
discussed. In addition we looked at the limited liability companies, its different types,
characteristics as well as advantages and disadvantages of it. Public corporation and
cooperative societies were also touched. Their advantages and disadvantages, sources of fund
and the types of cooperative societies were examined.

Hope you enjoyed reading through the study session 4. How did you fair? Do you think you captured
all there is to learn? Now, quickly do a self-assessment of your understanding as you answer the
following essay and multiple choice questions. In your notebook for this course put down terms and
topics you do not understand or need further clarification on, then inquire from your tutor.
Essay
What is Sole Proprietorship? State two advantages and two sources of income for a sole proprietor.

Enumerate and discuss three types of partnership. State two each of the advantages and disadvantages
and sources of income for a partnership.

Give two distinguishing features each of Cooperative Societies and Public Corporations?

Give three features each of public liability company and public corporation
How is a private limited liability company different from a public liability company? Give three
differences and two sources of their income.
State three advantages and disadvantages each of private and public liability company.
Page 54 of 204

From the alternatives giving, choose the option which best answers the question.
1. The liability of a sole proprietorship is

(a) unlimited
(b) limited
(c) limited if registered
(d) unlimited if unregistered only
2. ………… is defined as agreements, rules and regulations guiding the members of a

partnership.
(a) Deed of Partnership
(b) Law of partnership
(c) Act of partnership
3. An advantage of sole proprietorship is that the owner

(a) has unlimited liability
(b) takes all the profits and share with the staff
(c) receives subsidy from government
(d) Decision taking process is quick and fast
4. If the asset of a business is not adequate to pay back the debts of the business, the
personal belongings of the sole trader would be used in paying back such debts. This implies
that the sole proprietor has;
(a) unlimited liability
(b) limited liability
(c) has both limited and unlimited liability
(d) None
5. A partner who allows his name only to be used without contributing capital is known as
(a) Dormant partner
(b) Norminal partner
(c) Sleeping parner
(d) limited partner
6. .................... are established by Decrees or Acts of Parliament.

(a) Private limited liability companies
(b) Public limited liability companies
(c) Public Corporations
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7. There are ...... major steps involved in the formation of a limited liability company.
(a) Two
(b) Three
(c) Four
(d) Five
8. A ............ is a business organized as a separate legal entity owned by shareholders or

stockholders.
(a) Sole proprietor
(b) Corporation
(c) Partnership
(d) Cooperative
9. One distinctive feature of corporations is the........

(a) separation of ownership and management
(b) merging of ownership and management
(c) inability to seperate ownership and management
(d) none of the above
10. The number of shareholders for a private limited liability company ranges from
(a) 2 to a maximum of 50
(b) 2 to a maximum of 7
(c) 2 to a maximum of 100
Questions 1 2 3 4 5 6 7 8 9 10
Answers A A D A B C B B A A
References and Suggestions for further readings.
1. Isimoya, A. O. (2005) Nigerian Business Environment: An Introduction. Lagos.

Concept Publications Ltd.
2. Brealey, M. M. (2004) Fundamentals of Corporate Finance New York. McGraw-
Hill.
3. Cole, E. A. (2008) Essential Economics. Ibafo Nigeria. Tonad Publishers.
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Study Session 5 Entrepreneurship Development
Introduction
This session introduces you to entrepreneurship skills. The concept of entrepreneurship has
developed over the years. An exposure to entrepreneurship skills will stimulate you and
others towards different opportunities beside wage employment. Many factors have
contributed to the high unemployment rate as formal wage employment is shrinking very fast.
Self employment also called entrepreneurship is increasing and offering more job
opportunities for people. The session will expose you to who an entrepreneur is,
characteristics of an entrepreneur, success nuggets for entrepreneurs and types of
employment and advantages of self employment among others. As an individual, you should
endeavour to learn the basic skills involved in entrepreneurship to help you set up your own
business or enterprise. I hope you will enjoy this session. Besides, the skills you will acquire
should guide your everyday work and develop your entrepreneurial traits, motivate you to
establish your own enterprise and subsequently create jobs for others and improve upon your
quality of life and that of your families and the society at large through better job
opportunities. This session is interesting and practical. You can use the ideas and skills in
your everyday life. You will surely enjoy it!
Learning outcomes for study session 5

When you have read through this unit you should be able to:
5.1 Define and use correctly all the key words printed in bold (SAQ 5.1, 5.2, and 5.3)
5.2 Differentiate between Entrepreneur and Entrepreneurship (SAQ 5.1)
5.3 State the characteristics of successful Entrepreneur (SAQ 5.1)
5.4 Describe the early and modern stages of entrepreneurship development in Nigeria
(SAQ 5.4)
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5.5 State the success nuggets for entrepreneurs (SAQ 5.3)
5.1 What is entrepreneurship?

Entrepreneurship is the attempt to create value through recognition of business
opportunities, the management of risk-taking appropriate to the opportunities, and through
the communicative and management skills to mobilize human, financial and material
resources necessary to bring a project to fruition (Olusemore, 2006).
Entrepreneurship is known as the capacity and attitude of a person or group of persons to
undertake ventures with the probability of success or failures. Entrepreneurship demands that
the individual should be prepared to assume a reasonable degree of risks, be a good leader in
addition to being highly innovative. (Onwubiko,2007).
• How will you describe entrepreneurship?
o Entrepreneurship is the ability of a person or group of people to embark on ventures

of creating wealth with the possibility of succeeding or failing.
5.2 Who is an entrepreneur?

An entrepreneur is a person who develops a new idea and takes the risk of setting up an
enterprise to produce a product or service which satisfies customer needs. All entrepreneurs
are business persons, but not all business persons are entrepreneurs. Let us now think of why
all business persons are not entrepreneurs. Think of a woman who sits by the roadside leading
to your home and who has been selling the same type of food, from the same size of saucepan
or pot, from the same table top, and may not have been able to change her standard of living
to any appreciable extent. Such a woman may be a business person but not an entrepreneur.
The entrepreneur on the other hand is the business person who is not satisfied with his/her
performance and therefore always finds ways to improve and grow.
An entrepreneur is one of the key factors of production as seen by economists and brings
together other factors of production such as land, money, materials, manpower and methods
to produce goods and services. He is a person who initiates or finances new commercial
enterprises. The Chamber’s English Dictionary defines an entrepreneur as “one who
undertakes an enterprise especially a commercial one, often at a personal financial risk”. This
implies that committing his financial resources to a project may turn out to be a failure or
success. An entrepreneur could be an inventor or innovator or both, an inventor when he
invents a new product unknown in the history of man or within his environment, an innovator
when he adapts an existing invention to solve a peculiar need.
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Contillion in Isimoya (2005) defines entrepreneur as one who is the risk bearer, has the
capacity economically to produce goods and services; organizes and supervises production;
and introduces new methods and new products, and searches for new materials.
Entrepreneurs have the following motives as suggested by Schumpeter in Isimoya (2005): an

innate desire to be independent, a craving for challenge, need for self-fulfilment and glamour
attached to entrepreneurship i.e. the joy of creating wealth.
• Amongst these three who is an entrepreneur? The Accountant, General Manager or

the owner?
o An entrepreneur is a person who develops a new idea and takes the risk of setting up
an enterprise to produce a product or service which satisfies customer needs. The
owner is an entrepreneur.
5.3 The History of Entrepreneurship in Nigeria.

The Early Stage: Entrepreneurship started when people produced more products than they
needed, as such, they had to exchange these surpluses. For instance, if a blacksmith produced
more hoes than he needed, he exchanged the surplus he had with what he had not but needed;
might be he needed some yams or goat, etc; he would look for someone who needed his
products to exchange with. By this way, producers came to realize that they could concentrate
in their areas of production to produce more and then exchange with what they needed.
Through this exchange of products, entrepreneurship started. A typical Nigerian entrepreneur
is a self made man who might be said to have strong will to succeed; he might engage the
services of others like friends, mates, in-laws, etc; to help him in his work or production.
Through this way, Nigerians in the olden days were engaged in entrepreneurship. Early
entrepreneurship was characterized with production or manufacturing in which case the
producer most often started with a small capital, most of it from his own savings. Early
entrepreneurship started with trade by barter even before the advent of any form of money.
People of the Ibo community in Nigeria are considered one of the oldest entrepreneurs in
history, their expertise stretching back to times before modern currency and trade models had
developed elsewhere on the planet (Osalor 2010). In the more recent past, Nigerians adapted
their natural talents to evolve traditional businesses and crafts that have sustained most of the
country's rural and urban poor for the better part of the last half century. While the oil boom
of the '70s brought in billions of petrodollars, most of the country's population remained
untouched by the new-found prosperity, as a result of widespread political corruption and
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catastrophic economic mismanagement. Because of these and other factors, the World Bank
estimates that 80% of oil revenues benefited just 1% of the population (Osalor, 2010).
The Modern Stage: Modern entrepreneurship in Nigeria started with the coming of the
colonial masters who brought in their wares and made Nigerians their middle men. In this
way, modern entrepreneurship was conceived. Most of the modern entrepreneurs were
engaged in retail trade or sole proprietorship.
One of the major factors that have in many ways discouraged this flow of entrepreneurship
development in Nigeria is the value system brought about by formal education. For many
decades, formal education has been the preserve of the privileged. With formal education,
people had the opportunity of being employed in the civil service because in those days the
economy was large enough to absorb into the prestigious occupation all Nigerians with
formal education. As such, the system made Nigerians to be dependent on the colonial
masters.
Again, the contrast between Nigerian and foreign entrepreneurs during the colonial era was
very detrimental and the competitive business strategy of the foreign entrepreneurs was
ruinous and against moral standards established by society. They did not adhere to the theory
of “live and let live”. For instance, the United African Company (UAC) that was responsible
for a substantial percentage of the import and export trade of Nigeria, had the policy of
dealing directly with producers and refused to make use of the services of Nigerian
entrepreneurs. The refusal of the expatriates to utilize the services of local businessmen
inhibited their expansion and acquisition of necessary skills and attitude. Because of this,
many eventually folded up. Those that folded up built up resentment against business which
became very demoralizing to other prospective entrepreneurs. As a result, the flow of
entrepreneurship in the country was slowed down. But, with more people being educated and
the fact that government could no longer employ most school leavers, economic programmes
to encourage individuals to go into private business and be self reliant were initiated. Such
economic policy programmes that are geared towards self reliance for individuals are
programmes like Open Apprenticeship Scheme, Graduate Employment Programmes, the
National Directorate of Employment, etc. Other policies that encourage or make it easy for
entrepreneurs to acquire the needed funds and train others are Peoples Bank of Nigeria,
Funds for Small-Scale Industries(FUSSI), Co-operative societies, etc, which were established
to assist entrepreneurs in Nigeria.
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5.4 Characteristics of Successful Entrepreneurs

Now let us consider the characteristics or some special qualities and strengths which make an
entrepreneur different from a business person. It is important for us to note that a successful
entrepreneur possesses the following characteristics.
Initiative: An entrepreneur takes actions that go beyond job requirements or the demand of
the situation
Opportunity seeking: An entrepreneur is quick to see and seize opportunities. He/she does
things before he/she is asked to work by people or forced by situation.
Persistence: An entrepreneur is not discouraged by difficulties and problems that come up in
the business or his/her personal life. Once she sets a goal she is committed to the goal and
will become completely absorbed in it.
Information seeking: An entrepreneur undertakes personal research on how to satisfy
customers and solve problems. He/she knows that different people have different capabilities
that can be of help to him/her. He/she seeks relevant information from his/her clients,
suppliers, competitors and others. He/she always wants to learn things which will help the
business to grow.
Demand for quality and efficiency: An entrepreneur is always competing with others to do
things better, faster, and at less cost he/she strives to achieve excellence.
Risk taking: Are you afraid of uncertainties? Then you cannot be an entrepreneur.
Entrepreneurs are not high risk takers. They are also not gamblers; they calculate their risks
before taking action. They place themselves in situations involving moderate risk so they are
moderate risk takers.
Goal setting: An entrepreneur sets meaningful and challenging goals for him/herself. An
entrepreneur does not just dream. Him/she thinks and plans what he/she does. He/she is
certain or has hope about the future.
Commitment to work: An entrepreneur will work long hours often into the night just to be
able to keep his/her promise to his/her client. He/she does the work together with his/her
workers to get a job done. He/she knows how to make people happy to work for him/her due
to his/her dynamic leadership.
Systematic planning and monitoring: An entrepreneur plans for whatever he/she expects in
the business. He/she does not leave things to luck. He/she plans by breaking large tasks down
into small once and puts time limits against them. Since and entrepreneur knows what to
expect at anytime he/she is able to change plans and strategies to achieve what he/she aims at.
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Persuasion and networking: An entrepreneur acts to develop and maintain business

contacts by establishing good working relationship then uses deliberate strategies to influence
others.
Independence and self confidence: Most entrepreneurs start business because they like to be
their own boss. They are responsible for their own decisions.
We could sum up their characteristics as follows;

1. Having high need for achievement,
2. Very optimistic and passionate about what they do,
3. Very dynamic and flexible in outlook,
4. Very innovative,
5. Very courageous,
6. Hardworking and diligent,
7. Very visionary,
8. Good decision making skill,
9. Firm determination and strong commitment,
10. Very confident,
11. Good leadership/managerial skill,
12. Creative thinking, and
13. Good persuaders.
5.5 Nigeria, Youth and Entrepreneurship

The development process of any country is determined by the way the production forces in
and around the economy is organized. For most countries, the development of industry had
depended a great deal on the role of the private sector. Entrepreneurship has played a major
role in this regard. Entrepreneurship is known as the capacity and attitude of a person or
group of persons to undertake ventures with the probability of success or failures.
Entrepreneurship demands that the individual should be prepared to assume a reasonable
degree of risks, be a good leader in addition to being highly innovative. Since
entrepreneurship has to deal with leadership, leadership ability always determines a person’s
level of effectiveness. The personal and organizational effectiveness is proportionate to the
strength of leadership and there is no success in any entrepreneurship venture without
leadership.
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Entrepreneurship in business management is regarded as the “prime mover” of a successful

enterprise just as a leader in any organization must be the environmental change agent. Many
young Nigerians aspire to be successful entrepreneurs. But due to certain constraints, the
ability of many prospective youth to find avenues to utilize their opportunities and skills has
proved futile.
Entrepreneurship in Nigeria is perceived as a major avenue to increase the rate of economic

growth, create job opportunities, reduce import of manufactured goods and decrease the trade
deficits that result from such imports. Two approaches have been used for entrepreneurship
development in Nigeria. One of the approaches is concerned with the provision of generous
credit facilities for small – scale industrialists. The aim of this scheme was to give the
entrepreneur seed money.
The second approach was the establishment of the training centre known as Industrial
Development Centre (IDC). The idea of this Centre was to provide facilities for on- the –job
training of entrepreneurs especially those in the informal sector which include petty traders,
artisans, peasant farmers, etc, and to train them in various aspects of industrial management.
Unfortunately, due to certain factors like absence of infrastructural facilities e.g. power, bad
roads, etc, accessibility to capital, inadequate security, low standard of education, lack of
training and unethical behaviour on the part of some officials and beneficiaries of some of the
programmes among others, these and some other initiatives did not achieve the desired results
(Onwubiko, 2007).
5.6 Role of Government in Entrepreneurship Development in Nigeria

Economic growth rates are often attributed to the role of the duo of government and
entrepreneurs which is complementary and not mutually exclusive.
In Nigeria, like some other economies, government helps to develop transportation, power,
financial inducement, subsidies and other utilities to encourage entrepreneurship
development. Furthermore the government provides security to safeguard life and property,
maintaining law and order and freedom to do business.
According to Eshiobo (2009) the role of government in entrepreneurship development in

Nigeria became significant only after the Nigeria civil war (1967-70). From the mid 1980s
there has been increased commitment of government to entrepreneurship development
especially after the introduction of the Structural Adjustment Programme (SAP) in 1986. In
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addition, we have had the establishment of the National Directorate of Employment (NDE),
National Open Apprenticeship Scheme (NOAS), Small and Medium Enterprise Development
Agency of Nigeria (SMEDAN), Small and Medium Enterprise Equity Investment Scheme
(SMEEIS) etc (Eshiobo, 2009).
Basically, the Nigerian government should promote entrepreneurial culture through initiatives
that build business confidence, positive attitude, pride in success, support and encouragement
of new ideas, social responsibility, providing technological supports, encouraging inter-firm
linkages and promotion of R&D. Others are cheap financial resources, free access to market;
prompt registration/advisory service to businesses, promotion of entrepreneurial skills
acquisition through education and manpower development, production of infrastructure,
export incentives, stable macroeconomic environment, security of investment, stable political
climate, etc. In early 2000s, entrepreneurship studies have been introduced into the Nigerian
educational system especially higher institutions as a mandatory course. The Centre for
Entrepreneurship Development (CED), which has the objective of teaching and gingering
students of higher institutions (especially in science, engineering and technology (SET)) to
acquire entrepreneurial, innovative, and management skills, was established. This is to make
the graduates self-employed, create job opportunities for others and generate wealth. The
UNESCO-TVE Programme in Nigeria is aimed at fostering linkage and cooperation between
higher institutions and industries such that academic research findings can readily be taken up
by industries for production and product development.
• What can government do to aid entrepreneurship development in Nigeria?
o Government can provide infrastructures like good roads, power, financial assistance
and security of lives and properties.
5.7 Employment and types of employment

Employment is working to earn a living. Payment could be in the form of wages or salaries
depending on the nature of the work. Knowledge of the background to employment situation
in Nigeria will enhance your decision on your employment if you are not already employed.
The Nigerian economy has been growing, however unemployment has become a social and
economic problem as many of our youths end up on the urban streets hawking and selling
consumables. Wage employment in the formal sector of the economy is facing decreasing
prospects even though it used to be generally responsible for the employment of graduates
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from our educational institutions. As a result many people who are preparing for wage
employment will end up unemployed, creating serious social problems for the country.
My dear learner, I do not think you want to be one of those who will be trained and end up on
the streets selling.
5.7.1 Types of Employment
Introducing you to types of employment is to help you take decisions as to the type of
employment you will want for yourself if you are not already employed, but essentially to
open your eyes to the other type of employment available. Before proceeding there is need
for you to take time to ponder over these questions;
• Who is responsible for your school fees?

• What kind of jobs do people do for the government, companies and other individuals
and get paid for regularly?
• Mention some of the activities by which people earn their own living?
There are two types of employment:
1. Self-employment: Self-employment means owning your own business alone or in

partnership with others or with members of your family. It is the alternative to wage
employment
2. Wage employment: Working for someone, an organisation or a company and getting
paid for the work done.
5.7.2 Motives for self-employment:
Self employment has some motives which you need to know. You may contact somebody or
people who are already in self-employment to learn about them. However, here are a few
suggested motives for self-employment.
1. A person chooses to be self-employed if he/she has a particular interest in the trade or
business.
2. Follows a family tradition: “my grandmother was a renowned caterer. My mother and
elder sisters also are and therefore, I also want to be a caterer”.
3. Has no other option of earning a living.
4. Meeting the present and future needs.
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5.7.3 Advantages of self-employment
Self-employment has several advantages. Can you think of some of them? Your list may
include any of the following. Being self-employed enables a person to:
1. lead rather than follow;
2. be creative and implement ideas;
3. have the potential for increased income with hard work;
4. be independent;
5. take initiative, make own decision at own pace;
6. control his/her own workplace and the work that needs to be done;
7. continue to learn more about business each day and this could provide an opportunity
for self-fulfilment;
8. be in business beyond retiring age, etc.
If Nigeria is to achieve the millennium goals, we need to consider going into self-
employment - becoming an entrepreneur.
5.8 Success Nuggets for Entrepreneurs

The following tips according to Olusemore (2006) will help make you a successful
entrepreneur;
Need for a vision: You must understand what potentials, gifts and talents God has given you.
These are things you think you are capable of doing and doing very well. The vision should
be written on your heart and you meditate on it at all times. Do not go into a business simply
because it is the one that is in vogue. Start a business in which you have a keen interest; you
can only have an enduring success in a business that gives you personal satisfaction.
Need for effective planning: There is no substitute to effective planning. To achieve a lot
within the time available, organize your work, plan your time, have time schedule for your
work, state what you will achieve per day, per week, per month, per year. Make a habit of
ticking through what you have achieved each day.
Need for discipline: Have a purpose and goal. Be determined to follow your plan through.
Stick to your goal despite setbacks and challenges. Discipline yourself as to the use of time
and financial resources. Organise yourself, work and plan your time. Have a time schedule
for what you will like to achieve per period and avoid time-wasters like too much time spent
on telephone conversations, unwanted visitors, unplanned social engagements, etc.
Need to endure initial hardships: You should know that visions are not achieved overnight.
It is a long term thing. Do not be in a hurry. Try and endure the initial hardships. Anything of
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a lasting value would usually have a gestation period – a waiting period, a time lag between
sowing and reaping.
Need to think big but start small: Have a vision, dream big, but you can start small and
watch your enterprise grow to your dream. Do not lose sight of your mission and avoid
indiscriminate expansion of your business. Do not be too attracted too often by short-term
gains.
Need for courage: You need courage to succeed in life. There will always be
disappointments; when they happen, you must learn to forge ahead. A temporary setback
should not discourage you; only examine thoroughly where you have missed the mark and
correct yourself.
Need to have a mentor: In every profession or field of human endeavour, there are always
the trailblazers; there are pioneers of something. These could be people who have succeeded
in different fields, and could offer advice or guidance on the new venture you intend to go
into.
Need to have faith in God: You need a quantum of faith in God for you to move mountains.
Men of faith in history are always successful in their endeavours. Things may be rough and
tough but with faith and holding on to God, you can succeed.
5.9 Summary of Study Session 5

You have so far learnt the concept of entrepreneurship and entrepreneur, special qualities and
strengths which make an entrepreneur different from a business person. With this as the main
focus, we deem it necessary that you identify your strongest traits as you prepare to start your
own business. Tips for becoming a successful entrepreneur have also been discussed. We
have also learnt that there are two types of employment: the wage and self-employment. The
advantages of self employment are to lead rather than to follow, be creative, take initiative, be
independent and be in business beyond retiring age. Unemployment is a social and economic
problem; there is need for more entrepreneurs or the self-employed

Bravo! You have finished this study session. Isn’t it interesting? Don’t you think you should
find time to think back and see how much of what you learnt you can recall? Now try your
hands on the following essay and multiple choice questions without going back to the text
until you are sure there is need to. Do you have questions to ask? Write it down on your pad
and ask your tutor in the next class.
Essay
SAQ 5.1 (tests Learning Outcomes 5.1, 5.2, and 5.3 )
Define entrepreneur and state five characteristics of a successful entrepreneur
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In not more than two sentences differentiate between entrepreneur and
entrepreneurship

List and explain four success nuggets for entrepreneurs

Write short notes of not more than three sentences each on the early and modern
stages of entrepreneurship development

From the options given, choose the most appropriate option to fill in the gaps.
1. ---------- demands that the individual should be prepared to assume a reasonable

degree of risks, be a good leader in addition to being highly innovative.
(a) entrepreneur
(b) entrepreneurship
(c) business man
2. ----------- is a person who develops a new idea and takes the risk of setting up an
enterprise to produce a product or service which satisfies customer needs.
(a) Business man
(b) entrepreneurship
(c) entrepreneur
3. ................ means owning your own business alone or in partnership with others or with
members of your family. (a) Self-employment (b) paid employment (c) Temporary
umemployment (d) Voluntary unemployment
4. Entrepreneurs have the following motives except

(a) innate desire to be independent
(b) craving for challenge
(c) need for self-fulfilment
(d) withdrawal in the face of difficulty.
5. Entrepreneurship is known as the capacity and attitude of a person or group of persons to

undertake ventures with the probability of success or failures.
(a) True
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(b) False
Questions 1 2 3 4 5
Answers D C A D B

Ltd.
Eshiobo, S. S. (2009) Entrepreneurship In Innovation, Phenomena Growth Of
EnterprisesAnd Industrial Organisations In Nigeria.
www.icennig.org/ENTREPRENEURSHIP%20IN%20INNOVATION.doc
Osalor, P. O. (2010). Entrepreneurial Development in Nigeria.

http://EzineArticles.com/3562102
Onwubiko, C. M. (2007). Entrepreneurship and leadership: “Nigeria and the

Imperative for Youth Entrepreneurial Development”.
www.cipe.org/programs/women/EssaysForWeb/Onwubiko.pdf
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MODULE TWO
BUSINESS ORGANIC FUNCTIONS, CHALLENGES AND
RESPONSIBILITIES
Learning Outcomes
At the end of this module, you should be able to:
• Describe the organic functions of business and their interrelationship;
• Discuss the basic contents of a feasibility study
• Describe the challenges of business management
• List factors affecting business operation in Nigeria
• Define opportunities and threats
• Identify indicators of business opportunities and threats
• Define Social responsibility and Business Ethics
• Identify interest groups in social responsibility
• Outline measures to ensure ethical practices are followed
• Explain causes of business failure
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Study Session 1 Organic Functions and Feasibility Study
Introduction
In study sessions 1 to 5 we talked about business and its environment, examined some forms
of business ownership and entrepreneurship development. In this study session, you will be
taken through the various parts of business that exist together in a seemingly natural
relationship that makes for organized efficiency. Whatever kind of business organization you
have chosen to set up even if it is the least - sole proprietorship, you will find this parts
existing and working together (may be in smaller measures and ways peculiar to the business)
so that the motive for business will be achieved. These functions include marketing,
production, finance and human resources. Businesses integrate the various functions of these
departments to form an organic whole called the business organization. In a business
organization, every business idea including farming should have a feasibility study conducted
to determine the viability of the idea before proceeding with the development of the business.
Determining early that a business idea will not work saves time, money and heartache later.

When you have studied this session, you should be able to:
1.1 Define and use correctly all the key words printed in bold (SAQ 1.1, 1.2, 1.3,and
1.4)
1.2 Describe the organic functions of business (SAQ 1.1, 1.2, 1.3)
1.3 State the various functions of the organic units (SAQ 1.2 and 1.3)
1.4 Explain feasibility study and its uses (SAQ 1.4, 1.5)
1.5 Outline the basic contents of a feasibility study (SAQ 1.4, 1.5)
1.1 The Organic Functions of Business

A business organization has various parts working together to achieve organizational
objectives. The various functions of these departments are integrated to form an organic
whole called the business organization. These various parts of business that exist together is
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called the organic business functions. The functions include marketing, production, finance
and human resources.
1.1.1 The Marketing Function
Marketing is defined as the management process which identifies, anticipates and supplies
customer requirements efficiently and profitably. This definition implies that marketing is
more than selling as the marketer must ensure that the goods or services offered must
conform to customer requirements. Marketing management is Demand management. The
task of a marketing manager therefore is to: create demand where none exists, revitalize a
sagging demand, attempt to smooth out an uneven demand, and reduce overflowing demand.
The Marketing function involves the identification of consumer needs which initiates the
business cycle. Market research is the tool for identifying and assessing consumer needs.
Market research is the process of gathering, recording and analyzing facts and data
concerned with the market, that is:
a) What can be sold in a given market?

b) Where can they be sold?
c) Who are the buyers?
d) What quantity can they buy?
e) What price can they pay?
f) Where can they get the product?
These questions must be answered before the product can be developed and for the business
to succeed. Hence, the marketing function embraces a wide range of sub-functions requiring
special skills.
Box 1.1 Some Sub-Functions in Marketing
Market Research
Product Planning
Public Relations
Sales and Physical Distribution
Product Advertising
Product Promotion
In any company, the marketing department and management are teamwork and the
effectiveness of the team depends on the qualities of the team members. Let us look at two of
the sub functions in marketing.
Sales and physical distribution
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The main function of a sales department is to attract and retain customers. The sales
department generates and close deals, educate prospects, fill needs and satisfy wants of
consumers appropriately. The sales function implies that whatever the product or service an
organisation decides to provide for the satisfaction of peoples’ needs there has to be ways of
getting it across to the prospective customers at a cost. In many companies, sales and
distribution are a joint operation. However, before any distribution can take place, a selling
process has to be evolved. The sales department requires an imaginative or creative centre
based on the marketing plan.
Customer satisfaction is very important hence the selling function includes after sales service
and warranties, which must be well managed to eliminate buyer’s dissatisfaction. The sales
department therefore, is a living mouthpiece for any company and must be extrovert in nature
to achieve its purpose.
Distribution is the process of getting the goods produced to the consumers or customers
wholesome at the right time and the right place. This can be done by the producers directly to
the end users (customers) or indirectly through the use of middle men or those called
‘distributors’. This means that for effective distribution of its products, the organisation will
have to agree on the channels. Channel decision is very important whether it will be direct to
consumers or through the intermediaries to achieve wider distribution which ordinarily may
be lower in cost. There are types of marketing channel like the intensive distribution,
selective distribution, and exclusive distribution
Product Promotion
This an act of showcasing a good or service manufactured by a firm with the sole aim of
increasing sales within the short or long run. Companies use different techniques and
communication mediums to promote their products. They can advertise on TV, Radio,
Newspaper or use bill boards or better still do personal (one on one) selling. Today, we
cannot say there is one better or best communication medium. The most effective medium
will be based on what type of product you are promoting and how you have packaged it.
In the recent time, many companies have been trying to make use of online social media to promote
their product. Some of these online social media are Facebook, Twitter, and YouTube. Through these
online social media network, companies can advertise and promote their products to anyone, at
anytime and anywhere in the world. Some companies have recorded great success marketing their
products to younger people who may not have had the opportunity of seeing it in TV or newspaper.
• A business organisation uses its middle men to ensure its product gets to customers in
various geographical locations. What organic function of business does that
represent?
o It represents a sub function of the marketing organic function which is sales and
distribution of goods.
1.1.2 The Production Function
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Production is the process of converting raw materials into finished products. Production
function in economics is an equation that expresses the relationship between the quantities of
productive factors (such as labour and capital) used and the amount of product obtained. That
is, the production function relates the output of a firm to the amount of inputs. It states the
amount of product that can be obtained from every combination of factors, assuming that the
most efficient available methods of production are used.
The production function can thus answer a variety of questions. It can, for example, measure
the marginal productivity of a particular factor of production (i.e., the change in output from
one additional unit of that factor). It can also be used to determine the cheapest combination
of productive factors that can be used to produce a given output (Encyclopædia Britannica,
2012).
The decision to convert raw materials into finished product is taken after careful
consideration of many variables such as proximity to raw materials, availability of skilled
labour, and ease of transportation to market. The choice of location also affects the
effectiveness of the production function.
Types of Production Systems
Essentially, there are four types of production system. These are: Job Shop Production,
Batch production, Mass production and Process production. Each of these is explained
below.
Job Shop Production System: this involves the production of a single product in line with
specific requirements. Each product is a one-off job which may not be repeated. An example
is building a ship for a client.
Box 1.2 Features of job production systems
Relatively high-priced product,

Involves the use of highly skilled labour,
Low capital cost, and
Centralization of management.
• What organic business function will ensure that products and services reach the
customers and that sales or customer base increases through awareness?
o The marketing organic function
Batch Production System: This involves the production of a batch or quantity of a product
to meet a specific needs e.g. production of goods for stocks, such as components for the
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motor car industry or aeroplane. Here, production operatives are less skilful than the job
production operatives.
Mass Production System is the production of products that are uniform and standardized in
nature. Production is continuous and the units produced are the same and specialized.
Examples are toilet soaps, ball pens and rulers. Mass production system is a large-scale
production. It therefore requires the existence of a well developed marketing organization to
make continuous production possible.
Box 1.3 Features of Batch Production System
Relatively low price,

High capital cost,
Little flexibility,
High population of semi and unskilled labour required, and
Less centralization in management.
Process Production System: This is where the production is continuous but with a high
degree of automation than in mass production e.g. oil and chemical industries. It is highly
capital intensive.
Scope of Production Function
Depending on the organization, the production function can be subdivided into: Production
Administration, Production Design, Production Management and Production Ancillaries.
• An organisation intends to determine the amount of product that can be

obtained from a given combination of factors of production. Recommend what
organic business function will handle that.
o I will recommend the Production organic function whose duty is to relate the
output of a firm to the amount of inputs.
1.1.3 The Finance Function
The basic objective of the finance function is to formulate policies ensuring that the most
effective use is made of the financial resources of the organization. It assists the company to
make use of the funds at its disposal and to select the most favourable sources of additional
funds to finance future operations.
Accounting provides the source of information for financial analysis and planning.
Accountants measure such variables as performance, sales expenses, profits, assets and
liabilities and express their findings in numerical terms. This is then communicated to
individuals, management and all interested parties both in and outside the enterprise.
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Financial Accounting is part of the finance function. It takes care of preparing the company’s
balance sheet, profit and loss account and the manufacturing accounts in the case of
manufacturing companies.
Balance Sheet: indicates the wealth of a company at a certain point in time. It presents the
picture of the cause of profit or loss over the period of one balance sheet data to another. It is
used for the calculation of liability for corporate tax, dividends to shareholders and changes
in retained profits.
Profit & Loss Account: This shows the addition to wealth which has been made over a
period of time. It is a statement of operations over a defined period of time and shows the
revenue earned during the period i.e. 12 months, cost of goods sold, other expenses incurred,
taxes and rates paid, and the profit or loss resulting from the operation at that period.
1.1.4 The Human Resources Function
Human Resources (HR) deal with people at work and their relationship within the working
environment. The Human Resources approach further deals with the employee’s entire
working life in the company, and not just their contractual relationship with it. It is also
involved with values and aims of their commitment to management goals.
The HR function (Personnel Management and Industrial Relations) is a critical function

performed in any organization of human effort. Plants, office computers and machines are
unproductive except for human effort and direction. Managing the human component is the
central and most important part because everything depends upon how well it is done.
Human Resources function involves:
• Recruitment and Selection,
• Training and Retraining,
• Remuneration of employees,
• Formulating of personnel policies and procedures,
• Acting as a clearing house for information about employee’s conducts, attitude

towards management, the job and the firm,
• Assisting line managers with employee problems e.g. promotions, transfers,

demotions, discharges, etc
• Prepare job analysis and evaluation for each position in the firm, and
• Collective bargaining negotiation
• Name five functions of the Human Resources department of an organization.
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o The Human Resources department is responsible for remuneration of workers;

preparing job analysis and evaluation for each position; recruitment and selection;
training and retraining; and formulation of personnel policies and procedures
1.2 Feasibility Study and Business
Feasibility study is a preliminary study undertaken to determine and document the viability
of a project. Project here could mean a fresh business idea, or an identified opportunity. It is
a thorough evaluation of how practicable a business project would be. Feasibility study
provides information about the various elements or characteristics which form the basis of the
business proposal. It is an analysis of how worthwhile a business idea is. The feasibility study
focuses in helping to answer essential questions such as “Should we proceed with the
proposed project idea?”
A feasible business venture is one where the business will generate adequate cash flow and
profits, withstand the risks and challenges it will encounter, remain viable in the long term
and meet the goals of the founders/owners. The venture can be a new start up business, the
purchase of an existing business, an expansion of current business operation or a new
enterprise for an existing business.
• A business man approaches you, tells you of his intention to take advantage of
a presumed opportunity but is entertaining fear on the success or otherwise of
it. Advise him.
o I will advise him to conduct a feasibility study as that is the only way to
determine the success/viability or otherwise of any business venture.
1.2.1 Role or Uses of Feasibility Study
1. A feasibility report helps to determine the viability of the project and the degree of
risk associated with investing in it.
2. Evaluates alternatives. After a business entrepreneur has discussed series of
business ideas or scenarios, the feasibility study helps to ‘frame’ and ‘flesh-out’
specific business alternatives so they can be studied in depth and the best
alternatives chosen.
3. Aids decision making in terms of financing the project.
4. Is used to evaluate the profitability and technical practicability of the project.
5. It guides the general implementation of the project plan.
6. Is used to seek for business loan from bank. An organization may not be granted
credit if it is unable to produce a convincing feasibility report stating the future
plans of income for the organisation. This is because banks expect that the
business will repay the loan from the future streams of income as stated in the
feasibility study.
• Outline three roles or uses of feasibility study.
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o Feasibility study could be used to aid decision making especially concerning

financing of the project. It could also be used to determine if a project is
profitable and practicable, and it guides the general implementation of the
project.
1.2.2 Contents of a Business Feasibility Study
The success of a feasibility study depends on the careful identification and assessment of all
the important issues for business success. Bear in mind that the premise of feasibility study is
to determine the potential for success of a proposed business venture.
The following outline can help you create your study. Not all feasibility studies are alike. The
elements to include in a feasibility study vary according to the type of business venture and
the market, therefore the listing below may not be a complete listing of the factors that should
be considered in your specific situation but may aid you to think and add further issues that
needs to be assessed in your own specific business. These are:
Brief Description of the Project and its Objective

Describing the project and its objective briefly entails stating the name of the business, the
type of business (partnership, sole proprietorship, Limited Liability Company, etc) and the
industry to which the business belongs e.g. food and beverage industry, agricultural industry,
textile and clothing industry, banking industry among others.
Ownership
Here, you are expected to provide the name(s) of the promoters or proprietors of the business,
their origin (whether indigenes or foreigners), their business experience, what they do
currently, their skills and ability. This element will also include the ownership structure in
case more than one person owns the organisation.
The Product or Service

This entails describing the product or service you want to deliver to the consumers and the
nature of the product or service. You need to state whether it is a consumer good or an
industrial good, whether it is an intermediate or final product, the uses of the product or its
importance to the consumer, and the particular segment of the market it will serve.
Production Process and Production Plan

In this segment, you will need to state the production process you wish to adapt whether large
or small scale depending on the business and the machines to be used. The production plan
should highlight how and where the machinery and raw materials are to be procured; give full
description of the raw materials required, the quantity required to produce certain units,
capacity of the machine(s) in terms of volume of production, and also address quality
standards and controls, etc.
The Market for the Product
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It is necessary to describe the market you want to operate in. Will it be the wholesale or retail,
local or international market? There is need to also state the current situation of the market?
Is it a growing or saturated market? Who are the major competitors and major buyers in the
market? What market niche do you want to carve for the product?
The Marketing Plan/Strategy

Having known the characteristics of the market you want to operate in, you should describe
how you want to compete in the market. How do you intend to obtain a reasonable share of
the market? What is the distribution and promotion plans you wish to adopt? How do you
make consumers who have been buying similar or substitute products prefer your product and
spend their money on your product? State also the medium of promotion and publicity you
intend to use and the pricing policy you wish to adopt.
Technical Feasibility
How do you get the right technical people and workers to match the kind of organization you
have in mind and the machines. This entails determining facility needs e.g. The size and type
of production machines, how suitable are they? Are they reliable? Who are the experts to
man the machine and how do you intend to employ them? What are the constraints or
limitations of the technology? Is the technology likely to contribute to pollution or otherwise
damage the environment?
Land/Property
Do you need land or property? What acre or size of the virgin land do you require? What is
the location you are targeting? What is the estimated cost? What security does the
land/property have e.g. Certificate of Occupancy, Deed of Assignment/Conveyance? Will the
land be suitable for the business? If it is a property, what is the size you need? Where should
it be located? What kind of infrastructure do you expect around that area to suit your business
needs.
Organization and Management

This will explain how the business will be organized, the kind of structure or chart to be put
in place e.g. drawing out the organizational chart detailing the line of report and authority and
the various departments. For instance, figure 4.3.1 may represent the structure of an
organization in terms of layers and levels.
Fig. 1.2.1: Organizational Structure/Chart
MD
GM
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Manager Manager Manager Manager
Administration Product Accounts personnel
Administrative Product Account HR
Officers supervisor Officers Officers
It is also necessary to state the members’ background and work experience of members of the
management as this is important to assess if they are capable of managing the business and
performing their assigned roles or otherwise. This is also important because the financiers are
interested in knowing that the management team is highly rated and there is market for the
product/service. You should also talk about the workforce (labour), the number of senior or
junior staff required etc.
Economic or Financial Feasibility

This requires stating the estimated total capital needs or requirements which is divided into
capital expenditure & working capitals. Capital expenditure takes care of capital items like
plant and machinery, land and building, tools, office furniture and fixtures, motor vehicles,
etc. The working capital or start up capital which is the anticipated expenditure before
revenues are realized will also be stated. This includes anticipated payment for labour (wages
and salaries), utilities, rent, suppliers, repairs, raw materials, administration expenses,
production overhead and other expenses at the initiation of business. Financial feasibility also
entails making financial projections and profitability analysis, that is, having a budget of the
estimated expected costs and revenue or returns and stating the profit margin and expected
net profit. It also requires estimating the unit of sales needed to break even, estimating the
returns under various production price and sales level, and identifying the “best case” or
“worst case” scenarios. Again, you need to state the reliability of the underlying assumptions
of the financial analysis.
Generally, there should be a projected income statement or cash flow statement. This income
statement summarizes the estimated operating expenses and operating revenue, and shows the
net profit or loss. The net profit is the return on investment. When it is lower than the
expected level, the project might be termed unviable or not feasible.
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In this session you have covered the four basic organic functions of business. These are
marketing, production, finance and the human resources. The marketing function is
responsible for meeting consumer’ desires in terms of product and services, ensuring that
products get to the end users and that goods and services get adequate promotion. The
production function ensures that input yields the required output and the method of
production is also determined by it. Finance function ensures that funds are judiciously used
in order to attain organizational objective. The Human resources coordinates the use of all
other resources. In essence, in the execution of all these functions, the human resource has a
central role to play and must give necessary training and development. In addition You have
learnt in this session the meaning of feasibility study and identified it as a veritable tool for
determining the viability, practicability and profitability or otherwise of a business project.
The role of feasibility study which includes using it as a means of securing loans from banks
and the evaluation of alternative ideas among others was also examined. The basic content of
a feasibility study which includes ownership, finance, market, marketing plans, product, and
production plan was also identified.

Well done! You have just finished the first study session of module 2. Did you enjoy reading
through? If you did, then there is need to assess your understanding of what you have learnt
so far. Now pick up your pen and pad, try your hands on the essay and multiple choice
questions and see how much you can recall. Do not forget to put down points you think your
tutor might be of assistance to help you clarify during the tutorial.
Essay
SAQ 1.1 (tests Learning Outcomes 1.1, and 1.2)
Discuss briefly the four organic functions of business.
SAQ 1.2 (tests Learning Outcomes 1.1, 1.2, and 1.3)
The marketing function embraces a wide range of sub-functions requiring special
skills. State three of such sub-functions
List and explain the four subdivision of the production function.
What are the basic contents of a feasibility study? Itemize and write short notes on at
least three using not more than two sentences each.
State briefly the contents of a financial statement in a feasibility study

From the alternatives provided, choose the most appropriate option
1. One of the following is not a function of marketing:
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(a) market research

(b) product planning
(c) physical goods distribution
2. This involves the production of a uniform and standardized nature.

(a) Batch production
(b) Mass Production
(c) Few Production
3. Managing the ..............component is the central and most important part of an organization
because everything depends on how well it is done.
(a) Marketing
(b) Human
(c) Production
(d) Financial
4. ........ involves the production of a batch or quantity of a product to meet a specific needs.
(a) Mass production
(b) Process production
(c) Batch production
(d) Tailor-made production.
5. In this production system, production is continuous but with a high degree of automation
than in mass production
(a) Batch Production
(b) Job shop production
(c) Process Production
6. In feasibility study .......... will explain how the business will be organized, the kind of
structure or chart to be put in place.
(a) Organization & Management
(b)Economic and Financial analysis
(c) Market for the product
(d) Marketing plan
7. -------- provides information about the various elements or characteristics which form the
basis of the business proposal.
(a) Feasibility study
(b) Business plan
(c) organised study
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8. Capital expenditure include all except

(a) Marchenery
(b) Building
(c) land
(d) wages and salary
9. ............................... requires stating the estimated total capital needs or requirements

which is divided into capital expenditure & working capitals.
(a) Financial feasibility
(b) Capital feasibility
(c) profit and loss feasibilty
(d) balance sheet feasibility
10. ........................... is the process of determining facility needs through showing size
and type of production machines, stating its suitability as a production technology, and
showing how reliable it is are part of the requirements for effective operations.
(a) Economic feasibility
(b) Technical feasibility
(c) Budgeting feasibility
(d) business plan
Question 1 2 3 4 5 6 7 8 9 10
Answer D B B C C A A D A B

Ifechukwu, J.A.O. (2006). How To Prepare A Feasibility Report and Establish your
own Business. 3rd Edition. Lagos. Goldland Business Co. Ltd.
Concept Pub. Ltd.
Encyclopaedia Britannica (http://www.britannica.com/EBchecked/topic/477999/production-
function). Accessed March 2012
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08033366677
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Study Session 2 Challenges of Managing Business in Nigeria
Introduction
The factors affecting the smooth operation of business in an environment could be regarded
as the challenges faced in managing such business. These challenges differ from business to
business as well as from environment to environment. In the Nigerian environment we will
like to look at those peculiar challenges that most business managers have to deal with in
their day-to-day operation. The relevant words here are: Challenges, Business and
Management. It will be appropriate to understand the meaning of these words before
proceeding.

At the end of this unit you should be able to:
2.1 Define and use correctly all the key words printed in bold (SAQ 2.1, 2.2 and 2.3)
2.2 Describe the challenges of business management (SAQ 2.3)
2.3 Explain the factors that affect business operation in Nigeria (SAQ 2.2)
2.1 Definition
Let us make an effort to define each of the relevant word identified by starting with
challenges. There are several definitions to the word. For the purpose of our study, we would
use the third definition of the Longman Dictionary of Contemporary English which gives the
meaning of Challenges as “The test of the abilities of a person, or thing”. So, we assume that
anything that tests one’s ability to do something (say a kind of job) must be challenging.
Normally things we are used to doing, no longer tests our abilities because it is established
that we can do it. Therefore we could further say that challenges are obstacles, obstructions,
difficulties, opposition, hindrances, hurdles that business people face. Most people claim they
like challenges, and so you won’t be surprised to hear people say such things as “I’d like a
challenging job”; “I like to study something only if it really challenges me”; etc. So, whatever
this sort of people wants to get involved in, will really have to test their ability to achieve or
overcome. In the past, businesses were faced with the challenges of land, labour and capital
but all that has changed now. See what IBM CEO Louis V. Gerstner Jr once said.
“The age-old levers of competition which are land, labour capital are being supplemented by
knowledge. Only firms that can exploit knowledge and act fast or with speed can succeed”.
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Business as a word has also been defined in various ways by various people. Some have
defined Business “As an organisation set up to make profit”; others describe it as “an
organization consisting of a person or a group of persons who produce and distribute goods
and services for profit”. Karimu (1992) defines business as “the sum of all the legal
activities involved in the creation and distribution of goods and services for private profit”.
Therefore, business is any legal means of satisfying human wants with the motive of profit.
Management as a term or word means different things to different people depending on its
usage. Some refer to it as “Those at the top level of an organisation”, that is, the decision
makers in an organisation. Mary Parker Follet defines management as “art (i.e. skill, ability)
of getting things done through other people”. However, the definition of Mondy et al will
suffice here. Mondy, Holmes and Flippo (1983) defined management as the process of
planning, organizing, influencing, and controlling to accomplish organisational goals through
the coordinated use of human and material resources. We could then visualize management
from two perspectives – people at the top level/decision makers (managers) who ensure that
organizational objectives are achieved through the efforts of people (workers) and other
relevant resources.
Challenges of business management therefore are those issues, factors, conditions,

situations, uncertainties which test the abilities of business managers as they work towards
satisfying human wants and in return make profit.
Environmental uncertainties entails that there is lack of complete information regarding

what developments will occur in the external environment. This makes it difficult to predict
future state of affairs and to understand their potential implications. For instance, the current
world recession that started in 2007 in the US from real estate (housing market), affected
banks and led to layoff of workers, resulted to low credit within the economies thereby
making it impossible for businesses to secure loans. It also affected the stock market and so
many lost their investments while unemployment rate increased generally.
Isimoya (2005) has said that managing business organisations in Nigeria is not for the faint-
hearted. That is to say, business in Nigeria is for those who are willing to take risks or face
challenges and also savour the benefits that result from such successful undertaking.
Olusemore (2006) added that “the Nigerian Environment has always been challenging and no
one should use it as excuse for business failure”. So if anyone cannot face challenges or take
risks (as they have always been there and would continue to be there) that person should not
go into business. And if one is in business and fails, the person shouldn’t say it’s because of
the challenges faced, as challenges were there even before embarking upon the business.
2.2 Types of Business Organization
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• What are the types of business organizations? Remember you learned something
about types of business organisations in module 1, study session 4.
o The types of business organisations are sole proprietor, partnership, limited liability
company, corporation and cooperative societies.
There are various types of business organisations as we were told in the previous module viz:
Sole Proprietorship, partnership, limited liability companies, public corporations, cooperative
societies etc. In a sole proprietorship, the key person or the manager is usually the owner of
the setup. In a partnership, the active managers are likely to be the owners except where
there is an agreement to employ somebody other than the partners. Limited Liability
Companies are divided into two – Public and Private. The private companies are usually
family-owned businesses while the public companies are the multinationals with public
quoted shares. Public corporations are government established enterprises or owned
companies. The most prevalent in our country are the first two – sole proprietorship and
partnership, that is to say, mostly small scale businesses.
Businesses as we know do not operate in a vacuum. They operate within a given environment
and these environments influence business just as business influences the environment. To
help you recall we have two types of environment viz; the internal and external
environments.
The internal environments are generally regarded as the controllable environment, which is
otherwise termed the strengths and weaknesses of an organization. They include such factors
like resources (financial and material), the employees, product, price, promotion, place of
distribution, work ethics (prompt response to customer needs, after sales service), the work
climate (how friendly and conducive it is), the leadership style/decision making process,
communication style, structure of the organization (who reports to who) size of the
organization, and organizational culture.
The external environment is regarded as the uncontrollable environment otherwise seen as

the opportunities and threats of an organisation. The external environment is divided into
two: Macro (General Environment) and Micro (Specific or Task Environment). The Macro
environment has to deal with the environment that applies to all businesses in general. For
instance, the political, economic, social, technological issues that is common to all kinds of
businesses. For instance, the issue of computerization in all spheres of business is a general
environment under technological issues that is affecting virtually all business as managers’
work hard to make the running of their business easy and faster through the use of computers.
Any organisation that should be using computer for its operation currently that is not doing so
will have itself to blame as the customer may not want to listen to excuses. Micro
environment has to do with the stakeholders of a particular business. That is, people or
persons, or groups, institutions who are affected by the performance of the organisation.
Consequently, the external environment includes factors such as government regulations
through its regulating agencies,, cultural or social changes, economic conditions in terms of
market forces (supply and demand), sources of funds, income, population increase or
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decrease, customers, technological changes, competitors, trade union activities, suppliers,

distributors, etc.
Environmental factors as we know vary from country to country, even region to region. The
environment of business therefore, is an extremely complex and dynamic one and the
challenges of business management lies essentially in the external factors or the
uncontrollable factors, since an organization may have control over its internal factors. For
instance, an organization can alter or modify factors such as the workforce or personnel,
physical facilities, organizational and functional means like the marketing mix to suit the
environment, but may not be able to alter external factors like interest rate, inflation rate,
policies on import and export, etc.
2.3 Factors militating against Business Operations in Nigeria

The success or otherwise of a business entity depends to a large extent on its adaptability to
the external environment. If a business could properly design and adjust the internal
(controllable) variables to take advantage of the opportunities that exists in the external
environment and manage the threats, such business has a higher tendency to succeed.
• Of the two environments (internal and external) which is likely to drive an

organisation out of business and why?
o The external environment is likely to drive an organisation out of business since it

cannot control it. If for instance there is an economic policy that’s unfavourable to
business, business needs to modify its internal resources to adapt to the policy, where
it cannot do so, business may fail.
Some of the peculiar challenges faced by Nigerian business operators as enunciated by

Olusemore (2006) which could be grouped under the external environments mentioned above
are:
i. Unstable Government Policy: Government policies are often unstable and

inconsistent especially in the past as a result of political instability. This affects
planning and decision making. Examples are policies on import and export, fiscal
and monetary policies, policies on licensing, monopolies, foreign investment,
distribution and pricing and their controlling, customer protection policies, etc.
Business organizations need to be on their toes and keep their ears to the ground
in order to know when policies that will impact on their businesses are to be
changed. This challenge could be grouped under political and regulatory
environment.
ii. Poor Infrastructure: Facilities such as roads, rail, air transport, schools, health
facilities, water, etc, if not in good shape will affect everyone whether a business
person or not. As for business people, bad roads, deficient rail or air system, lack
of usable or portable water will affect the cost of doing business. Bad roads for
instance, will cause heavy traffic jams thereby increasing the number of hours
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spent in going for a business deal as well as put the vehicles under stress and
thereby reducing the life span of vehicles. It will also increase cost of
transportation thereby adding to the cost of doing business. If the roads are good
and smooth and the rail system is fixed, business operators can have a choice of
cheaper transport to use so as to reduce cost of business as well as prices of goods
or services pushed to the society. Again, a healthy people or nation in other words
means a healthy environment for doing business. An uneducated nation is blind
and would not appreciate business provisions. Lack of water means incurring cost
by business operators as boreholes will be sunk, pumping machines, tanks and
generators for operating the machines will be bought. This automatically adds to
the cost of doing business. Poor infrastructure falls under the economic
environment.
iii. Irregular Power Supply: Most businesses currently operate on generator almost
twenty-four hours daily. Notwithstanding that there has been a change in name
from National Electric Power Authority (NEPA) to Power Holding Company of
Nigeria (PHCN), there is no change in services or in supply. Business has to cope
with the cost of purchasing generator, powering with the appropriate petroleum
product (cost of products unstable), servicing and maintaining it, and of course
repairing when it is faulty. All of these will add to the cost of the final product or
service to the end users. This factor can be classified under economic.
iv. Inflation/High Cost of Doing Business: Inflation is the pervasive and sustained rise
in the aggregate level of prices measured by an index of the cost of various goods
and services. Repetitive price increases erode the purchasing power of money and
other financial assets with fixed values, creating serious economic distortions and
uncertainty. The Nigerian government since 1999 has been making efforts to
control the high rate of inflation from two-digit inflation to one-digit inflation.
This has been difficult probably due to the fact that they say one thing and mean
another. For instance, government has gradually been withdrawing subsidies in
the power and petroleum sector which has in turn led to increase in power tariffs
and pump price of petroleum products and general increase in production or
business overheads. Constant increase in petroleum product prices neutralizes
government efforts in reducing inflation and cost of doing business rates. Illicit
road blocks or check points and toll collection by various law enforcement
agencies and private revenue collection groups which makes the movement of
goods and services very difficult also add to overhead costs.
v. Low level of Savings/Spending: Economic growth is slow even though government

is working through the National Economic Empowerment and Development
Strategy (NEEDS) to stimulate growth. Price levels are high and people only
spend on essential goods and services (food, shelter, clothing, education etc.);
therefore, little or nothing is reserved for savings. The level of savings and
spending is low and this is not good enough for business especially those who are
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into some of the goods and services considered not-too-essential for human
survival. Again, low savings implies that the interest rate on lending will be very
high. Business people who will like to borrow funds from banks will have to
repay with so much interest, and at the end of the day, they will add the cost of
funds to their total cost and that in essence shoots up the prices of their
commodities or services to the users.
• Would you consider as challenges of business operation in Nigeria, the

inability of a company to get its product across to its very many consumers
because of lack of medium or means of transportation and in the process lose
some customers to competitors?
o The duty of a company to make its product and services available to its end
users is purely an internal one and cannot be seen as a real challenge because
they can improve on their distribution process if they so desire.
vi. Multiple Taxes/Levies: The probability of receiving different types of bills from
local and state governments when you set up a shop or business is not favourable.
This is outside of the compulsory business income tax and utility bills paid. For
instance, if you operate where there is pipe borne water, you will need to pay
water rate, you will also pay electricity bills which of course in some instances are
estimated bills especially if you do not have a meter (as there appears to be no
standard measures for estimating energy consumption). In cases even where there
is meter, PHCN may still bring estimated bills that are in most instances greater
than what should be the actual consumption for a month and could proceed to
disconnect electricity supply based on ones inability to pay such estimates.
Business operators aggregate all these costs and add them to the final prices rolled
out to the consumers.
vii. Inability to access Bank Funds: The claim by many that it is difficult especially for
small businesses to access commercial bank loans to a large extent is correct. This
is due to the fact that call for collaterals often times pose difficulties to the
borrower who is unable to gather the requirements. Again, banks were more
comfortable trading on the funds on a short term basis than lending to the real
sector. The reason for this may not be far-fetched since before the beginning of
the CBN imposed recapitalization and consolidation exercise of 2005, the income
of banks were largely on a short term basis (e.g. tenured funds of 30, 60, and 90
days) and so, banks cannot grant long term loans (which are what manufacturers
and real business people need) when they receive short term funds from
depositors. Currently, with the recapitalization exercise, it is likely that banks are
more poised to lend long term since their shareholding base has increased.
viii. Security: The issue of insecurity of the business property and place has
necessitated the employment of security men and security gadgets like burglary
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proofs, CCTVs, high fenced walls etc. Ordinarily in secured economies, the
normal locking of a business premises should suffice; but where costs have to be
incurred on further security measures, this adds up to the cost of doing business.
Therefore, the issue of security is a big challenge to business managers in Nigeria
as there may be need to further secure their business through the employment of
security guards and putting other security measures in place. This belongs to the
social environment.
ix. Competitors: The activities of competitors also pose a challenge to businesses.

Except a business is monopolistic, it is sure to have competitors who will spare
nothing to ensure they have a firm grip of the market. Therefore business
managers must be careful the kind of decision they make toward their customers,
for example, in raising of commodity prices and distribution of their products and
services. Competitors may take advantage of the situation. More so, there are
influxes of fake products nowadays: businesses will always strive to distinguish
their products as genuine, and give their customers reason to believe and prefer
their products.
x. Suppliers: Any business of production or manufacturing cannot long operate

effectively unless it is continually supplied with needed raw materials. Lack of
adequate and prompt supply can reduce or even cause cessation of operations even
though the firm has sufficient capital and employees. Supplier’s inability to meet
material specification and supply deadlines (e.g. where there is a lead time) is a
great challenge to business owners.
xi. Customers: These are the people who actually use a firm’s product and services.
They are considered very important in the existence of an organization. Their
satisfaction is paramount in the organization’s activities. It is important that
business should at all times endeavour to sniff out customers’ needs and what
satisfies them. It demands being innovative, creative in modifying products and
services. It also means giving them quality goods at low costs. Business needs to
also ensure that their practices or activities do not in any way antagonize or put off
any section or segment of the market it serves whether in its product, price, place
(distribution) or promotion and even in its employment practices. For instance the
MTN’s “Mama na boy” advert triggered some sentiments among the female
activists who called for a stop to that advert and threatened to mobilize against
MTN for acknowledging the boy child like it is the more important of gender.
Trying to meet the ever changing taste of customers is crucial as customers are
constantly demanding high quality products and improved services. Failure to do
so will cause the firm to cease existence. Against this background, customers are a
very big challenge to business and every business worth its salt will at all times
work towards the dictate of its customers.
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xii. Corruption: The issue of corruption cuts across all facets of society of which
business is a sub-set. Corruption could pose a challenge to business as sometimes
those into supply or contract business will have to pay more to secure or get a
contract. In the banking industry way back in the 80s and 90s for instance,
business cannot secure loans from banks except they are willing to pay the bank
manager some percentages. So it was also with the government ministries where
10% or more will have to be paid by the contractor before he could be awarded
the contract or supply. This usually adds to the cost of doing business.
xiii. Trade Union: The issue of unionism may apply to businesses and organizations
with large number of staff. Trade union consists of employees who have joined
together for the purpose of presenting a united front in dealing with management.
Unions are a challenge to organizations because they essentially become a third
party when dealing with the organisation. It is the union rather than the individual
employee that negotiates agreement with the firm. Their activities often times run
contrary with that of management. Agitations by unions and the actions thereafter
may jeopardize the successful achievement of objectives. For instance, NLC in
2007 went about picketing some organizations over casualization of staff. Other
actions include strike, work to rule, etc. The activities of unions therefore pose a
challenge to the organization. Its ability to manage and contain union activities
will assist in not giving the organisation a bad name or image.
• A company that produces goods used by both male and female customers is
insisting in having in its employ only male workers. What do you think might
happen to that business if care is not taken?
o It might face resentment of its products by female customers since their action
might be viewed from gender angle. They can mobilize and ask female
customers to stop patronizing the company.
xiv. Stockholders or Shareholders: These are individuals who own and share in an
organisation’s profit or loss. These people are vitally interested in the firm’s
operating effectiveness. The price of the stock and the dividends paid are also of
major concern to stockholders. The managers may actually operate the firm, but
they must constantly be sensitive to the stockholders needs since in the real sense
they own the company. Shareholders are a challenge because they have monetary
investment in the firm and are interested in value added to their shares.
Stockholders may at times challenge programmes considered beneficial to the
organization by management. They want to know how the new programme will
grow their funds, translate to higher dividends etc. So, business managers may be
forced to justify the merits of a particular programme in terms of how it will affect
future projects, otherwise shareholders may engage in stockholder activism by
forming cliques to alter the project. Businesses must then strive to carry
shareholders along with them always.
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xv. Technology: Every business organisation must be mindful of the changes prevalent in
the technology that affects its business. Technology is very dynamic and should
be taken serious. Any business operating in the past whilst its technology has gone
forward would be doing a disservice to itself as it is heading toward extinction.
For instance, the issue of on-line, real-time banking swept on the banks like a
wind; and both the new and old generation banks had to follow otherwise they
would lose most of their customers to the vibrant banks.
xvi. Area of Business Operation: The socio-cultural issue of the population a

business is serving is very important. The area where the business is cited matters
so much in the activities and survival of a business. The area of business operation
poses a great challenge to business managers especially if it is a volatile area
where it is difficult to determine what happens next. For instance before Zamfara
state became a sharia state, there were hospitality businesses existing there, but as
soon as it was proclaimed a sharia state and alcohol and drinks were banned in the
state, such businesses had to relocate or change their line of business. Again,
businesses in the Niger Delta region may have greater challenge as kidnapping,
hostage taking, vandalization, etc, make it difficult for business operation.

You have learnt that managers of businesses face challenges in the cause of using the
resources at their disposal to meet organizational objectives. We have also learnt that
businesses need to properly design and adjust their internal (controllable) environment to be
able to take advantage of the opportunities that exist in the external environment as well as
overcome the challenges or threats posed by the environment since it cannot control it. The
success or otherwise of a business entity depends to a large extent on its ability to stand tall to
the identified challenges.

Bravo! You have just successfully finished another study session. Quite interesting I guess.
Now, can you beat your chest and say “I have understood everything”? If yes, go on this
journey ride to see how well you have fared. Remember, do not check the answers behind
first, and try answering the questions on your own while jotting some areas of difficulty in
your note pad. Take this difficult part to your tutor.
Essay
Briefly explain the following concepts, challenges, business and management

List and discuss five of the external factors affecting business operation in Nigeria
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Define challenges of business management as a phrase

Choose the most correct options.
1. Shareholders/Stockholders are all except

(a) invested in an organization
(b) share in the profit and loss
(c) attend AGM meeting
(d) participate in the management of the company
2. The activities of competitors will not pose a challenge to business if only it is

(a) perfect competition
(b) monopolistic competition
(c) Monopolistic
(d) oligopolistic competition
3. The challenges of business management lie in all exept

(a) unstable political environment
(b) complexity of the external environment
(c) stability of the environment
(d) inconsistencies in government policies
4. .................... are considered very important in the existence of any organization.

(a) customers
(b) managers
(c) Suppliers
(d) Government
5. Following are some of the factors that militate against businesss operations in Nigeria
except.
(a) unstable government policy
(b) poor intrastructure
(c) constant electric supply
(d) low level of savings/spending
Questions 1 2 3 4 5
Answers D C C A C
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References and Suggestions for further reading

Concept Pub. Ltd.
Karimu, B. O. (1992). Business Management: An introduction. Lagos. Mufab (Nig.)
Press ltd.
Mondy, R. W., Holmes, R. E., and Flippo, E. B. (1983). Management, concepts and
practices. 2nd Edition. Boston. Allyn and Bacon
Ltd.
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08033366677
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Study Session 3 Opportunities, Threats and Business failure
Introduction
All organisations are affected by the general components of the external environment we
talked about in challenges of business management. These environments create opportunities
or threats to organisations depending on their ability to utilize their innate strengths rather
than weaknesses. This explains the fact that businesses or organisations function in a closer,
more immediate competitive environment. For us to identify business opportunity or threat
requires us to conduct situational or environmental analysis or be alert to happenings around
our environment. A business should be concerned about opportunities and threats simply to
ensure organisational success. This can be done by formulating and developing an effective
strategy. One vital way of doing this is by consistently conducting a SWOT analysis. SWOT
entails asking questions and providing answers to such questions.
Albert Einstein once said “The important thing is not to stop questioning”. That is, we must continue
to ask questions and continually seek knowledge.
It is very important to examine why certain businesses fail so that we can learn from their
mistakes and take guidance from the successful ones. Many businesses fail because of some
common causes which many entrepreneurs ignore at the onset and in the course of the
business. Others fail because of environmental influences beyond the manager or
entrepreneur. These causes of business failure can be classified into two broad categories –
Micro (internal) and Macro (external). Business can fail as a result of the micro or macro
factors or even a combination of both factors.

At the end of this study session you should be able to:
3.1 Define and use correctly all the key words printed in bold (SAQ 3.1, 3.2 and 3.6 )
3.2 Discuss the meaning of strengths, weaknesses, opportunities and threats (SWOT) (SAQ
3.1)
3.3 List the indicators of unmet needs (SAQ 3.2)
3.4 Explain the constraints to exploiting business opportunities (SAQ 3.5)
3.5 List institutional sources of business ideas (SAQ 3.4)
3.6 State Macro and Micro causes of business failure (SAQ 3.3)
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3.7 State strategies for business survival (SAQ 3.6)
3.1 What is SWOT?

SWOT is simply an acronym representing Strength, Weakness, Opportunity, and Threat. An
organisation’s strength is its ability, resources, weakness of the competitor or the opposition.
The internal strengths include a company’s core competencies, corporate capabilities and
resources that provide the basis for your strategy, e.g. workforce, decision making process,
flexible board, good working environment, and financial capability. The weakness of an
organisation is its failures, defeats (what other people do better than you), losses and inability
to match up with the dynamic situation of the growth of change. This includes the critical
parts of your business you must strengthen or hide from your competitors. Opportunities are
possibilities of what can be done and where effectiveness is possible, the benefits that are
likely to accrue from pursuing your vision. Threats are changes in business environment
usually in the PEST forces which are pitfalls, dangers, variation and exceptions that are
present in an environment.
When SWOT is carried out, it prompts actions and responses. It helps balance idealism and
pragmatism so you can obtain a balanced perspective of your internal strengths and
weaknesses and external opportunities and threats in order to develop an effective strategy.
Successful entrepreneurs or businesses build on their strengths, correct their weaknesses and
protect against internal vulnerabilities and external threats. They also keep an eye on their
overall business environment and spot and exploit new opportunities faster than competitors.
Business Strength: Strength is an inherent capacity which an organisation can use to gain
strategic advantage over its competitors. An example of strength is superior research and
development skills which can be used for new product development so that the company
gains a competitive advantage.
Business Weakness: A weakness is an inherent limitation or constraint which creates a

strategic disadvantage. An example of a weakness for a manufacturing company may be over
dependence on a single product line which is potentially risky for a company in times of
crisis.
Business Opportunity: An opportunity is a favourable condition in an organisations

environment which enables it to consolidate and strengthen its position. A business
opportunity represents a trend or event that can positively affect the operations and
achievement of organisational objectives under a strategic response. Opportunities are
external conditions that are helpful in achieving the organisational purposes. An example of
an opportunity is growing demand for the products or services that a company provides.
Business Threat: A threat is an unprocurable condition in the organisations environment

which creates a risk for or causes damage to the organisation. A business threat is a trend or
event that would have adverse effects on the operations and achievement of organisational
objectives under a strategic response. Threats can also be external conditions that are
harmful to achieving organisational purposes. An example of a threat is the emergence of
strong competitors who are likely to offer stiff competition to the existing companies in the
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industry. They come from political, economic, social and technological forces. For instance,
if technology in your line of business is changing and yours is obsolete, then it is a threat. If
government is asking for increase in taxation and source of income has not increased, it is a
threat.
• An organization that can take good decision but at slower or bureaucratic pace can be
said to have that as its business strength. Discuss?
o Such decision making process could be seen as a weakness because faster decision
making competitors would have taken advantage of the situation even before they
know what is happening. It can only be strength if there are no competitors or the
competitors are even slower.
Figure 3.1 below shows the structure of SWOT analyses at the relevant levels.
Fig. 3.1: SWOT Analysis
Source: http://blogs.triplealearning.com/2010/10/diploma/dp_busman/the-trouble-with-swot/
An understanding of the external environment in terms of the opportunities and threats and
the internal environment in terms of the strengths and weaknesses is crucial for the growth
and profitability of any organisation.
3.2 Identification of Opportunties

Opportunities can exist for both potential as well as existing businesses. For existing
businesses whether they want to broaden their investment or diversify, there is need to always
search the environment for information and source for business ideas in order to identify
where opportunities exist. For potential entrants, their search is drawn according to their
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interest. Identifying business opportunity for big corporations could be the functions of the
research and development unit or the strategic business development unit. For others it could
be through personal efforts. What is important however is that the search is to identify unmet
needs?
Needs, according to Abraham Maslow, is classified in hierarchies from basic needs which are
physiological (food, water, warmth, shelter) to security, to esteem needs (psychological or
learned needs) such as status, love or belongingness, social recognition, power, prestige,
achievement which are acquired through socialisation. From each of these level of needs, a
gap may exist which portends an opportunity to be tapped, and it only requires identifying
that gap and being able to fill it.
Case Study 3.1 Recapitalization of Banks
Supposing Central Bank of Nigeria imposes another recapitalization exercise on the Banks say to the
tune of N500 billion and insists that banks unable to attain that will be closed down. However, option
of mergers and acquisition is available, CBN will also be ready to give a bail out to willing banks
following a particular contract terms. Now answer the question below.
• Where is the opportunity or threat in this case?
o The opportunity lies in the fact that any bank whose capital layout is up to the
stipulated amount would not be closed down and can also acquire other banks and get
bigger. However, it will pose a very big threat to banks whose minimum paid up
capital is less than that, and there is no possibility of raising the amount within the
stipulated time.
3.2.1 Indicators of Unmet needs
When we identify trends in our environment through the situational analysis described above
or through observations and discovers there is a ‘gap’ or unsatisfied/unmet needs, it becomes
an opportunity to tap in. The indicators of such opportunities as enunciated by Isimoya
(2005) are:-
1. Poor delivery of products/services:- where there are complaints and visible

problems faced by customers, one can see it as an opportunity and come up with
better method of delivering such products/services. E.g. in the past, letters, parcels,
etc, were handled by NIPOST, but the courier companies saw the visible complaints
and dissatisfaction in customers and today have taken over the market from NIPOST.
2. Dissonance (lack of Agreement in beliefs) with current means of satisfying existing

needs: If people’s expectations are not met in certain products or services,
dissatisfaction sets in. For instance, when it became obvious that our public or
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government schools were no longer meeting the expectations of the populace, the
private schools came in. Nigerian Airways with its abysmal service paved way for
private airline operators.
3. Emergent Needs: These are envisaged needs or needs in the early stages of
development. Every need at a point in time was emergent. Tapping into this
opportunity has so much to do with foresight. Your ability to foresee a need to be met
in the future, perhaps needs that may arise through the use or availability of a current
product. Nigeria for instance has need for storage/preservation of our fruits and
vegetables especially because they are mostly seasonal produce. This is a gap
identified. If any individual or organisation can come up with a best approach to
preserving these foods so as to have them all round the season, the business will
thrive. The individual will have government and farmers support and patronage. For
instance, people foresaw the danger in carrying cash about and came up with the idea
of credit cards, ATM cards, and the on-line real-time banking. Another emergent need
is the scraps of old and used cars littered all over. What can be done with them? Is
there a way they can be recycled so as to still put them into good use? Think about
this.
4. Technological Changes: The issue of technology is dynamic, we all agree. An

innovative entrepreneur will always be interested in thinking of ways to improve the
existing technology in its line of operation if he/she has the means of doing so,
especially if he/she feels that a particular technology is becoming obsolete or no
longer serving its purpose. This way he may find it as a business opportunity to
launch the better technology which customers or users may prefer to the existing one.
For instance, it took an innovative and ingenious business men to realize that grinding
of tomatoes, pepper, pounding of yam, etc. which hitherto was done manually through
the use of mortar could get a better result using machines (Blender, Poundo machine).
A gap existed there because some career women have little or no time to pound and a
machine was just apt.
5. Envisaged Large Market: When the users of a product are many such that those
serving the market may not be doing that effectively, other business men could go
into that market, since it is large enough to accommodate all. For instance most of the
Igbo traders that bring in radio face the northern market knowing that this group of
people especially the lower status like listening to the radio a lot.
6. Monopoly: Where there is no statutory barrier as to the entry into a particular

business, any interested entrepreneur could go into the line of business, more so if he
feels he could make greater impact, either in service delivery or in the production of
the goods or services. The entrepreneur could also develop a competitive product to
create an alternative or allow customers have choices to that kind of business. NITEL
for instance was statutorily created to provide communication for the nation. No
entrepreneur was allowed into the business of communication until few years past
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when it became obvious that the issue of communication needed to be privatized and
commercialized. Same is almost applying to PHCN now as people are calling for
private enterprise in the business of power generation. So where a business is seen as
monopolizing the production of a particular product or services, others may step in to
enjoy a share of the market.
7. Segmentation: Where an entrepreneur identifies that a particular segment or group of

a market is not served due to their peculiar difference, such entrepreneur has seen a
gap or an unmet need and could close in to exploit the opportunity by tailoring his
product or service toward the market if the capacity to do so is provided. For instance,
University of Lagos started its Distance Learning (DLI) programme having
discovered that a particular segment of the society was almost denied education due to
the fact that they were unable to secure admission through the regular means, or
didn’t have the opportunity to even seek education; they felt there should be a second
chance for them to live out their dreams.
• Several people abound who wants university education but are too busy to
come to class even on a weekend. NUC noticed this and is introducing Open
and Distance Learning System. What do you think NUC is doing?
o NUC discovered there was a gap and an unmet need and decided to close in on
that by encouraging universities to take advantage of the opportunity presented
by this yearning population.
3.3 Institutionalized sources of business

Despite the fact that large organisations use their research and development unit to source
for business ideas, there are institutionalized sources of business idea according to
Isimoya (2005). These include:
i. Universities and Research Institutes

These are centres where students and consultants have done a lot of research on new
businesses and the reports have largely been left to waste. Examples are Federal
Institute of Industrial Research Oshodi (FIIRO), Project Development Agency
(PRODA) Enugu, and all other universities and research bodies. These places could
be visited by an entrepreneur to check the possibility of finding a researched work
which will serve as an opportunity to be cashed upon.
ii. Consulting Firms/Market Researchers
iii. Ministry of Science and Technology
iv. Industrial and business publications
There are very vital information published by business journals /magazines etc. This
can help a searching mind to identify a business opportunity. For instance, Business
Day, Financial times, etc.
v. Banks
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Some banks have their in-house journals which discerning minds can identify
opportunities in. The journal mirrors the society and trend of events in it. For instance,
UBA in the 80s and early 90s had what it called the economic digest which reported
mostly economic activities and businesses financed by the bank.
vi. Family Members and Employee
Ones family members and even employees can also be a good source of information
for business opportunities.
3.4 Constraints to the exploitation of business opportunity

1) Economic Factors. These include, cost consideration (capital needed, level of
competition in the market, resource availability such as adequate skilled manpower
and suitable material resources, location and the size of the market.
2) Technical factors. Lack of technical know-how to provide such goods and services
that will satisfy customers. From some perspective people will jump at products that
can prevent baldness, loss of sight, death or sickness, but there is no technology to
that effect yet.
3) Knowledge factors. This could be a constraint because the right knowledge to the
opportunity or gap may be missing.
• List three constraints to exploitation of business opportunity.
o Three constraints to business opportunity exploitation are economic factors, technical

factors, and knowledge factors.
3.5 Business Failure

Several reasons could be responsible for the failure of a business venture. The possible
reasons may be either due to the entrepreneur’s fault, or as a result of forces beyond the
entrepreneur’s control. These causes have been classified as micro (internal) and macro
(external) causes of business failure. Read on.
3.5.1 Micro Causes of Business Failure (Internal)
This section looks at the failure of business from the entrepreneur’s point of view or as a
result of the fault of the owners.
1. Laying more emphasis on product rather than market and marketing
The requirement to identify a market for your idea or the product is more important than the
product itself. You may have a great idea or a product, but if there are no buyers for the
product then it cannot be a success. Smart business men and women first identify the market
requirement and then develop products accordingly. For your business idea to succeed you
need to first find if there is a market for your idea by conducting a market test run. Find out if
people actually want your product, and how much they are ready to pay for it.
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2. Laying more emphasis on company image.

To project a high profile image for the company by hiring expensive office space and a fancy
logo and website will not do much to facilitate in the success of your business. In fact high
overheads, because of expensive space and website maintenance costs, can drive you out of
business very fast. The golden rule for the success of any business is to keep overheads low
especially at the start up time. At the start up time, keep the overheads low by reducing
expenses. Operate from modest office space. Prospects cannot see where you are operating
from and they do not care, anyway. Try to invest more on your marketing activities, which
are likely to increase your revenue and chances of success.
3. Getting into Undesirable or Bad Business Partnership.
You should get into business partnership only if you find that your ideas match with the
probable partner, because business partnerships are even more difficult to maintain than
marriages. Many partnerships fail because of lack of communication, proper documentation
and deeds. A failed partnership can lead to bankruptcy and soured relations with the business
partner. Avoid partnerships completely, if you possibly can. But if you must get into a
business partnership, make sure the duties and responsibilities of the partners are detailed
right from the start and the partnership deed along with commercial terms is clearly defined
4. Attempting to have a very complex business model
The simpler the business model, the better it is. In a simple and uncomplicated business
model, everybody including your vendors, suppliers, employees, and customers are well
aware of their responsibilities and goals. In a complex model they have to adapt themselves
to new roles that they may not be comfortable with. While devising the business model,
follow the rule of "keep it simple". As the business grows and gets established, you can shift
to a more radical or complicated business model, if required.
5. Attempting to pioneer a new product or industry
Many businesses get into the vicious cycle of trying to pioneer a new product or industry-
many a times the whole exercise can drain you and your business completely, without much
success. Very few and limited entrepreneurs succeed in radically new businesses. Even
customers at times are scared off because of a totally new concept or product; hence chances
of success are not assured, despite all the efforts that you may apply. Try to achieve
extraordinary business success by simply improving business practices of the existing
business, rather than trying your hand at pioneering a new product. Once the business is
established, you can try to get into the pioneering new product cycle.
6. Poor business planning/financial decisions. Not carrying out feasibility studies.
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7. Inadequate capital before commencement of business

8. Bad management
9. Cash flow problems: you spend more than you receive
10. Fall in demand for the product
11. Lack of control of costs/rise in cost
12. Over expansion
13. Ineffective sales force
14. Fraud\fraudulent practices/lack of viable work ethics
15. Failure to meet competition
16. Location of business
17. Inadequate number of workers/staff
18. Slow season e.g. children’s bags, umbrellas produced
19. Dealing on cheap/sub standard products or services
20. Lack of awareness of the business by its target market/environment
21. Not engaging in business promotion/advertisement
22. Corporate maturity: as a firm goes through its normal life cycle and eventually declines.
23. Getting involved in a business lawsuit and bankruptcy. Business lawsuits that are not in
your favour can take away all your assets, including your personal assets like home, property,
savings, etc, and make you and your business bankrupt. Always operate a business under the
protection of a corporation, courtesy of which you get a corporate shield. In this way personal
liability to the business is limited to whatever you choose to put in your business. It is always
advisable to hire the services of a lawyer and an accountant to discuss your personal
involvement in the business, with respect to assets and even the taxation. If carefully planned,
you can eliminate almost 100% of all potential legal threats which could go against your
personal assets.
• Outline any five micro causes of business failure
o Five micro causes of business failure may include laying emphasis on product instead
of market and marketing; attempting to pioneer a new product; poor business
planning, inadequate capital, and location of business.
3.5.2 Macro causes of Business Failure (External)
1. Political instability
2. Lack of infrastructural development
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3. Corrupt practices in the society especially among technocrats who thwart government
economic policies
4. Low technological know-how. Most business can’t fit in into the latest technologies.
5. Limited sources of capital in issue of access to funds and demand for collateral
6. Labour management face off
7. Poor and inadequate funding of the educational system where future leaders in
government are trained
8. Lack of research
• List any five macro causes of business failure
o Five macro causes of business failure are Political instability, Lack of infrastructural
development, Corrupt practices in the society especially among technocrats who
thwart government economic policies, Low technological capacity, Limited sources
of capital in issue of access to funds and demand for collateral.
3.6 Survival for Small Scale Businesses

Small businesses can survive if they:
1. Have adequate capital requirement
2. Have innate qualities
3. Engage in customs-made goods since large firms engage in mass production
4. Subsidiary firms
5. Are innovative and ingenuous
6. Have lower capital investment and operating cost
7. Are exempted from corporation tax
8. Source for raw materials locally
9. Have an effective sales force

You have learnt in this session the concepts of business opportunity, ideas generation and
business threat. You have also studied the definitions of business opportunity and threat, as
well as idea generation in business. Some of the indicators of business opportunities were
highlighted as well as institutional sources of business ideas. Constraints to business
opportunity were also looked into. The micro and macro causes of business failure were
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examined, factors like poor business planning/financial decisions, not carrying out feasibility
studies, inadequate capital before commencement of business, bad management, cash flow
problems (as you spend more than you receive) were discovered as micro causes while
limited access to credit facilities, lack of infrastructure, political instability may be the macro
causes. Survival strategies were also suggested.
Self Assessment Questions for study session 3
Essay
Define Strengths, weakness, opportunities and threats
What are the indicators of unmet needs? State five indicators
List and explain five micro causes of business failure
Identify three institutionalized sources of business ideas
State three constraints to exploiting business opportunity
Mention four strategies for business survival

From the alternatives choose the best option
1. Macro causes of business failure include all except

(a) political instability
(b) lack of infrastucture
(c) Bad management
(d) Corrupt practices
2. “Keep it simple” is a rule followed while

(a) devising the business model
(b) attempting to pioneer a new product
(c) laying more emphasis on company’s image
(d) getting into undesirable business partnership
3. Laying more emphasis on company’s image may lead to high overheads in business.
(a)True
(b) False
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(c) No idea
4. Attempting to pioneer a new product or industry may at times drain the business
completely without much success.
(a) True
(b) False
5. One survival strategy is ..................... before venturing into a business.

(a) not having adequate capital
(b) having adequate capital
(c) having adequate product
(d) not having adequate product
6. ..................... for the product may be one of the macro causes of business failure.
(a) Increase in supply
(b) Increase in demand
(c) Fall in demand
(d) inelastic demand
7. ----------- is an unprocurable condition in the organisations environment which creates a

risk for or causes damage to the organisation.
(a) opportunity
(b) threats
(c) difficulty
(d) all of the above
8. ---------- represents a trend or event that can positively affect the operations and
achievement of organisational objectives under a strategic response
(a) threat
(b) opportunity
(c) friendly environment
(d) none of the above
9. The following except one are constraints to exploiting business opportunity

(a) Economic factors
(b) Knowledge factors
(c) Technical Factors
10. Indicators of Unmet needs include all except

a) poor delivery of products/services
b) Dissonance
c) Technology changes
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d) perfect competition
11.SWOT acronym stands for

a) Strategy Weaknesses Opportunities and Threat
b) stratified Weaknesses Opportunity and Threats
c) Strengths Weaknesses Opportunities and Threats
d) Strength Weakness Opportunity and Strength
Ques 1 2 3 4 5 6 7 8 9 10 11
Anws C A A A B C B B D D C

Isimoya, A. O. (2005). Nigerian Business Environment: An introduction. Lagos.
Concept Pub. Ltd.
Flippo, E. B., Munsinger, G. M. (1982). Management. 5th Edition. Boston. Allyn and
Bacon.http://www.ebay.com/itm/MANAGEMENT-fifth-edition-Flippo-and-Munsinger
/330106375390
Olusemore, G. A. (2006). Essentials of Small Business Management. Lagos; CIBN

Press Ltd.
Pearce, J.A. and Robbinson, R.B. (Jr) (2007). Strategic Management: Formulation,
http://www.ukEntrepreneur.com/
http://EzineArticles.com/?expert=Craig_Dawber
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08033366677
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Study Session 4 Social Responsibility and Business Ethics
Introduction
The business system is a subsystem of the organised society. Business is a creation of the
society. It helps in the responsibility of achieving societal objectives/expectations. The
responsibility of business traditionally is to produce and distribute goods and services in
return for a profit. This definition is no longer tenable as the increasing size and complexity
of societies’ needs make it narrow. The notion of social responsibility and ethics of business
has emerged out of dynamism (frequent changes) of relationship between business and
society, business and its environment, and business and its participants. Corporate
enterprises have grown in size, the level of education has significantly increased and people
now ask a lot more questions about their rights, their privileges and their responsibilities.
Related to this is the fact that the awareness of the social impact of business activities on the
society as a whole is enormous, both overtly and covertly, directly and indirectly.
Every organisation is part of an interactive system which has several stakeholders. The most
prominent of them are the managers, owners, employees, consumers and society at large.
The management of an organisation cannot afford to ignore or short-change any of the groups
if it wants to succeed. It has to be socially responsible.
Society expects reasonable ethical conduct on the part of business executives as they make
decisions which affect the lives of other people. Ethics emanates from a Greek word
“ethika” and from “ethos”, meaning character, or custom. Ethics is a branch of philosophy
that deals with the morality of human actions. It is a subject that deals with the ‘goodness’ or
‘wrongness’ of human conduct. It is a normative subject hence it is defined differently by
societies and groups. Therefore, what is considered a virtue in one society could be a vice in
another society, a case of “one man’s meat being another man’s poison”. It is about
contemporary norms or standards of conduct that govern the relationships among human
beings and their institutions. It is argued that improvements in ethical conduct have led and
will continue to lead to increases in the level of social responsibility among business firms.
Learning outcomes for Study Session 4

4.1 Define and use correctly all the keywords printed in bold (SAQ 4.1, 4.4)
4.2 Define social responsibility (SAQ 4.1)
4.3 Identify the arguments for and against social responsibility (SAQ 4.2)
4.4 List the various stakeholders or interest groups in social responsibility (SAQ 4.7)
4.5 Mention the benefits of social responsibility to the organization (SAQ 4.3)
4.6 Define ethics and state the causes of ethical compromise and influences (SAQ 4.4)
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4.7 Describe ethical issues in business and factors encouraging compliance to ethics (SAQ
4.5)
4.8 Explain measures to ensure ethical practices are followed (SAQ 4.6)
4.1 Definition of Social Responsibility

Ferrell, Hirt, and Ferrell (2008) defines social responsibility as a business’s obligation to
maximize its positive impact and minimize its negative impact on society. Pearce and
Robinson (2007) describe corporate social responsibility as the idea that business has a duty
to serve society in general as well as the financial interests of stockholders. Schermerhorn
(2002) defines social responsibility as an obligation of the organization to act in ways that
serve both its own interests and the interests of its many external stakeholders. Oldroyd in
Isimoya (2005) sees it as the obligation to protect and improve the welfare of society as well
as its own interest. Dibb et al in Isimoya (2005) describes social responsibility as having to
do with the impact of the organisation’s decision on the society. Essentially, social
responsibility is an obligation of organisations and companies to participate in the
development and impact positively on the environment in which they do or operate their
business. It is an attempt to pay the society back for the profit they make, hence the name
Corporate Social Responsibility (CSR).
These definitions imply that social responsibility fundamentally refer to actions taken by a
business (corporate body) which in some ways or to some extent assist the society to achieve
one or more of its objectives and help people to live better lives. Such actions are considered
socially responsible actions. Corporate Social Responsibility is not backed by compulsion of
the law, therefore companies are at liberty to undertake it or leave it.
• Do you think a situation where government through law forces firms to put
aside a setting percentage of their income aside from the tax they pay is an act
of encouraging social responsibility?
o No. It is not an act of social responsibility because social responsibility is not

backed by compulsion or law. It is voluntary.
4.1.1 Basic Assumption about Socially Responsible Business Organisation
Awareness: Managers of such organisations are aware of the firm’s obligation to solve some
of the problems facing society.
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Willingness: There is willingness on the part of the firm to help solve some of these social
problems, even though not all the problems of society can be solved by business
organisations.
Commitment of Resources: Such organisations attempt to make decisions and actually

commit resources of various kinds in some of the following problem areas:
i. Pollution problems: air, water, solid waste, land and noise

ii. Poverty and discrimination problems: minority groups and women, black
capitalism, urban problems
iii. Consumerism: Product safety, misleading advertising, consumer complaints etc.
iv. Other social problems
• Most socially responsible organizations are assumed to have basic

characteristics. Mention them.
o They are aware, willing and ready to commit their resources
4.1.2 Is There Really Need For Social Responsibility?
This leads to a very vital question. Should business actually be socially responsible? We
have two schools of thought. One says ‘yes’ the other says ‘no’. That is to say, there are those
for and against social responsibility of businesses. So, there are two sides to the argument.
4.1.3 Arguments In Favour Of Social Responsibility
This argument is championed by Robert F. Hansberger, T.G.P Rogers and others.
1. Business is unavoidably involved in social issues. That is to say, that business

corporation are an entity of society, allowed by society to exist and if society does not
exist, organisations will also not exist. Thus, when there is a change in societal
expectations about business, so should their actions change. Without society to buy
organisations’ products or services, the aims of production and consequently
profitability will be defeated.
2. Corporate businesses have the obligation and resources to help solve some of the
problems facing the society. The society as we know includes its customers, owners,
employees, creditors, government, community and the society at large which business
has relationship with. The firm must attempt to make decisions and actually commit
resources of various kinds in some of the society’s problematic areas for the long run
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attainment of business goals. According to Peter F. Drucker, “a healthy business

cannot exist in a sick society”.
3. Organisations tap their natural, material and human resources used for
production from the environment (society), it therefore behoves them to be socially
responsible in return.
4. A better society means a better environment for doing business.
5. A favourable image of the organisation in the eyes of the public is of great
importance to the enterprise as socially responsible businesses will ward off future
government interventions and regulations. According to George Champion of Chase
National Bank, USA, business must learn to look upon its social responsibilities as
inseparable from its economic function. If it fails to do so, it leaves a void that will be
quickly filled by others – usually by government.
6. Being socially responsible is a moral and right thing to do since most business
activities create some form of problem for the society e.g. pollution of water, land,
etc. And taking up social actions to ameliorate public outcry is welcomed.
4.1.4 Arguments Against
This is essentially advocated by Milton Friedman and others.
1. Business is an economic institution and the only determinant of organisational

performance is economic values – profit maximisation. To fill a social role in
addition to making profits will eventually use up the capital of business firms thereby
endangering the profit making motive.
2. The Social responsibility of business is to use its resources and engage in
activities designed to increase its profits. So long as it stays within the game,
“competition without deception or fraud”. For these scholars, profit maximization
ensures the efficient use of society’s resources and entail been responsible.
3. The classic view holds that business acts in a socially responsible manner if it
utilizes as efficiently as possible the resources at its disposal in meeting the goods
and services that the society wants at prices consumers were willing to pay. That
is, the idea of social responsibility is incongruent or incompatible with the concept of
a free market economy and hence a free society.
4. As an economic institution, business lacks the ability to pursue social goals
because business is not equipped to handle social matters. Moreover, managers are
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economically production-oriented and as such do not have the necessary expertise

(social skills) to make social decisions.
5. It is a subtle socialist idea. That is an indirect way of using political mechanism as
opposed to market mechanisms, as the most appropriate means of allocating scare
resources.
6. In a free enterprise system, a manager as an employee has the sole objective of
making as much profit as possible for stockholders. If business becomes socially
responsible, it detracts attention from its responsibilities to stockholders. They are
saying in essence, that business managers are not elected; they are therefore not
directly accountable to the people, but to the stockholder.
7. Business managers already have power. If they are allowed the freedom to use
organisational resources for the good of the society, rather than strictly upholding the
interest of the owners, such managers are being conferred with arbitrary and
dangerous powers which they may misuse.
8. Since enterprises pay taxes to government, it would be exploitative to expect the
same organisation to also use part of their earnings in a socially responsible manner.
Government can only increase taxation on profit and let organisations focus on their
major duty of being responsible to their owners, thus allowing government to tackle
social development programmes.
9. Being socially responsible is an attempt to encourage a socially irresponsible
government to shirk its responsibility.
10. No matter how much is done in terms of social responsibility, many organisations will
still have problems with their locality. It is better not to start at all, as the request
and desire for more is endless and would further increase the misunderstanding
between business enterprise and the local countries. Society should appreciate that
government is solely responsible for their development and business enterprise.
• Do you think social responsibility is necessary? If yes, give two reasons. If not
give two reasons also.
o Yes, it is necessary because organisations tap their natural, material and

human resources from the society so they should be responsible. Again, a
better and healthy society means a better environment for doing business. No.
It is not necessary because business organisations pay tax to government who
should use that for developmental purposes, it is therefore exploitative to ask
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them to be socially responsible. Secondly, being socially responsible is an

indirect way of encouraging government to be socially irresponsible
4.1.5 Factors Responsible for Consideration of Social Responsibilities by business
i. Increased Awareness/Public opinion: There is increased awareness and people’s

opinion has changed about the role of business. The society is willing to ask a lot
more questions about the impact of business organisation on their lives.
ii. The presence of the labour movement
iii. The development of moral values and social standards applicable to businessmen.
iv. Recognition of human factors (employees) contributing to the long term interests of
business.
v. The development of a professional managerial class with different motive and point of
view due to the separation of ownership from management. Business managers
are also concerned citizens.
• Why do you think businesses consider being socially responsible? Give two
reasons.
o The two reasons are that the society has increased knowledge about business
activities and are asking a lot more questions ; and secondly the presence of
labour movement.
4.1.6 Interest Groups in Social Responsibility
These are the specific public that may lay claim on returns from the business - Stakeholders
of a business. The stakeholders are groups of persons who have committed something to a
business enterprise and therefore have expectations from it. It may also be a person or
persons who affect or can be affected by the company actions. They are:
i. Consumers/Customers: To these set of group, goods and services must be provided

at fair prices. Unethical and unfair trade practices must be avoided as consumers
have protective legislation and consumer movements termed consumerism. Where
required, after-sales services should be provided. Adequate information
concerning essential features of a product or service should be made known to
consumers. Business must avoid planned product obsolescence or pushing out
expired goods to the consumers. Products and services must always be provided
according to consumers’ wants and demands. Providing for consumer product
protection through simple but adequate labelling/instruction especially where
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illiterates are predominant. Not making deceptive and exaggerated claims of

products or services.
ii. Employees: This pertains to wages and salaries, working condition, relationship
between superiors and subordinates, the work environment, as well as general
employee welfare. For instance carrying the union along in matters concerning
staff welfare, giving workers equal opportunities in hiring, pay and promotion,
providing adequate opportunity for management employee communication,
providing adequate training and development opportunity.
iii. Shareholders (Owners): It is the obligation of companies to ensure a fair return on
investment in terms of profit, dividend declaration, bonus, etc. In essence, the
declaration of adequate profit on capital invested ensures the survival of the
company and the delivery of the desired reward on shareholders’ risk (capital).
Again, it must also ensure equitable and fair treatment of different classes of
shareholders in the business, and ensure the safety of the capital invested. Owners
must be furnished with relevant and timely information relating to the business
present and proposed activities.
iv. Government: To the government, business enterprise must be law abiding, pay their
taxes and other dues fully and regularly, honestly and when due. It should provide
accurate statistical data to government for planning and decision making. It must
not attempt to hold back information. Get involved in research and development.
Support and contribute toward the developmental programmes of the government.
Support government policies and cause.
v. Community: Organizations owe the community the duty of ensuring the environment
is protected and not polluted, conserving the natural resources and not helping in
the extinction of vulnerable animals or materials. Employing the socially
handicapped or physically challenged and the underprivileged or deprived
persons. Helping in rural development, provision of immediate relief to victims of
disasters and natural calamities. In essence, helping in contributing towards the
better life of the people in the community through the provision of essential
economic amenities such as employment, scholarships, recreational facilities,
infrastructures like good road, water, electricity, health facilities/drugs, schools,
etc. They should also donate equipments and funds to hospitals, schools, craft
villages, orphanages, endow chairs to the universities, create and maintain good
relationship within the general and local area of operation. It is also necessary for
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businesses to help in the revival of the culture and heritage of the community
where they operate.
vi. Suppliers: These stakeholders must be paid promptly and in accordance with the
terms of contract. A proper notice of specification and requirement must be given
to avoid distortion.
vii. Creditors: The creditors are those the business owes; these set of people need to be
paid promptly and according to the agreed terms so as to enable the business enjoy
credit benefits in future.
In conclusion, the objective of a business firm is no longer single (profit) but multiple in
nature. This is because the aforementioned interest groups would have to be taken care of.
Peter F. Drucker once said “To manage a business is to balance a variety of needs and goals”,
and the company’s management is usually at the centre to equitably distribute the rewards or
resources among each of the interest groups.
• Identify any five interest groups in social responsibility
o Five interest groups are the employees, shareholders, customers, government, and
Suppliers.
4.1.7 Benefits of Social Responsibility to the Organisation
The following benefits are likely to accrue to organizations practising social responsibility.
1) A better awareness of the organisation is created

2) Public opinion sways in favour of such organisation
3) There is increase in profit as more customers/public patronizes the organization
4) The organization is likely to attract socially conscious investors.
4.2 Business Ethics

4.2.1 Definition of Ethics
Pearce and Robinson (2007) refer to ethics as the moral principles that reflect society’s
beliefs about the actions of an individual or a group that are right and wrong. Ethics are
principles or standards of human conduct, sometimes called morals (Latin ‘mores’
‘customs’), and by extension the study of such principles is sometimes called moral
philosophy. Longmans Dictionary of Contemporary English defines Ethics as “Moral rules or
principles of behaviour for deciding what is right or wrong”. Ethics is concerned with the
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questions of right or wrong. For instance, ethical questions could be “Is this act right”? “Is
this act wrong”? Again, it determines the standards of good and bad.
However, the values of one individual or group, or society may be at odds with the values of
another individual, group or society. Ethical standards do not reflect a universally accepted
code, but rather the end product of a process of defining and clarifying the nature and content
of human interaction.
4.2.2 Ethics and the Various Aspects of Human Life
Every profession specifies some code of ethics for their members. Once you become a
member you are bound to obey or adhere otherwise you will be sanctioned. There are certain
things which lawyers, medical doctors or accountants cannot do in the course of practising
their professions. Usually, most professional bodies forbid their members from advertising
their services. It is believed that the quality of the service they render should advertise them.
In the same vein, every organisation whether public or private has a code of ethics guiding
them. The codes may state how a member should conduct himself in the discharge of his
official duty, the do’s and don’ts of the organization and what they probably consider as the
culture of the organisation that must be adhered to by every member of the organisation.
Conformity or obedience to such codes is compulsory within the period the official is still in
employment of the organisation.
4.2.3 State Of Ethical Standards in Nigeria
The norm in Nigeria in the past before 1999 had been that of a businessman or woman
compromising his ethical standards before getting things done. Corruption was common as it
seemed that the only way to succeed in business is the demonstration of a good understanding
of the language of bribery. Those in charge of awarding contracts in both the government and
private sectors demand gratification from contractors before doing their jobs (Olusemore,
2006). The bank manager demands a certain percentage of money from you before granting
your request for a bank loan. For instance, an official of the defunct National Electric Power
Authority (NEPA) expects you to bribe him before fixing a damaged electric line. The police
and customs officers mount unauthorized roadblocks in order to extort money from motorists.
It looked then like we had lost our sense of value and justice. However, Obasanjo’s
government especially since 2003 staged a headlong war against corruption and this is
beginning to bring some measure of sanity into the entire system (Olusemore, 2006). Today,
we cannot claim corruption has been totally eradicated in Nigeria, but within the private
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sector to an extent it is reduced especially with the shake up in the financial industry. Same
cannot be said of the public sector operation even though from government perspective they
have what they call “due process” in place for the awarding of contracts and sale of public
goods; but this is yet to yield visible fruits more so as actions from government quarters and
even social comments both in the electronic and print media, have it that high level of
corruption is still evident within government and the public sector. However, recent
happenings and fall outs of the premium motor spirit (petrol) subsidy removal point to the
fact that in not too distant a time, corruption would be reduced to the barest minimum while
ethical conducts are stepped up because the society is asking lot more questions.
• How would you explain the term “ethics"
o Ethics are the principles or standards guiding human conduct. They are moral
rules which determine the right or wrong of a behavior.
4.2.4 Factors Encouraging Compliance to Ethics
Several reasons or factors could be adduced as to why ethical norms are followed by
members of a professional body or organisations as they perform their duties. These may be
as a result of:
i. Their personal value system
ii. Religious beliefs
iii. The law
iv. Public opinion
v. Fear of punishment
The pressure from the sources above among others, compel organisation’s members to
confine their ethical conduct within acceptable or tolerable organisational standards.
4.2.5 Causes of Ethical Compromise and Influences
There are several reasons why business people compromise the value system. A business man
or woman who always sees himself as the industry leader may want to do everything possible
to preserve the cherished position (Olusemore, 2006). That is to say, the pressure of
competition often leads people to engage in unethical practices. It may also mean that the
person’s company is in bad shape and he wants to keep it going.
Secondly, if people in the past had broken similar ethical standards and were not punished by
law, other people may likely go into it since nothing will happen. That is, if the judicial
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process is weak and people can get away with any type of crime committed, then many more
will be encouraged to go into unethical practices.
Again, as the popular saying goes, “one man’s meat is another’s poison”; what is considered
a vice in one setting may be a value in another; and so people with wrong sense of value and
who engage in unethical practice do not see certain action as a vice. Olusemore (2006), states
that the wish to succeed by all means in a society that does not recognize hard work as a
means of success can make some businessmen to be unethical in their business behaviour.
4.2.6 Ethical Issues in Business
Olusemore (2006) identified some ethical issues in business thus;

1. Conflict of Interest: In this context a worker allows his or her personal interest to
override the official obligation.
2. Honesty and Fairness: Where dishonesty and inequity becomes the norm in a
business organisation as they deal with the stakeholders.
3. Communications: Ethics demand that there should not be deceit or exaggerated
claims in any contact or communication with the public; instead vital facts that can
assist third parties to take decisions should be disclosed.
4. Respect in the Workplace: Business ethics emphasises the establishment of a work
environment in which all individuals are treated with respect and dignity. All forms of
discriminatory practices e.g. sexual harassment should be avoided. Employees on
their own should treat one another with respect.
5. Safety Policy: In an ethical organisation, safety of the workers and customers is
paramount. The company should cultivate safety practices and put in place measures
of protection and insurance policy.
6. Fair dealing: Business operators should not take undue advantage or exert undue
influence on people through manipulation, concealment, abuse of privilege or
confidential information, misrepresentation of material facts, fraudulent behaviour or
any other unfair dealing practice.
7. Financial Statement Integrity: Business ethics states that a company should follow
strict accounting principles and standards to report financial information accurately
and completely. There should be internal checks to ensure that accounting information
complies with standard regulations and laws.
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8. Compliance with the law: Businesses should comply with appropriate commercial
laws of the land such as money laundering act; exchange control regulations, etc.
• There are ethical issues in business. State three
o Three ethical issues in business are financial statement integrity, safety policy,
and fair dealing
Other manifestations of unethical practices include:

i. Falsification of documents
ii. Inflation of contracts
iii. Receiving payments for goods and materials not delivered or contracts not
executed
iv. Forgery of payment vouchers and cheques with the assistance of some staff
v. Abuse of tendering procedure
vi. Printing of government security documents illegally and using same for
perpetration of fraud
vii. Selling of materials illegally withdrawn from government stores
viii. Offering gratification to public officers in order to secure a benefit
ix. Conniving with government officials by executing contracts in a shoddy
manner in order to reduce cost
x. Abandonment of contract after collecting payment.
4.2.7 Measures to Ensure Ethical Practices Are Followed
Flippo and Munsinger (1982) states that if good ethical practice must be maintained in an
organisation, management must ensure that:
a) Code of ethics is written and not oral. This code should specify what is adduced to be
right or wrong within the organisation.
b) Information relating to ethical practice is not centred only on cost and profit
c) The establishment of specific job positions responsible for enforcing the ethical codes
of their organisation.
d) Top management act as strong role models for lower level personnel
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This study session looked at the various definitions of social responsibility as well as the
basic assumption about socially responsible business organizations. It also assessed the
arguments for and against social responsibility as posited by the different scholars
championing them, and identified interest groups in social responsibility and what the
organization owes them. The reason why organizations may likely consider socially
responsible actions was also examined as well as benefits of social responsibility to practising
companies. In this session the definition of business ethics was given, the state of ethical
standards in Nigeria was described, and factors encouraging compliance to ethics was listed.
The causes of ethical compromise and influence was identified while ethical issues in
business and measures to ensure ethical practices are followed in the organisations were
explained.
Essay
SAQ 4.1 (tests Learning Outcomes 4.1, 4.2 )
In two sentences define social responsibility
Compare the arguments for and against social responsibility
State the benefits accruing to a socially responsible organisation
Define ethics and state at least three causes of ethical compromise and influence
Identify four ethical issues in business and two factors encouraging compliance to ethics
Describe measures to ensure ethical practices are followed in the organisation
List at least five stakeholders or interest groups in Social Responsibility

From the options choose the best suited for each question.
1. Most of the socially responsible organisations are:

(a) Aware, Willing and Committed
(b) Unaware, willing, and committed
(c) Aware, lack commitment and willing
(d) unwilling, unaware, and uncommitted
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2. According to Peter Drucker, to manage a business is to

(a) balance a variety of needs and goals
(b) make profit only
(c) be socially responsible only
(d) to produce product or service only
3. The argument against social responsibility was propounded by:

(a) Milton Friedman and others
(b) Robert F. Hansberger and Milton Friedman
(c) T.G.P Rogers and Robert F. Hansberger
(d) None of the above.
4. Social responsibility include all except

(a) providing social amenties to the community
(b) creating a healthy environment
(c) sponsorship of sporting events
(d) non payment of taxes to government
5. Interest groups in social reponsibility include all except

(a) Consumes/customer
(b) Employees
(c) State governors
(d) Community
6. ................ states that company should follow strict accounting principles and
standards to report financial information accurately and completely.
(a) Financial Statement Integrity
(b) Respect in the workplace
(c) Safety Policy
(d) Fair dealing
(e) Compliance with the law
7. Society expects .............................. on the part of business executives as they make

decision which affects the lives of other people.
(a) High ethical standard
(b) Low ethical standard
(c) high numerical knowledge
(d) high management skills
8. .............. principles or standards of human conduct, sometimes called morals (Latin

‘mores’ ‘customs’) and by extension the study of such principles, sometimes called
moral philosophy
(a) Ethics
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(b) Rights
(c) Justice
(d) ethics and justice
9. Top management act as strong role models for lower level personnel
(a) True
(b) False
(c) Not sure
10. The pressure of competition often leads people to engage in

(a) unethical practices
(b) Ethical practices
(c) social reponsibility
(d) high quality product
Questions 1 2 3 4 5 6 7 8 9 10
Answers A A A D C A A A A A
References and Suggestions for further Reading

Schermerhorn, J. R. (2002). Management. 7th Ed. New York. John Wiley & Sons Inc.

Concept Pub. Ltd.
Pearce, J.A. and Robbinson, R.B. (2007). Strategic Management: Formulation,

Flippo, E. B. and Munsinger, G. M. (1982). Management. 5th Edition. Boston. Allyn and
Bacon.http://www.ebay.com/itm/MANAGEMENT-fifth-edition-Flippo-and-
Munsinger-/330106375390
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08033366677
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MODULE THREE
GOVERNMENT, POLICIES AND CONTEMPORARY ISSUES
3.0 Learning outcomes
At the end of this module, you should be able to;
1. State the various role of government in business

2. Discuss the various economic policies of government as concerns business
3. Identify contemporary issues and partnership in government
4. Discuss some of the regional and international blocks
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Study Session 1 Government Role and Economic Policies
Introduction
Government has the constitutional duty of managing the economy and ensuring the full
employment of its citizens and the maximum utilization of all productive factors, capacities
and platforms in the economy. Thus government is expected to put in place a sound
macroeconomic policy framework and introduce well thought-out economic policies and
development blueprints and institute business and investor friendly business policies to drive
the development of the economy. The Nigerian government has over the years issued decrees
and policies which had some measures of success. Some of those decrees and their various
schedules will be discussed in this study session.
In the recent times, one issue that has generated a lot of argument is whether government
should have any direct involvement in running business in Nigeria. While some argued that
government has no business in business, some others are saying government should be
involved because of the peculiarity of the environment. Those who are saying government
should not have any direct involvement in business based their argument on the fact that all
public corporations established and run by government in the past have failed to meet the
expectations of both the government and the people. Examples of such are Nigerian
Telecommunication (NITEL), Nigerian Railway Corporation, National Shipping Line,
Nigerian Airways, and Power Holding Company of Nigeria (PHCN).
It is important however to point out that in every nation, no matter what the form of the
government, the type of economic system, who controls the government, or how rich or poor
the country is, these basic economic questions must be answered. They are: (i) What and how
much will be produced? This is usually within the available scarce resources. (ii) How will it
be produced? A decision must be taken either to use more labour (labour intensive) and less
capital, or vice versa. (iii) For whom will it be produced? A mechanism must exist that
distributes finished products to the ultimate consumers and (iv) At what price? The ultimate
aim of any business is to make profit.
Learning outcomes for study session

At the end of this study session you should be able to
1.1 Define and use correctly all the key words printed in bold (SAQ 1.1, 1.3, 1.6, 1.7 and
1.8)
1.2 Explain the regulatory and facilitating roles of government in business (SAQ 1.1)
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1.3 Give reasons for government control of business (SAQ 1.2)

1.4 State the objectives of the Nigerian Enterprises Promotion Decree (SAQ 1.3)
1.5 List the benefits of the NEPD (SAQ 1.4)
1.6 Describe the various schedules of the decrees (SAQ 1.5)
1.7 Discuss Structural Adjustment Programme (SAP) (SAQ 1.6)
1.8 Explain the commercilization and privatization policies (SAQ 1.7 and 1.8)
3.1 Economic Systems

One way to define economic systems is to classify them according to whether they are
Market Systems or Command Systems. In a market system, individuals own the factors of
production and individually decide how to use them. In contrast, a command system is one in
which decision making is centralized. In a command system, the government controls the
factors of production and makes all decisions about their use and about the consumption of
output.
In a market system, the interaction of supply and demand for each good determines what and
how much to produce. For example, if the highest price consumers are willing to pay is less
than the lowest cost at which a good can be produced, output will be zero. In addition, the
efficient use of scarce inputs determines how much output will be produced. In a market
economy, individuals make the choice about what is purchased; however, ability to pay, as
well as the consumer’s willingness to purchase the good or service, determine that choice.
On the one hand, in a command system the central planners determine what and how much
will be produced by first forecasting an optimal level of consumption for a future period and
then specifically allocating resources projected to be sufficient to support that level of
production. The central planner also determines how production will take place and for whom
the product is produced.
Critics however commonly argue that in market system the rich tend to be richer while the
poor end to be poorer. The system also leads to selfish behaviour rather than socially
desirable outcomes. In the case of command economy, critics commonly argue that because
planned economies cannot effectively process as much relevant information as a market does,
it cannot coordinate economic activity or satisfy consumers’ demand as well as market forces
do.
Capitalism: Under a capitalist economic system, individuals own all resources, both human
and non-human. Governments intervene only minimally in the operation of markets,
primarily to protect the private-property rights of individuals. The demand of consumers
combined with the supply of producers determines what and how much will be produced.
Thus, individuals decide how, what and for whom to produce and at what price.eg Canada,
USA and Western Europe.
Socialism: Under a socialist economic system, individuals own their own human capital and
the government owns most other non-human resources, i.e. most of the major factors of
production are owned by the state. It is a form of command economy. Economic decisions
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about what and how much, how and for whom are all made by the state through its central
planning agencies.
Communism: Under this system, all resources, both human and non-human are owned by
the state. The government takes on a central planning role directing both production and
consumption in a socially desirable manner. e.g former Soviet Union and East Germany.
Mixed Economy: is a system where there is a blend of some elements of both market and
command economies in answering the three fundamental economic questions.
1.1.2 The Role of Government in Business

It is visible that the government of Nigeria plays a significant role in business at least in the
current dispensation. The government’s role can be seen from two angles which are
regulatory and facilitating.
(a) The regulatory role of Government is carried out through the agencies set up by the
government. These agencies exist at the Federal and State levels and they have responsibility
over the legislation for different sectors of the economy. Examples are;
i. Corporate Affairs Commission – regulates and supervises the formation,

incorporation, management and winding up of companies in Nigeria.
ii. Economic and Financial Crime Commission (EFCC) – set up to handle financial
crime in the country.
iii. Security and Exchange Commission (SEC) – Stores information on all publicly traded
companies. This data provides earnings data and annual reports on public companies.
iv. National Broadcasting Commission (NBC) – set up to regulate the activities of

broadcasting organizations in Nigeria.
• If a government official or an individual loots the state’s treasury what arm of

government agency is expected to carry out this regulatory role?
o The Economic and Financial Crimes Commission (EFCC) is the arm of

government agency expected to address this issue.
(b) The facilitating roles of government are meant to provide favourable business
environment which will be attractive to investors. This is also called Promotional role. Some
of the ways the roles are carried out are:
i. Provide tax and custom duties incentive to business institutions in order to encourage
them to develop and compete favourably with their foreign counterpart.
ii. Promote free competition in the economy
iii. Put in place laws that bring stability into the economy especially the financial sector
as done recently by the central bank of Nigeria.
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1.1.3 Why do Governments Regulate/Control Business?
Governments regulate and control business in order to:
i. Maintain free competition

ii. Protect public health and safety i.e. the welfare of the people.
iii. Ensure adequate service at reasonable rates by businesses deemed essential to the
public welfare
iv. Raise revenue through collection of taxes
v. Protect infant industries against dumping
vi. Conserve the nations’ resources such as minerals and wildlife.
• What are the reasons why government regulate business? State at least two.
• Government regulate businesses so as protect infant industries and ensure
adequate service at reasonable rate to the public.
1.1.4 Methods of Control
There are various methods of control including:
i. Statutes: A formal written enactment of a legislative authority that governs a local

government, state, or country. It commands or prohibits particular kinds of activity
within a specific geographical area. Before it becomes a law, it must have been passed
by a parliament, council, state assembly, or national assembly. Penalty for breaking
the law is also stated in the statutes.
ii. Charter: is the grant of authority or rights, stating that the granter formally
recognizes the prerogative of the recipient to exercise the right specified. However,
the granter must retain superiority and the recipient admits a limited status within the
relationship.
iii. Administrative Agency: There are specialized agencies such as NAFDAC and BON
to control particular types of economic activity. The agencies set standards of
operations, grant licenses to operate and supervise operation in general.
• NAFDAC has ordered that every producer of sachet water must have a NAFDAC
number other it will be closed down. What method of control is this?
• This is known as Administrative Agency method of control
1.2 Nigeria Enterprises Promotion Decree (NEPD)

The Nigeria enterprises promotion decree popularly known as the indigenization decree was
promulgated in 1972 but has since been amended many times. The overall aim of the decree
was to give Nigerians a sense of belonging and control over largely the commercial sector
and the small and medium scale sector of the economy, where initial capital requirement and
required technical and managerial skills were considered to be within the reach of Nigerians.
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The decree initially had two schedules but this was increased to three schedules in the 1977
amendment to expand the scope of Nigerians in the economy even further.
The details of the three schedules are listed below, as contained in the 1977 amendment:
Schedule One: The enterprises in this schedule were to be exclusively reserved for Nigerian
citizens and associations, provided the capitalization was less than N20 million. Foreigners
were free to invest in these enterprises provided their investment was more than N20 million.
Some of the items in schedule 1 are:
• Advertising
• Public relation business
• Assembling of radios, television
• Bottling of alcoholic drinks
• Baking of cake and bread etc
Schedule Two: The enterprises listed in this schedule are those in which Nigerians were
expected to have a majority ownership of at least 60 per cent. These include:
• Banking (commercial banks merchants banks and development banks)
• Basic iron and steel manufacturing
• Beer brewing
• Clearing and forwarding agencies
Schedule Three: This comprises enterprises in which Nigerians were expected to have a
minimum of forty per cent ownership. These are:
• Distilling and blending of spirits such as ethyl alcohol, whiskey, brandy, etc
• Fertilizer production
• Manufacturing of basic industrial chemicals
• Manufacturing of tobacco
Although the intention of those who promulgated the decree was patriotic and noble, there
were notable pitfalls in its implementation, which included the following:
1. The new social challenge of creating a class off nouveau riche at the expense of the
larger populace.
2. Poor access to funds by interested Nigerian entrepreneurs.
3. Dearth of trained manpower, managerial skills and technical know-how to run the
enterprises
To address these shortcomings the government took necessary action by putting in place the
following measures:
♦ The establishment of the Nigerian Bank for Commerce and Industry (NBCI) to
provide loans to small and medium sized enterprises.
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♦ The Nigeria Enterprises Promotion Board was established to implement the decree
and achieve the people’s aspiration as far as the decree was concerned.
♦ The Nigerian Industrial Development Bank (NIDB) was established to handle the
financing of larger ticket industrial projects.
♦ The Federal Government also established the Council for Management Education and
Training to address the challenge of the paucity of managerial know how and skills
1.2.1 Objectives of Nigerian Enterprises Promotion Decree
The following were the objectives for which the indigenization decree was instituted:
1. To create more employment for Nigerians.

2. To allow Nigerians have a larger say over the running of the economy.
3. To obviate foreign undue dominance and safeguard the best interests of the Nigerian
economy.
4. To create greater opportunities for training indigenous personnel in the art of
management.
5. To maximize local retention of profits.
1.2.2 Benefits of the Nigerian Enterprises Promotion Decree
1. More employment opportunities have been created for Nigerians in various levels.
2. Nigerians now have a greater stake and thereby better securing the nation’s economic
interests.
3. There has been increased local retention of profit.
4. A pool of indigenous personnel with better technical and management skills have
emerged.
1.2.3 A Revised Economic Climate
With the benefit of hindsight, it is reasonable to say that the Nigerian Enterprises Promotion
Decree was ill-conceived and probably did more harm than good to the best interests of the
Nigerian economy. It is safe to assume that a civilian democratic regime could never have
enacted such a law, which ended up driving away and dispossessing foreign investors of
investments, businesses and assets they have spent many years acquiring and nurturing,
thereby sending the wrong signal to the international business community that foreign
investment was not welcome in Nigeria. Nigeria could have achieved the same objective by
encouraging Nigerian entrepreneurs to learn and operate their businesses alongside their
foreign counterparts, with adequate financial and technical support and training from
government and government institutions set up for that purpose.
It is heart warming to note that Nigeria has retraced its step in its attitude to foreign investors
and Nigeria now has one of the most foreign investment friendly business environments in
Africa and the world, whereby foreigners are allowed to invest in any sector and repatriate
100 per cent profit if they so desire.
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• What is expected of a foreigner who wants to take advantage of Schedule I as

contained in the 1977 amendment of the NEPD.
• Schedule I was an exclusive reserve for Nigerians. However, foreigners who want to
take advantage of it must be ready to invest more than N20 million in the enterprise.
1.3 Structural Adjustment Programme

The Structural Adjustment Programme (SAP) was introduced by the General Ibrahim
Babaginda regime on July 1, 1986 in a bold move to squarely address the structural basis of
the economic impasse that had for some years faced Nigeria and which seemed to defy all
solutions hitherto employed to deal with it. Though the programme officially terminated in
June 1988, its implementation in fact continued throughout the life of the regime to 1993.
Some of the structural imbalances that informed the introduction of the Structural Adjustment
Programme included the following:
• Poor foreign exchange earnings due to poor price of crude oil

• An overvalued currency and an import dependent economy
• High levels of subsidies
• Bloated government expenditure/high budget deficits
• Poor agricultural prices
Measures taken to address the structural imbalances included the following:

• Depreciation of the naira
• Attempt to reduce budget deficits/demand management.
• Removal/reduction of subsidies
• Abolition of commodity boards and increase in agricultural products prices
The consequences of SAP in Nigeria included collapse of local import-substitution industries,

high rate of unemployment, higher costs of living and generalized hardship. In the national
debate that ensued for nearly a year before the introduction of the Structural Adjustment
Programme, Nigerians rejected both the devaluation of the naira and the taking of an
International Monetary Fund (IMF) loan. However, although the SAP programme was
drafted by Nigerian technocrats, it was inspired by the IMF-World Bank structural
adjustment paradigm or theoretical construct or framework. In terms of economic policy
prescriptions, Nigeria really had very limited policy options. So, in the final analysis, Nigeria
unavoidably hoisted on itself a home-grown IMF structural adjustment programme, without
the benefit of an IMF loan and technical support programme. The Structural Adjustment
Programme was perhaps the most controversial economic policy framework Nigeria has ever
adopted and understandably so. The effect of SAP especially on vulnerable groups like
workers, women and children was extensive and devastating. A large number of
manufacturing firms closed down and large number of people were thrown into the labour
market. With the sharp depreciation of the naira, raw materials became very expensive,
leading to some level of backward integration which benefited the economy. But on the
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whole, high cost of imported raw materials led to the collapse of the manufacturing sector as
well as imported inflation. The reduction of subsidies on petroleum products and the outright
removal of subsidies on some other items, though necessary to curtail government spending,
further added to the hardship of the vulnerable groups in the society. On the contrary, policy
makers who initiated SAP did not share in the burden or hardship of structural adjustment,
hence the social inequity. They lived in government houses, drove in government-fuelled
vehicles and were generally shielded from the adverse effects of SAP.
On the whole, the political risks of SAP were borne by national governments. The
International Monetary Fund, which prescribed and inspired these programmes, was far-
removed from the arena of the political turmoil engendered by the hard pills of SAP. This
was one of the draw-backs of SAP, as far as its implementation was concerned.
However, the SAP remains basically a sound and brilliant economic blue-print for economic
adjustment and recovery. Furthermore, the tale has not always been one of woe. Ghana, our
next door neighbour, successfully implemented its SAP programme. The failure of SAP in
Nigeria was a result of the great opposition to it, which gave it a little chance of success, and
even more importantly, its poor implementation by the General Ibrahim Babangida regime,
which was in itself part of the reason it was greatly opposed.
• The SAP was not just introduced for the fun of it. Some imbalances were identified.
Mention any two of such imbalances
• Some of the imbalances were (i) overvalued currency and import dependent
economy, and (ii) bloated government expenditure/high budget deficits
1.4 Commercialization
Commercialization is the introduction of performance or efficiency-based principles in the
running of public or state-owned enterprises in a way that makes their operation self-
sustaining and better able to achieve the objectives for which they were established, without
constituting a drain on the public treasury. Commercialization requires state-owned
enterprises to mimic private sector enterprises in the way they undertake their operations and
render service to their customers or clients, thereby enhancing their value and justifying the
huge amount of tax payers’ money used to set them up. When government commercializes
any of its enterprises, it retains full ownership of the assets of the enterprise, the primary
objective being to enhance the efficiency of the enterprise and make it more effective in
delivering on the mandate for which it was set up. This is as contrasted with privatization,
when government sells off the assets of the company or transfers its equity interests in the
company to private investors. As owners of a commercialized state-owned enterprise,
government still appoints all the members of the board of directors and the executive
management of the enterprise.
The following are the requirements for the successful commercialization of a public
enterprise:
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• The reduction or elimination of subvention to the enterprise

• Reduction to the barest minimum or elimination of political interference by the
supervising government ministry in the day to day running of the enterprise.
• Appointment of a reputable board of directors and commitment to sound corporate
governance principles.
• The appointment of a competent management team
• Principle self-accounting, financially autonomous and self-funding
• Increases in the prices of goods and services so as to enable it cover its costs and
make a reasonable surplus
• Better customer-oriented approach in the rendering of services and a competitive
spirit.
1.4.1 Objectives of Commercialization
The objectives of commercialization include:
• Improved efficiency or reduction of waste, thereby ensuring that organizational

resources, i.e., man, materials, machines and money are utilized in the most judicious
manner to achieve optimal results, with minimal use of time. It also requires that
managers manage well and are adept in motivating their staff and getting required
results through them in a congenial working environment, with a healthy working
relationship among and between managers and employees.
• Budgetary savings and the payment of net surpluses into government treasury. First
government saves money which can be put to other use. Thus, if commercialization
succeeds, the enterprise at the end of the financial year would be able to generate a
reasonable surplus which is paid into government coffers, thereby justifying the huge
initial investment by government and also expanding the budgetary base of
government and enhancing its ability to provide social services to the people.
1.4.2 Assessment of Commercialization Programmes in Nigeria
Commercialization of government enterprises in Nigeria has been an abysmal failure. Using

government utility companies like the erstwhile National Electric Power Authority (NEPA)
and Nigerian Telecommunications Limited (NITEL) as cases in point, the introduction of
commercialization into these enterprises only resulted in higher tariffs and their abilities to
pay their employees better salaries, without a commensurate improvement in the quality of
services rendered by them. Reasons for the continued poor performance of these state-owned
enterprises were continued interference in day to day operations by supervising ministries,
the patronage system, politically compromised employment practices, the absence of a merit
driven human resource policies and practices, rent-seeking behaviour and a corruption-ridden
system.
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In conclusion, though government policy on commercialization may be laudable, politicians

and supervising ministries lacked the required political will to enable the commercialization
process to succeed.
• Power Holding Company of Nigeria (PHCN) as a state-owned enterprise is expected

by government to make profit and sustain itself like the private sectors do. How
would you explain this action of government?
• What government has done is barely commercialize PHCN. This is done in order to
introduce efficiency based principles in the running of the enterprise.
1.5 Privatization
Privatization is the selling of government owned economic assets to private investors or the
transfer by government of its equity interests in state-owned enterprises or commercial
enterprises to private investors by way of direct sale. Privatization could also take the form of
handing over or bringing state-owned economic assets under the direct control and operation
of private entrepreneurs for usually a considerable period of time, under a concessioning
arrangement. Nigeria has recorded considerable experience in privatization in the last three
decades or so under the Bureau of Public Enterprises (formerly Technical Committee on
Privatization and Commercialization). At the inception of the privatization and
commercialization programme in the late 1980s, under TCPC, the emphasis was initially on
commercialization, because government then did not have the political will to privatize.
Besides, Nigeria was realistically not ready for privatization for two reasons. First the people
were not willing to let go of public enterprises which they saw as national heritage; and
secondly, the required diffusion of skills necessary for successful privatization transactions
were yet not resident in Nigeria. To compound this was the extensive vested interest in
maintaining status – there were just too many people benefiting from government ownership
of huge public enterprises who did not want to let go. These included politicians, civil
servants, the management of the enterprises and employees, to mention a few. To be sure, a
few small companies which made very little impact on the economy were sold off in the early
days of TCPC, but the privatization of large public enterprises with assets spread all over the
country and employing tens of thousands of people was to wait until decades later. However,
a major point to note is that privatization is as much political as well as technically and
financially demanding.
1.5.1 Types or Methods of Privatization
The following are the methods that the Bureau of Public Enterprises has been using to
privatize government economic assets in Nigeria:
1. One hundred per cent asset sale – used to privatize small public enterprise like
Nigerian Yeast Company Ltd.
2. Core Investment Approach – used in selling large commercial enterprises like oil
and gas marketing companies, telecommunication and power companies, etc. This
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was the method used by the Federal Government through the BPE to dispose of its
investments in National Oil and Chemical Company Ltd, where the core investor was
Consolidated Oil Ltd (Con Oil). Ltd and Unipetrol, where the core investor was
Oando Ltd. Whenever a core investor approach is used, it is assumed that the
remaining shares are already in the hands of other private investors as in the case of
Unipetrol which was previously partly taken over by government; or that the core
investor will shop for other Nigerian investors and ensure a national spread, as in the
case of Nigerian Tourist Company, owners of Federal Palace Hotel, Victoria Island,
Lagos, bought into by Ikeja Hotel Plc as a core investor; or that after a successful
transaction with a core investor, the remaining shares will be sold on the floors of the
stock exchange to as many Nigerian investors as possible. This is the approach that
will be used in the case of NITEL, when a suitable core investor is eventually found
for it
3. Share Issue Privatization. Nigeria has never used this approach wholesale to sell any
public enterprise. It cannot be used in practical terms to sell a large enterprise and if it
is a small company, there will be no need to go to the stock exchange. The best that
can be done is partial sale of shares on the exchange as in case 2 above. The reason it
is not feasible to sell a large concern a hundred percent through share issue or Initial
Public Offer, is that, at the end of the day there may be no competent management on
the ground with a track record to hand over the company and be sure it will remain a
going concern.
4. Liquidation – When a state-owned industrial enterprise is moribund and is no longer

a going concern, the best way to dispose of it through privatization, is to first liquidate
it. Government then takes over all its liabilities, including outstanding indebtedness to
workers and pension liabilities, after which the plant and equipment are sold a
hundred per cent to a reputable private investor who has the technical and financial
capability to revive the enterprise. This was the case with National Fertilizer
Company (NAFCON), which was sold to Notore, a Nigerian investor and Aluminium
Smelting Company of Nigeria (ALSCON), which was sold to Rusal of Russia.
5. Concessioning. This is the approach that has been used to privatize Nigerian port
terminals, using the landlord model. Nigerian Ports Authority remains the owner and
landlord, but the port terminal assets have been given out to private terminal operators
to operate for as long as 25 years and in return they pay agreed sums to government
for the use of the terminals. They also commit themselves to invest in and develop
the terminals for the period they will control and operate them. There is also
Greenfield concessioning, whereby an investor or concessionaire develops an entirely
new port on virgin land. A good example of this is the new RO-RO Port at Tin Can
Island Port Complex, built by the Italian maritime operator Grimaldi on a Build,
Operate and Transfer basis (BOT).
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• There are methods by which privatization can take place. Mention three of such
methods.
o Privatization can take place through One hundred asset sale, Liquidation, or through
concessioning.
• How would you describe the privatization of the National Fertilizer Company
(NAFCON)
o The privatization was done through liquidation as the organization went moribund.

You have learnt in this session that the economic system of any country is designed to
allocate the scarce resources available through a production system to provide output for their
citizens. While the regulatory roles of government is meant to ensure that businesses are
carried out within the laid down rules and regulations stipulated in the country, the
facilitating roles of government provide the right environment such as political stability
which will make the economy attractive to both local and international investors.

Hurray! Another study session just ended. Brilliant! It must have been fun reading about
government and some of its policies. Comprehended all? There is need to rate your
understanding. Now try the following essay and multiple choice questions, jotting down
observed pockets of confusion to be discussed with your tutor in the next meeting.
Essay
Differentiate between regulatory and facilitating roles of government
Give four reasons for government control of business
State three objectives of the Nigerian Enterprises Promotion Decree (NEPD)
List two benefits of the NEPD
Write brief notes on schedules I and II of the decrees
Outline at least three structural imbalances that led to SAP
Itemize four requirements for a successful commercilization process
Discuss two methods used by BPE to privatize firms in Nigeria
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Tick the option that best completes the question
1. In this system the interaction of supply and demand for each good determines what
and how much to produce.
(a) Market system
(b) Command system
(c) Buying system
2. In this system, the central planner also determine how production will take place and
for whom the product is produced.
(a) Market system
(b) Command system
(c) Buying system
(d) Production system
3. Under this economic system, individuals’ own their human capital and the government
owns most other non-human resources.
(a) Capitalism
(b) Communism
(c) Socialism
(d) Mixed economy
4. One way through which government carries out its facilitating role is by promoting
free competition in the economy
(a) True
(b) False
5. .......... is a formal written enactment of a legislative authority that governs a state, city
or country.
(a) Charter
(b) Statute
(c) Government ownership
(d) Charter or statue
6. This decree initially had two schedules but was increased to three schedules later.
(a) Privatization decree
(b) Indigenization decree
(c) Commercialization decree
(d) SAP
7. In this schedule, the enterprises are those in which Nigerians were expected
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to have a majority ownership of at least 60 per cent.

(a) Schedule I
(b) Schedule II
(c) Schedule III
(d) Schedule I and II.
8. When a state-owned industrial enterprise is moribund and is no longer a going

concern, the best way to dispose of it is to first
(a) Commercialize it
(b) liquidate it
(c) Privatize it
(d) None of the above.
9. When government commercializes any of its enterprises, it retains full ownership

of the assets of the enterprise.
(a) True
(b) False
10. The consequences of SAP in Nigeria included collapse of local import-

substitution industries.
(a) True
(b) False
Questions 1 2 3 4 5 6 7 8 9 10
Answers A B C A B B B C A A
References/Suggestions for further readings

Bert-Jaap K., Lips, M., Corien, P., and Schellekens M. (2006) Starting points for ICT
Regulations, Deconstructing Prevalent Policy One-Liners. Cambridge. Cambridge
University Press.
Ohanemu, C. N. (2002). Fundamentals of Business Administration. Lagos; Rock Fields
Publishing, Lagos
Iyanda, O. and Bello, J.A (1988). Elements of Business in Nigeria. Lagos. University of
Lagos Press.
Braithwaite, J. and Drahos, P. (2000). Global Business Regulation. Cambridge; Cambridge
University Press.
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Massie J.L. (1995). Essentials of Management. 4th edition. New Delhi; Prentice Hall.
McCraw T. (1984). Prophets of Regulation. The Belknap Press
Rugman A.M; Lecraw D.J and Booth L.D. (1998) International Business: Firms and
Environment. McGrawhill International.
Wikipedia Free Encyclopedia, 2002
www.ehow.com:Business Environment Analysis, Social Research Foundation, 2009
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08033366677
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Study Session 2 Government Economic Policies and Partnerships
Introduction
In the last study session, you were exposed to the roles of government which includes
regulatory and facilitating roles. Some of the economic policies of government such as the
Nigerian Enterprises Promotion Decree, the Structural Adjustment Programme,
Commercialization and Privatization were also discussed. In this study session, we are going
to continue with the other economic policies. We are going to look at the NEEDS
programme, the New Partnership for Africa’s Development (NEPAD), the African Growth
and Opportunity Act (AGOA) and what they were meant to achieve in our economy. Enjoy
yourself as you read on.

2.1 Define and use correctly all the key words printed in bold (SAQ 2.1, 2.3, and 2.4)
2.2 State the objectives of the National Economic Empowerment and Development
Strategy (NEEDS) (SAQ 2.1 and 2.2)
2.3 List the critical areas sought to be addressed by NEEDS (SAQ 2.2)
2.4 Describe the New Partnership for Africa’s Development (NEPAD) (SAQ 2.3)
2.5 Discuss the African Growth and Opportunity Act (AGOA) (SAQ 2.4)
2.1 National Economic Empowerment and Development Strategy

(NEEDS)
The National Economic Empowerment and Development Strategy (NEEDS) was a strategic
socio-economic and political development framework put in place by the President Olusegun
Obasanjo regime in 2004. It was the brainchild of Professor Charles Chukwuma Soludo, then
Chief Economic Adviser to the President, prior to his appointment as the Governor of the
Central Bank of Nigeria. The NEEDS document was based on wide-ranging consultations
with various stakeholders all over the country before the final version was adopted by the
Federal Government. NEEDS was in fact Nigeria’s poverty reduction strategy paper (PRSP),
a requirement by the international community for engagement with Africa’s other less
developed countries desirous of receiving development assistance in the fight against poverty.
The NEEDS vision was based on the 1999 constitution of Nigeria, the Kuru Declaration,
previous initiatives such as Vision 2010 and widespread consultations throughout Nigeria
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that was part of the NEEDS process. The programme’s core values recognize the importance
of respect for elders, honesty and accountability, cooperation, industry, discipline, self-
confidence and moral courage.
The Kuru Declaration, one of the key documents that informed the NEEDS framework,
embodies truly noble national values which Nigeria and Nigerians should strive to inculcate.
These are to build a truly great African democratic country, politically united, integrated and
stable, economically prosperous, socially organized, with equal opportunity for all, and
responsibility from all, to become the catalyst of (African) Renaissance and making adequate
all-embracing contributions, sub-regionally, regionally and globally.
NEEDS focused on four key strategies: (1) reforming government and institutions (2)
growing the private sector (3) implementing a social charter and (4) reorienting the value
system of the populace. It was based on the notion that these goals can be achieved only by
creating an environment in which business can thrive, government is redirected to providing
basic services, and people are empowered to take advantage of the new livelihood
opportunities the plan was to stimulate.
NEEDS was not just an economic development strategy, but was also an ambitious change
programme with a clear focus on fighting corruption and re-orienting Nigerians away from a
rent-seeking mentality and relating unproductive and unedifying attitude to making a living.
These values have become deeply entrenched in national psyche over a period of time.
NEEDS therefore sought to make it clear that corruption and graft would be punished. An
elaborate public awareness programme was to be mounted by National Orientation Agency
and related state government organs and in collaboration with NGOs and community based
organizations (CBOs) and other stakeholders to ensure that the fight against corruption was
broad-based.
NEEDS sought to address critical areas such as:

• Health/HIV AIDS – reducing the huge disease burden and the HIV/AIDS pandemic
• Education – realizing that half of Nigeria’s population is young, the strategic role of education
in knowledge diffusion, skill building and human capital development
• Agriculture – recognizing the primacy of agriculture and giving farmers the
necessary tool, materials and finance they need to produce food in abundance, create
wealth and employment and transform the rural sector
• Pension Reform – putting in place a modern contributory pension scheme
• Infrastructure – bridging the huge infrastructural gap necessary for Nigeria’s
economic development and social transformation
• Promoting the Private Sector – as the engine of growth of the economy
• Political and Administrative Reform –changing the way government does business,
shrinking the size of the public sector and drastically reducing the high cost of
governance
2.1.1 What Made NEEDS Different
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NEEDS as a development strategy was different for the following reasons

1. It was based on widespread consultations – a process that started in 2001, which led to
the preparation of Nigeria’s interim Poverty Reduction Strategy Paper (PRSP)
2. NEEDS involved collaborative effort at the federal and state levels which connected
problems on the ground with programmes at the federal and state levels
3. NEEDS was designed as a feasible plan because it was based on wide-ranging
consultations which allowed the drafting committee deep insight into real changes and
problems the ordinary people of Nigeria grappled with on a daily basis and proffering
problem solving tools that stood a good chance of addressing the issues efficaciously.
2.1.2 Empowerment programme
The concept of empowerment is important to NEEDS which recognizes that development

begins and ends with the people – the people are both the agents and the beneficiaries of the
development process. It is therefore important to involve them both in the planning of
development programmes and in the implementation of such programmes. In Nigeria’s case
as in the case of other African and developing countries where poverty has become a major
problem over the years, it was equally necessary to give the people the tools that will enable
them help themselves out of poverty. Such tools are education and skill development,
entrepreneurship and access to finance. As part of the empowerment agenda of NEEDS, the
need to support and encourage the ‘active poor’ was recognized. This agenda is being
aggressively pursued through enterprise development and skill acquisition programmes and
access to finance through microfinance banking.
2.1.3 Assessment of the Success of the NEEDS Programme
The first phase of NEEDS (NEEDS I) came to an end in 2007 and the second phase (NEEDS
II) was expected to be compiled and launched subsequently. In fact the process of extensive
consultations for the launch of NEEDS II had almost been concluded when it became a
victim of the syndrome of policy discontinuity by the succeeding regimes in Nigeria. In place
of NEEDS, the President Umar Musa Yar’ Adua regime put in place the Seven Point Agenda,
which was little more than a line by line itemization of seven areas of political, economic and
social focus, a carryover of his presidential campaign manifesto. The Seven Point Agenda
lacked any conceptual framework or elaborate content. It was not based on consultations and
lacked an action plan, but was sustained by an intensive propaganda on government media.
The unceremonious phasing out of the NEEDS development blueprint and the failure to
replace it with anything close was a national disservice. NEEDS was a brilliant blueprint for
an all-embracing national development. Some of its achievements in the 2004 – 2007
planning period included the following:
• The use of NEEDS by the international community as the basis for cooperation with
and development assistance to Nigeria, as they found the NEEDS document to be a
brilliantly crafted PSPR.
• The granting of debt relief by both the Paris Club and the London Club
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• The banking consolidation programme that increased the capital base of Nigerian
banks to a minimum of N25 billion from N2 billion and reduced the number of banks
from about 84 to 25
• The institution of a modern contributory pension scheme
• The institution of a modern microfinance banking system
• The tremendous boost to the private sector as engine of growth in the economy
• Phenomenal growth in the Nigerian Stock Exchange
• The successful privatization of key government enterprises and the concessioning of
Nigerian ports
• Phenomenal growth in the telecommunication sector
• Rapid expansion of access to higher education through licensing of private
universities and other higher education institutions.
• Why was the NEEDS programme different from other developmental strategies?
• Because it was based on widespread consultations which involved collaborative effort

at both federal and state levels, and was designed as a feasible plan unlike other
programmes.
2.2 The New Partnership for Africa’s Development (NEPAD)

The New Partnership for Africa’s Development (NEPAD) is a vision and strategic framework
for Africa’s socioeconomic and political transformation put in place by the African Union to
harness the energy of all African country and refocus their development strategies with the
aim of achieving rapid growth and development.
The NEPAD strategic framework document seeks to develop an integrated, comprehensive
and sustainable development framework for Africa.
2.2.1 History of NEPAD
The framework for the establishment of NEPAD was adopted at a meeting of African Heads
of State and Government under the auspices of the Organization of African Unity (OAU) in
2001 and subsequently ratified by the African Union (AU), the successor organization to the
OAU in 2002. NEPAD was the fusion of three related but parallel visions about how to move
Africa forward at the dawn of the new Millennium. These were the Millennium Africa
Recovery Plan (MAP), championed by the then South African President Thabo Mbeki; the
Omega Plan, envisioned by President Abdoulaye Wade of Senegal. MAP and the Omega
Plan were then coalesced into a single blueprint, which became known as the New African
Initiative (NAI), which in turn led to NEPAD in 2001, in a more elaborated form. The three
initiatives that gave birth to NEPAD and shared a common concern for the rapid development
of the African continent, but they also had differences in emphasis on regional priorities. In
the process of reconciling these differences, certain compromises had to be made. In the
process of establishing NEPAD, the Organization of African Unity mandated five member
states of Algeria, Egypt, Nigeria, Senegal and South Africa to put together its framework.
Thus these five countries are the founding members of NEPAD.
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2.2.2 Objectives of NEPAD
The overall objective of NEPAD is to eradicate poverty in Africa and to place African
countries both individually and collectively on a path of sustainable growth and development
to thus halt the marginalization of Africa in the globalization process. At the core of the
NEPAD process is its African ownership, which must be retained and strongly promoted, so
as to meet the legitimate aspirations of the African peoples. While the principle of partnership
with the rest of the world is equally vital to this process, such partnership must be based on
mutual respect, dignity, shared responsibility and mutual accountability. The key objectives
of NEPAD can thus be summarized as including the following:
a) To eradicate poverty.
b) To place African countries, both individually and collectively on a path of sustainable
growth and development.
c) To halt the marginalization of Africa in the globalization process and enhance its full
and beneficial integration into the global economy.
d) To accelerate sustainable development by ensuring peace and security, democracy
and good political, economic and corporate governance, regional co-operation and
integration and capacity building.
2.2.3 The principles of NEPAD

NEPAD was founded on the following principles:
• African ownership and leadership, as well as broad and deep participation by all
sectors of society;
• Good governance as a basic requirement for peace, sucurity and sustainable, political
and socio-economic development;
• Anchoring the redevelopment of the continent on the resources and resourcefulness of
the African people;
• Partnership between and amongst African peoples;
• Acceleration of regional and continental integration;
• Building the competitiveness of African countries and the continent;
• Forging of a new partnership with the industrialized world by, amongst other things,
ensuring that it changes the unequal relationship between Africa and the developed
world; and
• Commitment to ensuring that all Partnerships with NEPAD are linked to the
Millennium Development Goals and other agreed development goals and targets.
2.2.4 The elements of NEPAD's strategic focus

The following constitute the elements of the strategic focus of NEPAD which is primarily
concerned with the economic resurgence and vibrancy of Africa:
♦ To reduce the risk profile of doing business in Africa;

♦ To create the conditions conducive for investment, high economic growth and
sustainable development;
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♦ To increase Africa's competitiveness in the world economy;

♦ To transform the unequal and donor/recipient relationship with the developed
countries and multilateral institutions to a new partnership that is based on mutual
responsibility and respect; and
♦ To increase investment on the continent in order to ensure social and economic
development.
In sum, NEPAD calls for adapted policy reforms and increased investments in the areas of
agriculture and food security, science and technology, environment, trade and market access,
governance, infrastructure (energy, transport and water sanitation, and information and
communication technologies), gender and capacity development.
2.2.5 How NEPAD programme is governed
The work of the NEPAD Planning and Coordinating Agency – which is tasked with the
implementation of the NEPAD Programme – is overseen by the NEPAD Heads of State and
Government Orientation Committee (HSGOC) and a Steering Committee. The Chairperson
of the African Union Commission exercises supervisory authority over the Agency.
2.2.6 NEPAD Planning and Coordinating Agency (NEPAD Agency)
Right from inception in 2001 when it was established by the African Union, the Secretariat of
NEPAD was in Johannesburg, South Africa. Concern has grown over the years about the risk
of it being run as a parallel organization, almost entirely separate and distinct from the
structures of the African Union, which is based in Addis Ababa, Ethiopia. So the result of the
effort to integrate NEPAD more formally into the AU system is the NEPAD Planning and
Coordination Agency, which was established by the 14th African Union Summit decision as
the institutional vehicle for implementing the African Union Development agenda.
Designated as the technical body of the African Union, the core mandate of the NEPAD
Agency is to facilitate and coordinate the implementation of regional and continental priority
programmes and projects and to push for partnerships, resource mobilization and research
and knowledge management. The secretariat of the agency will be retained in South Africa,
perhaps as a reward for the enormous effort South Africa has invested in the NEPAD vision.
2.2.7 African Ownership
A major feature of NEPAD is the concept of African ownership, which is one of the key
principles upon which NEPAD was founded. What this means in practical terms is that the
vision for NEPAD was conceived by African leaders and their peoples and not thrust upon
them by external forces, as was the case with many programmes of the past – which
invariably failed due to lack of local ownership and local content. Secondly, African
governments, peoples and institutions also developed the contents of the various programmes
of NEPAD. Thirdly, in furtherance of the principle of ownership, NEPAD is strategically
hoisted on the fulcrum of partnership: firstly, partnerships among African countries
themselves on a continental scale on the political, economic and social spheres in a
dimension that had never been witnessed before. In particular, partnership with the African
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private sector and civil societies (which is a clear departure from the past when policies and
programmes were exclusively conceived and implemented by the public sector without the
active involvement of the majority of the people themselves) was emphasized. Of great
significance also is partnership with the international community, comprising essentially the
United Nations system, the European Union and the G8/G20, which have adopted the
NEPAD strategic framework as the basis of their economic and social cooperation
programmes with African countries
From the foregoing, it is clear that NEPAD is not just a public sector programme but a
strategic framework for the social, economic and political transformation of Africa. NEPAD
is not a project but an elaborate multi-sectoral programme of change, involving numerous
stakeholders and partners. Indeed, the most crucial and strategic of all the stakeholders and
partners is the private sector. The private sector is expected to partner with government to
implement various projects under the umbrella of public, private partnerships, broadly
defined, through provision of expertise, executive capacity, mobilization and provision of
long-term capital, both local and foreign and identification of entrepreneurial/investment
opportunities. Others include the formation of partnerships, both with local and foreign
business and technical partners for the execution of large scale projects. Partnerships were
also generated for participation in the financing and execution of infrastructural projects in
the form of Build, Operate and Transfer (BOT), leases, management contracts, concessions,
and other forms of public private partnership arrangements, as alternative models of public
procurement. The provision of professional services is also part of the opportunities that
NEPAD offers to the private sector, including professional firms and practices.
• NEPAD had key objectives. Mention two of them.
• Two of NEPAD’s key objectives were to (i) eradicate poverty in Africa and (ii) halt
the marginalisation of Africa in the globalization process.
2.3 The African Growth and Opportunity Act (AGOA)

The African Growth and Opportunity Act (AGOA), an American government initiative to
boost trade relationship with African countries on a preferential basis, was signed into law on
May 18, 2000 by President Bill Clinton as Title 1 of The Trade and Development Act of
2000. The Act offers tangible incentives for African countries to continue their efforts to
open their economies and build free markets. President Bush signed amendments to AGOA,
also known as AGOA II, into law on August 6, 2002 as Sec. 3108 of the Trade Act of 2002.
AGOA II substantially expands preferential access for imports from beneficiary Sub-Saharan
African countries.
By modifying certain provisions of the African Growth and Opportunity Act (AGOA), the
AGOA Acceleration Act of 2004 (AGOA III, signed by President Bush on July 12, 2004)
extends preferential access for imports from beneficiary Sub Saharan African countries until
September 30, 2015; extended third country fabric provision for three years, from September
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2004 until September 2007; and provides additional Congressional guidance to the
Administration on how to administer the textile provisions of the bill.
The Africa Investment Incentive Act of 2006 (signed by President Bush on December 20,
2006) further amends portions of the African Growth and Opportunity Act (AGOA) and is
referred to as "AGOA IV". The legislation extends the third country fabric provision for an
additional five years, from September 2007 until September 2012; adds an abundant supply
provision; designates certain denim articles as being in abundant supply; and allows lesser
developed beneficiary sub-Saharan African countries export certain textile articles under
AGOA.
AGOA provides reforming African countries with the most liberal access to the U.S. market
available to any country or region with which the United States does not have a Free Trade
Agreement. It supports U.S. business by encouraging reform of Africa’s economic and
commercial regimes, which will build stronger markets and more effective partners for U.S.
firms. AGOA expands the list of products which eligible Sub-Saharan African countries may
export to the United States subject to zero import duty under the Generalized System of
Preferences (GSP). While general GSP covers approximately 4,600 items, AGOA GSP
applies to more than 6,400 items. AGOA GSP provisions are in effect until September 30,
2015.
2.3.1 Long-Term Potential Benefits of AGOA to African Countries
AGOA can change the course of trade relations between Africa and the United States for the
long term, while helping millions of African families find opportunities to build prosperity:
• By reinforcing African reform efforts;
• By providing improved access to U.S. technical expertise, credit, and markets; and
• By establishing a high-level dialogue on trade and investment.
Since its implementation, AGOA has encouraged substantial new investments, trade, and job
creation in Africa. It has helped to promote Sub-Saharan Africa's integration into the
multilateral trading system and a more active role in global trade negotiations. It has also
contributed to economic and commercial reforms which make African countries more
attractive commercial partners for U.S. companies.
2.3.2 Implementation
An AGOA Implementation Subcommittee of the Trade Policy Staff Committee (TPSC) was
established to implement AGOA. Among the most important implementation issues are the
following:
• Determination of country eligibility;
• Determination of the products eligible for zero tariff under expansion of the
Generalized System of Preferences (GSP);
• Determinations of compliance with the conditions for apparel benefits;
• Establishment of the U.S.-Sub-Saharan Africa Trade and Economic Forum; and
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• Provisions for technical assistance to help countries qualify for benefits.
2.3.3 Country Eligibility
The U.S. Government intends that the largest possible number of Sub-Saharan African
countries is able to take advantage of AGOA. President Clinton issued a proclamation on
October 2, 2000 designating 34 countries in Sub-Saharan Africa as eligible for the trade
benefits of AGOA. The list is amended from time to time, in line with the dictates of
American foreign policy, not just U.S. trade relations with Africa. Actually, critics of the
programme hold up this amendment to buttress their argument that AGOA is a tool of neo-
colonial dominion by the American government. For example, effective from June 30, 2008,
the President Bush designated Comoros as AGOA eligible and effective January 1, 2009,
President Bush removed Mauritania from the list of AGOA eligible countries for reasons not
unconnected with the military coup in that country.
The Act authorizes the President of the United States to designate countries as eligible to
receive the benefits of AGOA if they are determined to have established, or are making
continual progress toward establishing the following: (1) market-based economies (2) the
rule of law and political pluralism (3) elimination of barriers to U.S. trade and investment (4)
protection of intellectual property (5) efforts to combat corruption (6) policies to reduce
poverty (7) increasing availability of health care and educational opportunities (8) protection
of human rights and worker rights, and (9) elimination of certain child labour practices.
These criteria have been embraced overwhelmingly by the vast majority of African nations,
which are striving to achieve the objectives although none is expected to have fully
implemented the entire list.
The eligibility criteria for GSP and AGOA substantially overlap, and countries must be GSP
eligible in order to receive AGOA’s trade benefits including both expanded GSP and the
apparel provisions. Although GSP eligibility does not imply AGOA eligibility, 47 of the 48
Sub-Saharan African countries are currently GSP eligible.
2.3.4 GSP Product Eligibility
AGOA authorizes the President of the United States to provide duty-free treatment under
GSP for any article, after the U.S. Trade Representative (USTR) and the U.S. International
Trade Commission (USITC) have determined that the article is not import sensitive when
imported from African countries. On December 21, 2000, President Clinton extended duty-
free treatment under GSP to AGOA eligible countries for more than 1,800 tariff line items in
addition to the standard GSP list of approximately 4,600 items available to non-AGOA GSP
beneficiary countries. The additional GSP line items which include such previously excluded
items as footwear, luggage, handbags, watches, and flatware were implemented after an
extensive process of public comment and review. AGOA extends GSP for eligible Sub-
Saharan African beneficiaries until September 30, 2015. Sub-Saharan African beneficiary
countries are also exempted from competitive need limitations which cap the GSP benefits
available to beneficiaries in other regions.
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• AGOA had implementation sub-committee established. State two of the most

important implementation issues they are to handle.
• They are to determine the country eligibility and secondly provide for technical
assistance to help countries qualify for benefits
2.3.5 Apparel Provisions
AGOA provides duty-free and quota-free treatment for eligible apparel articles made in
qualifying sub-Saharan African countries through 2015. Qualifying articles include: apparel
made of U.S. yarns and fabrics; apparel made of sub-Saharan African (regional) yarns and
fabrics until 2015, subject to a cap; apparel made in a designated lesser-developed country of
third-country yarns and fabrics until 2012, subject to a cap; apparel made of yarns and fabrics
not produced in commercial quantities in the United States; textile or textile articles
originating entirely in one or more lesser-developed beneficiary sub-Saharan African
countries; certain cashmere and merino wool sweaters; and eligible hand-loomed, handmade,
or folklore articles, and ethnic printed fabrics.
Under a Special Rule for lesser-developed beneficiary countries, those countries with a per
capita GNP under $1,500 in 1998, will enjoy an additional preference in the form of duty-
free/quota-free access for apparel made from fabric originating anywhere in the world. The
Special Rule is in effect until September 30, 2012 and is subject to a cap. AGOA IV
continues the designation of Botswana and Namibia as lesser-developed beneficiary
countries, qualifying both countries for the Special Rule.
AGOA IV provides for special rules for fabrics or yarns produced in commercial quantities
(or "abundant supply") in any designated sub-Saharan African country for use in qualifying
apparel articles. Upon receiving a petition from any interested party, the International Trade
Commission will determine the quantity of such fabrics or yarns that must be sourced from
the region before applying the third country fabric provision. It also provides for 30 million
square meter equivalents (SMEs) of denim to be determined to be in abundant supply
beginning October 1, 2006. The U.S. International Trade Commission will provide further
guidance on how it will implement this provision.
Preferential treatment for apparel took effect on October 1, 2000, but beneficiary countries
must first establish effective visa systems to prevent illegal trans-shipment and use of
counterfeit documentation, and that they have instituted required enforcement and
verification procedures. Specific requirements of the visa systems and verification
procedures were promulgated to African governments via U.S. embassies on September 21,
2000. The Secretary of Commerce is directed to monitor apparel imports on a monthly basis
to guard against surges. If increased imports are causing or threatening serious damage to the
U.S. apparel industry, the President is to suspend duty-free treatment for the article(s) in
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question. The U.S. Government is now reviewing applications for approval of the required
visa and enforcement mechanisms from AGOA eligible countries.
• Whose initiative was the African Growth and Opportunity Act (AGOA)?
• It was an American government initiative to boost trade relationship with African

countries on a preferential basis.
Summary of study session 2

In this study session you have learnt the different economic policies of government like
Nigeria Enterprises Promotion Decree (NEPD), Structural Adjustment Programme (SAP),
Commercialization, Privatization etc. The NEPD known as the indigenization decree was
promulgated in 1972 and has been amended many times. The sole aim of the decree was to
give Nigerians a sense of belonging and control over largely the commercial sector and the
small and medium scale sector of the economy such that the initial capital requirement and
required technical and managerial skills were considered to be within the reach of Nigerians.
Objectives and benefits of NEPD were also looked at. The requirements for a successful
commercialization of a public enterprise as well as objectives for commercialization were
also looked at. In the same vein, the structural imbalances or reasons that informed the
introduction of the Structural Adjustment programme and the measures taken to address the
imbalances were also examined. Finally, privatization and types of privatization were
treated.
The session also discussed some of the critical issues that NEEDS was meant to address. It
also examined the success and failure of NEEDS. The historical evolution and objectives of
NEPAD were discussed as well as the principles on which NEPAD was founded. The
concept of the African ownership of NEPAD was also examined. In addition, the AGOA
framework and objectives as well as the concept of country eligibility were all discussed.

Are you happy you have come to the end of another study session? Do you want to test your
understanding of what you have read? Get your pen and pad ready. Then, try answering the
following essay and multiple choice questions; note the topics you have problem
comprehending. Take the problem to your tutor in the next meeting.
Essay
NEEDS focused on four key strategies. List them.
Outline four critical areas that NEEDS sought to address.
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Mention five principles on which NEPAD was founded and state two of its objectives.
Explain two long-term potentials of AGOA to African Countries

Choose the right option that best suits the question
1. Right from inception in 2001 when it was established, the Secretariat of NEPAD has
been in...............
a) Abuja, Nigeria
b) Johannesburg, South Africa
c) Cairo, Egypt
d) Addis Ababa, Ethiopia.
2. The AGOA Acceleration Act also termed AGOA III was signed by
(a) President Bill Clinton on August 6, 2002
(b) President Bush on July 12, 2004
(c) President Bush on December 20, 2006
(d) President Bill Clinton on May 18, 2000
3. The key objectives of NEPAD includes all but one

(a) Accelerate sustainable development by ensuring peace and security
(b) Eradicate poverty
(c) Aid marginalization of Africa in the globalization process
(d) (b) Encourage growth and development through good democratic principles,
corporate
(e) governance etc.
4. The framework for the establishment of NEPAD was adopted at a meeting of African
Heads of State and Government under the auspices of the OAU in 2001
(a) True
(b) False
5. The critics of the AGOA act argue that it is a tool of neo-colonial dominion by the
American government.
(a) True
(b) False
(c) No relevant option
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Question 1 2 3 4 5
Answer B B C A A
Reference/Suggestions for further reading

Adegbite, E .O. Ayadi, Felix O., and Ayadi F. S .(2008). “Structural Adjustment, Financial
Sector Development and Economic Prosperity in Nigeria,” International Research
Journal of Finance and Economics, Issue 15.
http://www.eurojournals.com/finance.html.
African Union (2010). NPCA Strategic Direction, 2010-2013: Facilitating the Delivery of
High Quality Programmes and Projects to Promote Africa’s Development and
Regional Integration, Addis Ababa, May 2010
Anyanwu, J. C. (1992). “President Babangida's Structural Adjustment Programme and

Inflation in Nigeria, Journal of Social Development in Africa 7,1,5.24
Bankole A, (2009) Coordinator (External Relations and Partnerships, NEPAD Secretariat),

“AU/NEPAD African Action Plan: Roadmap for Regional Integration - Framework to
Fast-track Regional Integration and Global Partnerships in Support of Africa’s
Development Agenda.” Paper presented at the Regional Media Dialogue on NEPAD, The
Vaal, Guateng Province, South Africa, February 19 – 20.,
National Planning Commission(2004). National Economic Empowerment and Development

Strategy (NEEDS), Abuja.
NCEMA, “Structural Adjustment Programme in Nigeria: Causes, Processes and Outcomes,”

Revised Technical Proposal submitted by National Centre for Economic
Management & Administration (NCEMA), Ibadan
Organization of African Unity (2001). The New Partnership for Africa’s Development,
October, 2001
Sasore, G. M. (2005). Special Adviser To the President on Export Programmes/Chief

Executive Officer, Nigerian Export Promotion Council, “Trade Opportunities Under
AGOA, a Paper presented at the Conference on the “Agricultural & Food Situation
and Trade Opportunities in Nigeria” organized by IFDC-MISTOWA (Regional
Market Information Systems and Traders’ Organizations in West Africa) held at
Kano Durbar Hotel, May 26 – 27.
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08033366677
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Study Session 3 Business and Contemporary Issues
Introduction
This session will take you through the elements of International trade, globalization and other
related organizations and bodies that influence international financial systems. You will also
learn about various economic blocks that are used to promote regional and international
cooperation.
Learning outcomes
When you have finished studying this session you should be able to:
3.1 Define and use correctly all the key words printed in bold (SAQ 3.1, 3.2, 3.3, 3.4 and
3.5).
3.2 Discuss the concept of international trade, benefits and disadvantages (SAQ 3.4).
3.3 Define globalization and understand its advantages and disadvantages (SAQ 3.2).
3.4 List the contribution of International Monetary Fund and the World Bank to
international business (SAQ 3.1 and 3.3).
3.5 Identify various regional economic blocks and their operations (SAQ 3.5).
3.1 Concept of International Trade

International trade is the trade between nations of the world. It is trade between individual
firms and government of the countries.
3.1.1 Reasons for international trade
• Some countries can produce certain commodities at cheaper rates than others.
• Most countries also depend on other countries for the purchase of commodities which
are needed to supplement home production.
• Difference in productive capacity.
• Inequitable distribution of natural resources e.g climate, soil, mineral resources,

different technology, different peoples and skills.
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• To enjoy comparative advantage. The law of comparative advantage states that a

country will benefit if they specialize in the production of commodities in which they
have comparative cost advantage and exchange those commodities which others can
produce more cheaply.
3.1.2 Advantages of International Trade
The following are the advantages of international trade;

1. It ensures equitable distribution of natural resources: international trade makes it
possible for a country to import resources that are not available in her country.
2. It brings about world peace.
3. Prevention of monopoly: International trade prevents the local manufacturer of

goods from increasing prices unreasonably.
4. There is interdependence among nations for raw materials.
5. International trade also leads to specialization and increase in the standard of living
of the people and it encourages economic development of nations.
3.1.3 Disadvantages of International trade
1. International trade could cause unemployment in industries if more manufactured and

agro-allied goods are imported at the detriment of the local or infant industries.
2. Discouragement of self-reliance: availability of foreign goods in the local market

may discourage the production of such goods locally.
3. Importation of harmful goods.
4. International trade could be injurious to a country’s culture.
3.1.4 Barriers to International trade
• Distance barrier
• Language problem
• Problem of weights and measures
• Political barrier
• Economic barrier
3.1.5 Documents used in International Trade
An indent: this is the order which gives the details, about the types, and quality of goods
required by the buyer.
Consular invoice: The document becomes very necessary because there may not be trading
relationship between two countries and as a result, the origin of the goods needs to be
confirmed.
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The freight note states the charges for carrying the goods.
Bill of lading: The bill of lading is the most important document because it serves as a
document of title to the goods at place of origin or destination. It specifies the quantity of
goods, port of loading and port or discharge.
Sanitary Health Certificate: The certificate certifies that the foodstuff (e.g. meat)
is fit for human consumption.
Certificate of Inspection: the manufacturer or supplier issues the certificate to show that
they have inspected the goods shipped and they are in conformity with buyer‘s purchase
order.
The pro-forma invoice contains the particulars of exporter and importers.
Form M: the importer fills a set of the form by transferring the information on the pro-forma
invoice into the form M. Thereafter, the form M and the pro-forma invoice are sent to the
importer’s bank for processing.
3.1.6 Means of payment in foreign trade
The means of payment include mail transfer, telegraphic and cable transfer, guaranteed mail
transfer, foreign bill of exchange, travel’s cheque, bank’s draft and documentary credit
• Nigerian firms usually have business transactions with firms of other countries and
sometimes even with governments of other nations. What kind of trade is this?
• This is called international trade since it is between nations of the world.
3.1.7 Advantages of the letter of credit
a. Irrevocable credit cannot be amended or cancelled without the consent of the seller.
b. The buyer cannot withhold without payment for goods for any reason.
c. Credit is used for financing export by the seller who receives payment before arrival
of goods at destination.
d. The buyer can obtain finance from his bank for his import.
e. There is the assurance for the shipment of goods within the delivery date as payment
against the presentation of document by the seller.
3.1.8 Disadvantages of the letter of credit
a. It may lose its commercial value when the seller fails to comply with any of the terms
of the credit.
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b. There may be delay in payment or the transaction. This could stem from irregularities
on the documents .presented for the credit.
c. The buyer bears all risks and cost of opening the credit.
d. Once the credit (irrevocable) is issued by his bank, (he cannot cancel the credit
without the consent of the issuing bank and the confirming bank.
• In Nigeria today, people patronize foreign made goods over and above local made
ones. How do you consider this?
• This is considered as one of the disadvantages of International trade.
3.2 Globalisation
Globalization is the integration of economies with regards to market for goods, factors of
production and technology. Globalization gives equal access to production and investment
discourse across the world by the entrepreneur whose main objective is to take advantage of
it.
It provides for economic independence of countries worldwide through the increasing volume
and variety of cross border transaction on goods and services and of international capital
flows through the more rapid and wide spread diffusion of technology.
3.2.1 Advantages of Globalization

1. It ensures the increase in the output of a country as a result of the removal of trade
restriction.
2. It permits countries to concentrate on the production of goods and services in which
they have comparative advantage.
3. It raises productivity and improves the living standard of the people through
international division of labour and efficient allocation of resources.
4. It makes a country to have access to a large volume and diversified sources of
external funds or finance.
5. Less well developed countries are opened up to investors.
6. Accessibility of countries to financial assistance such as the World Bank,
International Monetary Funds, European Union and the United Nations.
7. Globalization ensures acceptability of a country to foreign products and makes
consumers enjoy different types of goods and services at low prizes.
3.2.2 Disadvantages of Globalisation
1. It leads to dumping of goods/products
2. It reduces the demand for the products of infant and local industries
3. It may result to unemployment due to capital flight.
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3.2.3 Features of the world that aid globalization.
1. The world is rapidly globalizing in both its trade and investment flow that today no
country can take economic decision in isolation.
2. Many companies are internalizing.
3. There is free trade, finance and information for economic growth and human welfare.
4. There is closer integration of the countries and people of the world, which has been
brought about by reduction in the cost of communication and transportation and the
breaking down of artificial barriers to the flow of goods and services
5. The distribution between international and domestic economic policies has become
irrelevant.
6. There is now a borderless world.
7. Telecommunication development.
8. Transportation
9. Technological advancement.
• Mention two disadvantages of globalization?
• Globalization leads to dumping of goods and may kill the infant and local industries
if care is not taken.
3.4 Regional Economic Integration
Regional Economic integration is an agreement between contiguous nations to allow for the
free flow of ideas investment funds, technology, goods and services and free movement of
persons within the region in which large markets subsist with the benefit of comparative
advantage and economies of scale.
3.4.1 Advantages/Reasons
• Removal of all impediments to free trade and investments.

• Efficient resource allocation to promote greater output of goods and services and
overall economic well-being of member states.
• Promotion of trade creation and trade diversion.
• Aids the achievement of GATT and WTO.
• Attachment of economic growth and development.
3.4.2 Disadvantages/Problems
Loss of some measure of economic and political independence by member states.

Inability to fix tariffs and impose restriction not in line with the framework of the
integration agreement.
Close monitoring of the monetary and fiscal policies of the member states for the
purpose of achieving the overall objectives of the economic community.
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3.4.3 Types of economic unions
Specially, the economic unions include the General Agreement on Trade and Tariffs (GATT),
World Trade Organization (WTO), Organization of Economic Co-operation and
Development (OECD), European Economic Community (EEC), African Economic
Commission (AEC), Economic Community of West African State (ECOWAS), Southern
African Development Coordination Committee (SADCC), International Monetary Fund
(IMF), among others. Let us take a look at some of the economic blocks.
• There are different types of economic unions. List three of them.
• Some of the economic unions are World Trade Organization (WTO), Economic
Community of West African State (ECOWAS), and the International Monetary Fund
(IMF).
3.5 The Economic Community of West African State (ECOWAS)

The ECOWAS is a body set up for the economic integration of West African countries, the
main purpose of which is to promote rapid economic development of West African people. It
is made up of sixteen (16) states of both Anglo-phone and Franco-phone countries. It was
founded on May 28th 1975 when sixteen West-African countries signed the treaty in Lagos.
It has been observed that the West African Governments are aware of the poor economic
situation of their people. They are aware of the poverty, low standards of living and health
hazards of their people. They therefore addressed themselves to the important issue of
finding solutions to poor conditions caused by:
Low level technology

Few dynamic entrepreneurs who are prepared to take risks
Poor economic planning as a result of lack of relevant statistics, political and official
will.
Low level investment.
Low level savings which makes for low level capital accumulations.
Smallness of West African markets and strong competition from foreign markets.
Low per capita income.
Poor infrastructural facilities.
3.6 General Agreement on Trade and Tariffs (GATT)

The agreement was initiated in 1947 to ensure the liberalization of the world trade.
Marrakesh agreement established the World Trade Organization (WTO) on the 1st of January,
1995 with its Head quarters at Geneva, Switzerland.
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3.6.1 Basic Principles of GATT
Trade liberalization
Reciprocity
Non- discrimination
Transparency of regulation
Fair trade
Trade restriction under serious and special economic conditions.
3.6.2 Objectives of GATT
GATT was established in order to:
Ensure trade liberalization

Make optimal use of world’s resources to guarantee sustainable development.
Bring about a good relation in the field or trade and economic endeavour.
Improved standard of living and expansion of production and trade in goods and
services of member countries.
Ensure reciprocal and mutually advantageous arrangement for reduction in tariffs and
other barriers to international trade.
Improve members’ market access domestic support especially in the form of subsidy
and enhance export competition.
Prevent restriction and distribution in agricultural market.
Gradually reduce support and distortion for agricultural products over an agreed
period of time.
3.6.3 Specific areas of agreement
Agreements were directed at:

- Tariff and trade
- Agriculture
- Application of sanitary and phyto-sanitary measures
- Textiles and clothing
- Technical barrier to trade
- Trade related investment measures
- Pre-shipment inspection
- Rules of origin
- Import licensing procedures
- Subsidies and countervailing measures
3.7 World Trade Organization (WTO)

The World Trade Organization (WTO) was established on 1st of January, 1995 with the
objectives and functions that are highlighted below:
3.7.1 Objectives of WTO
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Enhancement of international relations in the areas of trade and economic

endeavours’
Full employment
Enhancement of real services to boost global output
Raising the standard of living of the people
3.7.2 Functions of WTO
The WTO performs the functions stated below:

Provides the framework for implementation and administration of trade agreements
Provides the forum for negotiation among members on matters affecting multilateral
trade relations
Administers trade policy renew mechanization when necessary
Prevents members from taking actions injurious to global trade development
Cooperates with IMF and World Bank ongood global economic policy making
3.7.3 Structure of WTO
The WTO is structured into:
a) Secretariat headed by a director-general

b) Ministerial conference
c) General council
d) Council for trade in goods
e) Council for trade in services
f) Council for trade-related aspects of intellectual property rights
3.8 The World Bank

This is one of the largest sources of the development assistances in the world .The
International Bank for Reconstruction and Development (IBRD) later re-christened the World
Bank was initially established to support the reconstruction of Europe after World War II.
The World Bank came into existence in 1944 as a sister body to the IMF. It provided lending
fund for commercialization and trade, provide technical' assistance in order to facilitate
economic development among its poorer member countries. The bank operates in more than
100 developing economies through government agencies, non-governmental organization and
private sector to formulate assistance strategies.
3.8.1 Groups of World Bank
The World Bank is made up of the following groups:

1. International Developing Agency (IDA). The group provides loan assistances to
middle income and poorer countries
2. International Bank for Reconstruction and Development (IBRD). The group also
provides loan assistances to middle income and poorer countries like the international
developing agency
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3. International Finance and Cooperation (IFC).It promotes private sector investment,

both foreign and domestic services as an investor and broker between foreign
investors, local partners and government authorities.
4. Multilateral Investment Guarantee Agency (MIGA). It promotes foreign direct
investment by offering political risk assurance. It conveys direct benefits to host
countries by providing information on job creation and training for employers.
5. International Centre for settlement of Investment Disputes (ICSID). It offers
opportunity to new big investors entering new markets and government to provide
enabling environment. The group also creates effective and stable financial markets.
There is also the provision of facilities for the settlements by conciliation or
arbitration of investment dispute between investor and their host.
3.9 International Monetary Fund (IMF)

The International Monetary Fund was established, along with the World Bank, at a
conference in Bretton Woods, New Hampshire, USA, in the closing stages of World War II.
3.9.1 Composition of IMF
The diagram below displays the composition of the IMF.
Fig. 3.1: Composition of the IMF
3.9.2 Features oF IMF
The IMF is engaged in:
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1. Promoting global monetary and exchange stability.

2. Facilitating the expansion and balanced growth of international trade for current
transactions.
3. Assisting in the establishment of a multilateral system of payments
4. Compiling statistics and evaluation of its member countries’ economies
(Nearly all nations in UN are members of IMF)
5. Intervening in financial crisis to provide loans and conditions for restructuring the
economy to avoid future crisis.
6. Providing external assessment of the economy, which helps the government to
implement popular ideas.
7. Promoting international monetary co-operation and global financial stability.
8. Encouraging economic growth.
9. Giving financial advice to countries about how to run their economies.
10. Providing loans to countries experiencing problem of balance of payment for
restoration and sustainable economic growth.
11. Financing of temporary balance of payment needs.
12. Keeping surveillance over member’s economic policies.
13. Provision of loans to countries experiencing balance of payment problem.
14. Increasing the global supply of international reserves.
3.9.3 Mode of operation
The IMF provides loans to countries experiencing problem of balance of payment for
restoration and sustainable economic growth. The loans have come to be known as structural
adjustment loans because they aim to help borrowing governments adjust the structure of
economic activity. The loan is given specifically for the rebuilding of external reserves,
currency stabilization and payment for imports. Unlike development bank, IMF does not give
loans for specific projects. Loans are provided under special arrangement. Under the
arrangement, letter of intent is passed by application through executive board by the country
seeking for loan.
Following the approval, loans are released in instalments. Concessional interest rate is give to
low-income countries through the poverty Reduction Growth facility (PRGF). However, the
non-concessional loan is given through five facilities and the interest rates are subject to IMF
related interest rate known as rate of charge which is currently 2.9%. The five facilities
namely:
1. Stand By Arrangements (SBA).

2. Extended Fund Facility (EFF)
3. Supplementary Reserve Facility (SRE)
4. Contingent Credit Loans (CCL)
5. Compensatory Financing Facility (CFF)
3.9.4 Objectives of the IMF
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To promote international monetary co-operations and the expansion of international

trade.
To contribute to the development of the productive resources of all members.
To assist developing nations pay their trade partners in foreign currencies.
To standardize currencies by ensuring currency stability and preventing disloyal
competition by depression of the rate of exchange.
In order to encourage international trade, IMF ensures that· member countries’
currencies are freely convertible.
To give advice and help member nations solve their domestic economic problems.
To serve as a clearinghouse for member nations where inter-nation indebtedness
could easily be settled.
• Describe two features of the IMF.
o Promoting global monetary and exchange stability, and encouraging economic

growth.
3.10 Summary and conclusion

In this study session you have been able to learn what international trade is and the reasons
for international trade. The advantages and disadvantages of international trade as well as
barrier to international trade were also examined. Furthermore, the documents used in
international trade and the means of payment in foreign trade were discussed. Globalization
as a term was defined. The advantages and disadvantages and features of the world that aid
globalization were also considered.
You have also learnt that the regional economic integration is an agreement between
neighbouring nations to allow for the free flow of ideas, investment funds, technology, goods
and services and the free movement of persons within the region for the benefit of
comparative advantage and economies of scale. The various economic unions like the
General Agreement on Trade and Tariffs (GATT), World Trade Organization (WTO),
International Monetary Fund (IMF), and the World Bank among others were discussed. The
features of each of this integration or economic unions were discussed.
3.11 Self Assessment Questions

Essay
Briefly discuss five objectives of the international monetary funds

Discuss three advantages and disadvantages each of globalization.
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Outline five groups of the World Bank and state their function
List and explain briefly four documents used in international trade.
State two each of the reasons and problems of regional economic integration

Choose from the alternatives the option that best suit the question.
1. .......... is the trade between individual firms and government of the countries.
(a) Regional Trade
(b) Internal Trade
(c) International Trade
(d) World Trade
2. The manufacturer or supplier document that shows that they have inspected the goods
shipped and they are in conformity with buyer‘s purchase order.
(a) An Indent
(b) Consular Invoice
(c) Certificate of Inspection
(d) Bill of lading.
3. .......... is the integration of economies with regards to market for goods, factors of
production and technology.
(a) Globalization
(b) International Trade
(c) Internal trade
4. Globalization is the ________ and _______ across the world by entrepreneur

(a) Marketing, disinvestment
(b) Finance, consumption
(c) Trading, Selling
(d) None
5. The order which gives the details, about the types, and quality of goods required by
the buyer is called.........
(a) Indent
(b) Consular invoice
(c) Bill of lading
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(d) Freight Note
6. One of these does not include the objectives of GATT.

(a) making optimal use of world’s resources to guarantee sustainable development.
(b) improving members’ market access
(c) encouraging restriction and distribution in agricultural market
(d) improving the standard of living and expansion of production and trade in goods
and services of member countries
7. One of the features of IMF is facilitating the expansion and balanced growth of
international trade for current transactions.
(a) True
(b) False
8. ECOWAS is made up of ------------------- member states

(a) 14
(b) 15
(c) 16
(d) 17
9. Which of the following is not the facility of granting non-concessional loan by

International Monetary Fund
(a). Stand By Arrangement
(b). Extended Fund Facility
(c). Contingent Credit Loans
(d). Poverty Reduction Growth facility
10. MIGA means

(a). Multilateral Investment Guarantee Agency
(b). Multilateral Investment Growth Agency
(c). Multilateral Interest Growth Agency
(d). Multilateral Interest Guarantee Agency
Question 1 2 3 4 5 6 7 8 9 10
Answer C C A D A C A C D A
References/Suggestions for reading
Adeyemi, S (2002). “Fostering regional Integration Through NEPAD Implementation:
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Annual Report, 2002. Abuja ECOWAS.

http//www.sec.ecowas.int/sitecedeao/English/rapport/es annual report 2002pdf
Bhagwati, J (2004). In Defense of Globalization. New York: Oxford University Press.
Economic Community of West African States ECOWAS (2007) Information Manual: The
Institutions of the community ECOWAS.
Economic Community of West African States (ECOWAS)(2011). In Encyclopædia

Britannica. Retrieved from http//www.
Britannica.com/EBchecked/1778329/Economics-Community- of- West African-States.
Ollila, E. (2005). Global health priorities – priorities of the wealthy? Globalization and
Health, vol. 1(6)
Guardian (1999) Globalisation and the future of African Development by Centre for
Advanced Social Science,. , June 16.
McAlister, E.( 2005). "Globalization and the Religions Production of Space." Journal for
the Scientific Study of Religion, Vol. 44, No 3, September 2005, 249-255.
United Nations (1993). World Investment Report, New York; UNCTC.
World Bank World Debt Tables 1994 - 1995. Washington 1994. World Bank (1996):
Nigeria: Poverty in the Midst of Plenty: The Challenge of Growht with Inclusion.
Population and Human Resources Divison, Estern Africa Department, Africa
Region, World Bank.
Scherer.J (2007). "Globalization, promotional culture and the production/consumption of

online games: Engaging Adidas's "Beat Rugby" campaign". New Media & Society 9: 475–
496.
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APPENDIX 1
SOLUTION TO SELF ASSESSMENT QUESTIONS (SAQ’s) for BUS 221
MODULE ONE
Study Session 1
Give a brief account of the Nigerian economy and business
Nigeria runs a mixed economy which is an economic system that is in between a capitalist
(free market) economy and a socialist (pure planned) economy. This economic system means
that the government owns most of the means of production, e.g. land and capital, and also
influences the key economic variables like interest rate, exchange rate and the maintenance of
sound financial regulations. Government is also involved in direct supply of utilities like
water, electricity, roads, power, postal services, telecommunication, etc. These are vital
economic institutions whose activities are very basic to the total economic system. From the
above, you can see that Nigeria, the state and her agencies, as well as the private investors,
are involved in the supply of goods and services that meet the society’s needs.
The objective of the state engaging in business (both as commercially-oriented as well as
socially-oriented) obviously is to promote maximum welfare, freedom and happiness, as
stated in the constitution, while that of private business investors is to maximize profit. The
effect of government objective is felt in the provision of essential services, infrastructural
facilities, and employment opportunities among others.

Write short notes of not more than three sentence each on the different categories or
classification of business.
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Business can be classified according to the type of customers, type of goods produced and
industry characteristics..
d. Type of customers: This is simply talking about customers of a business who may
either be end-users or those who use the products to further their own production. The
end users are the final consumers, while those who use the product to further their
own production explain the case where the output of one business becomes the input
of another. In a situation where an output is used as input by the other, the good is an
intermediate/industrial goods producer while the other whose product goes to the end-
users are called consumer goods producers.
e. Type of Goods Produced: In this instance, business can be classified according to the
kind of goods produced. Some goods produced can be termed durable or specialty
goods, e.g. machines, electrical appliances, motor vehicles, aeroplanes. Other goods
can be considered non-durable or convenience goods because they are consumed
within a short period of time.
f. Industry Type: This is a situation where business is classified using its industry
characteristics. For instance we have the extractive industry, Manufacturing industry,
Construction industry, commercial industry and the service industry.

Outline and illustrate the economic foundations of business
Economic foundation of business is based on the study of the distribution of factors of

production or resources (human and material, and natural) for the production of goods and
services within a social system. There are various economic systems and they differ in the
handling of the distribution of resources even though they all must address the crucial issues
of what goods and services to be produced, and how much of each will satisfy consumers’
needs? How are goods and services to be produced, who will produce them, and with what
resources will they be produced? And how are the goods and services to be distributed to the
consumers?
The three types of economic systems mostly found in the world today are Communism,
Socialism, and Capitalism.
Communism: In this type of economy, the people (through the government) own and operate
all business and factors of production. Central government planning determines what goods
and services satisfy citizens’ needs, how the goods and services are produced, and how they
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are distributed. This system was previously practiced in Russia, Poland, Hungary, and other
Eastern European nations.
Socialism is an economic system in which the government owns and operates basic
industries such as postal service, telephone, utilities, transportation, health care, banking, and
some manufacturing, but individuals own most businesses. Central planning determines what
basic goods and services are produced, how they are produced, and how they are distributed.
Individuals and small businesses provide other goods and services based on consumer
demand and the availability of resources. Here also citizens are dependent on the
government for many goods and services. Examples of socialist nations are Sweden, India,
and Israel.
Capitalism or free enterprise is an economic system in which individuals own and operate
the majority of businesses that provide goods and services. Competition, supply, and demand
determine which goods and services are produced, how they are produced, and how they are
distributed. The United States, Canada, Japan, and Australia are examples of economic
systems based on capitalism. There are two forms of capitalism: pure capitalism and
modified capitalism. In pure capitalism also called a free-market system, all economic
decisions are made without government intervention. On the other hand, modified capitalism
states that the government intervenes and regulates business to some extent. One way of
doing this is through enactment of laws and policies on the economy. This can be viewed as
what is referred to in today’s world as the Mixed Economies.

Define Business and state the purpose of business
Business has been defined differently by various scholars. Some described business as “an
organization consisting of a person or a group of persons who produce and distribute goods
and services for private profit”. It has also been viewed as an economic system in which
goods and services are exchanged for one another or money, on the basis of their perceived
worth. However, Karimu (1992) defines Business as “the sum of all the activities involved in
the creation and distribution of goods and services for private profit”. It is also conceived as
a legally recognized organization. Business is therefore any legal means of satisfying human
wants with the motive of profit.
The purpose for business is different to the very many operators. The major reason for
business is the supply of goods and services in order to satisfy the societal needs. Needs,
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whether physiological, psychological security, social/belongingness, esteem or self-

actualization is expected will be provided by the institutions best suited to provide them. The
motives for satisfying needs by the various institutions differ. For instance the church is
spiritually motivated; government is politically motivated, while business is profit-motivated.
Study Session 2
In three sentences distinguish between internal and external environment

The internal environment is termed the controllable environment while the external
environment is seen as uncontrollable.
The internal environment of business is made up of micro-environmental factors such as

organizational goals and objectives, specific technologies utilized by component units of the
organization, the size, types and quality of personnel, its administrative units, and the nature
of the organization’s product/service, while the external environment is subdivided into
Macro and Micro Environment with the macro environment regarded as the general
environment with factors such as political, economic, social and technological while the
micro environment is regarded as the specific or task environment having factors such as
customers, suppliers, competitors etc.
The internal environment of business is made up of all the physical and social factors within
the confine of the business, which impart strengths or cause weaknesses of a strategic nature
and are taken directly into consideration in the decision-making behaviour of the business;
while external environments is made up of factors that may spell profound threats or new
opportunities for a business.

Give four reasons why it is important for a manager to understand the environment of
business.
It is important for a manager to understand the business environment for the following
reasons:
♦ The viability or survival of business is determined by the environment, so business
ought to follow and be abreast of developments and changes in its environment and
respond appropriately in order to survive.
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♦ The availability of all key inputs like skilled labour, trained managers, raw
materials, electricity, transportation, among others are a factor of the business
environment.
♦ There is constantly increasing public awareness of the negative aspects of certain
industries like those manufacturing pesticides (damage to environment in the form
of chemical residues in groundwater), and plastic bags (choking of sewer lines), so a
business should know when its production process is causing negative effect to the
public.
♦ The cost of capital and the cost of borrowing being two key financial drivers of any
enterprise are impacted by the external environment. Therefore the ability of a
business to fund its expansion or diversification plan will depend on a true
knowledge of what is happening within this sector.

Define business environment and state the components of the environment
The business environment is simply the surroundings within which a business exists.
Business environment embraces all institutions, organisations and individuals whose
activities have an impact directly or indirectly on business behaviour. Business environment
differs from state to state, region to region, and country to country. Some environment may
be favourable while others may be hostile.
The components of a business environment are the factors which affect the business. These
factors have been divided into internal and external factors. The internal factors are regarded
as micro-organisational (physical and social) factors which are deemed controllable at least
within a short run. The external factors constitute the macro and micro factors outside of the
organisations control which are seen as uncontrollable factors.

What are the characteristics of business environment? List and explain the four characteristics
Dynamism: The business environment is dynamic and not static. It is dynamic in the sense
that it changes continuously due to the interactions of the various factors that make up the
business environment.
Complexity: The business environment is complex and not simple. It is complex by virtue of
the various components that comprise it and the interrelationships among these factors.
Multifaceted: The business environment has many sides. It can be viewed from many angles
by the parties involved. So, an occurrence that may be viewed as strength by one organization
may be perceived as a weakness by another.
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Far-reaching impact: The happenings in the business environment can have far-reaching or
great impact on the organization. It could have the ripple effect because business operating as
an open system is made up of different components that interact and interrelate with one
another. Therefore, any problem or development with one aspect may have enormous effect
on the others.
Study Session 3

Briefly explain with the aid of a diagram the relationship between business and its external
environment.
From the diagram below, the relationship between business and its external environment is
symbiotic. The aim of business is to provide goods and services to the society in order to
make profit and also satisfy other stakeholders. Business gives to its environment through
identifying customers need and also working towards providing customer satisfaction bearing
in mind the changing opportunities or threats that might come its way through new
technologies or changing social environment, or regulatory authorities or changing economic
indices. The activities of competitors or even the business suppliers and middlemen or
distributors also make an input into business activities.
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What is environmental analysis? List and explain the various stages of environmental
Analysis
Environmental analysis is the study of the organizational environment to pin point

environmental factors that can significantly influence organizational operations. It involves
thorough preliminary analysis of the environmental problems, impact and performance, in
relationship to the activities of an organization.
The various stages of environmental analysis involve;
1. Identifying those factors that affect the business. This is the first step in analysing the
environment. This needs to be done at various internal levels, the company level, the
regional level, the domestic level and the global level. Several frameworks exist that
can help this step of identification like SWOT and PEST. These are merely tools that
remind the identifier to consider certain types of factors.
2. Scanning for qualitative factors that have already been identified. That is, trying to
distinguish which of the identified factors have the most effect or significance on the
business as not all of the factors identified in the first step will have same weight.
3. Analyzing the effect the relevant environmental variables have on different levels of
the business, including the business at large will be the third step. This will involve
brainstorming, reviewing historical data, pulling departmental heads and managers’ so
as to collect information that may assist in the statistical analysis. The Types of
analysis include mean, mode, correlation and regression, among others.
4. Forecasting being the fourth step becomes necessary once the environmental variables
have been identified, deemed significant, and analysed. This is in order to determine
the effect that the said variables would have in the future on the business. It mainly
involves the analysis of current and historical data or by examining the trend of
things. By looking at the trend each significant environmental variable is forecasted
and a strategic report created, from which management can develop a business
strategy in response to the situation.

Identify the participants within the business environment?
Participants within the business environment are those whose activity affects the business
operation in one way or another or the environment of business. These include:
The state which regulates the economy as well as consume the goods and services.
Individuals i.e. consumers of goods and services, employees or labour in the
organisations, entrepreneur or providers of capital.
Business organisations i.e. competitors, primary suppliers of inputs and services used
for production, distribution and retailing of the goods and services.
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State briefly the purposes of environmental analysis and areas of
uncertainty in business.
Environmental analysis is done for the following purposes:
It will help the management to understand what is happening both inside and outside the
organization.
It helps the organization to identify opportunities early and at the same time exploit them
instead of losing them to competitors.
It helps management identify threats and early warning signals. The entry of a new company
into a market usually sends a signal to others in that market and this most often brings about
improvement in the quality of their products, and aggressive advertising etc.
It improves performance. An organization that continuously monitors its environment and

adopts suitable business practices will not only improve its present performance but also
continue to succeed in the environment.
It helps the organization to cope with rapid changes in the environment.
Environmental uncertainty in business relates to the fact that it is very difficult to predict
future happenings, especially when environmental changes are taking place too frequently.
For instance we could have a change in taste of consumers, change in technology or even in
research and development. These areas are largely uncertain.
Study Session 4
What is Sole Proprietorship? State two advantages and two source of income for a sole proprietor.
Sole proprietorship is a type of business that is wholly owned by one person. The business
belongs to just one owner who has no partners or any other shareholder and is liable for the
entire firm’s obligations as he bears all the costs and keeps all the profits. The company may
or may not be registered with regulatory authority - Corporate Affairs Commission (CAC).
Two advantages are that in Sole proprietorship capital requirement is small, and there are no
strict regulations governing the establishment of a sole proprietorship.
The sole proprietor can obtain his capital or source his income from the following:
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Personal savings
Loans from friends, cooperative societies etc

Enumerate and discuss three types of partnership. State two each of the advantages and disadvantages
and sources of income for a partnership.
There are different types of partnership arrangements. Three types are listed below:
Limited Partnership
This type of partnership is formed and registered under the Limited Partnership Act. Here,
there must be one general partner with unlimited liability and one partner with limited
liability to the amount invested. The limited partners cannot take equal part in management
and administration of the business but can have access to the account of the partnership.
General (Ordinary) Partnership

In this type of partnership, partners have equal responsibilities and risks in the business. All
partners are agents of the firm and they share the responsibility of running the business.
Hence they are liable to the full extent of the debts of the firm. The liability of members is
unlimited.
Nominal (Quasi) Partnership
This is a type of partnership where a nominal partner contributes only his name to the
formation of the business. He neither contributes capital nor takes part in the management of
the firm. A nominal partner must be a distinguished personality within the society as his
name must surely increase the reputation and possibly the goodwill of the partnership
business. A nominal partner would share in the profits and or debts of the firm as specified in
the Partnership Act of 1980.
The following advantages exist for a partnership:

Partnership unlike sole proprietorship may enjoy sufficient capital or generate adequate
capital because it involves more persons who can provide more sources of funds for the
business. Secondly, the sharing of risks and liabilities reduces individual burdens.
Its disadvantages may be limited growth potentials depending on the managerial abilities of
the partners and the risk of dissolution of the business through death, insanity or bankruptcy
Source of Income could be through personal contributions from partners, either equally or in
agreed proportion; and through loans and overdrafts.
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Give two distinguishing features each of Cooperative Societies and Public Corporations?
Differences between Public Corporation and Cooperative Societies
Features Public Corporation Cooperative Societies

1. Ownership The government Owned by people of common interest
2. Objective Provision of essential services Promote and advance the interest of of
members by rendering services to them.

Give three features each of public liability company and public corporation
Features of Public Limited Liability Company

i. Ownership – minimum of 2 and an unlimited maximum number of shareholders.
ii. Formation – special formalities must be followed before registration. Incorporation is

secured by filing the Article of Association and Memorandum of Association with the
iii. Preparation of Annual Accounts which must be audited and published annually
Features of public corporation
11. Ownership – owned and financed by the government.

12. Establishment – established by Act of Parliament or Decree.
13. Objective – to provide essential services to the generality of the people.
How is a private limited liability company different from a public liability company? Give three
differences and two sources of their income.
The difference between Private and Public Limited Liability Companies are shown in this table.
Private Limited Liability Company Public Limited Liability Company

1. Shares are not easily transferable, except with Shares are easily transferable
the consent of other members
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2. Uses Ltd after the name of the company. Uses ‘Plc’ after the name of the company
3. Has a maximum number of 50 owners There is no limit on the maximum number of
owners
Sources of finance for a private limited liability company
1. Loans and overdrafts from banks

2. Shares raised by shareholders
Sources of finance for public limited liability company
1. Loans and overdrafts

2. Sales of shares
State three advantages and disadvantages each of private and public liability company.
Advantages of private limited liability company
1. Has legal entity – can sue or be sued

2. Shareholders have limited liability
3. Continuity of existence
Disadvantages of private limited liability company
1. Shares are not sold to public which acts as a limitation for expansion
2. Shares are not easily transferable
3. Payment of corporate tax
Advantages of public limited liability company
1. Legal entity
2. Transferability of shares
3. Owners are separated from management
Disadvantages of public limited liability company
10. Lack of privacy

11. Slow decision making process
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12. Large capital requirement
Study Session 5
SAQ 5.1 (tests Learning Outcomes 5.1, 5.2, and 5.3 )

Define entrepreneur and state five characteristics of a successful entrepreneur
An entrepreneur is a person who develops a new idea and takes the risk of setting up an
enterprise to produce a product or service which satisfies customer needs. He is “one who
undertakes an enterprise especially a commercial one, often at a personal financial risk”.
The entrepreneur is a business person who is not satisfied with his/her performance and
therefore always finds ways to improve and grow. An entrepreneur is one of the key factors
of production as seen by economists and brings together other factors of production such as
land, money, materials, manpower and methods to produce goods and services. All
entrepreneurs are business persons, but not all business persons are entrepreneurs. An
entrepreneur could be an inventor or innovator or both, an inventor when he invents a new
product unknown in the history of man or within his environment, an innovator when he
adapts an existing invention to solve a peculiar need.
Successful entrepreneur possesses the following characteristics.

14. High need for achievement,
15. Very optimistic and passionate about what they do,
16. Very dynamic and flexible in outlook,
17. Very innovative,
18. Very courageous.

In not more than two sentences differentiate between entrepreneur and entrepreneurship
Entrepreneurship is the capacity and attitude of a person or group of persons to undertake

ventures with the probability of success or failures and demands that the individual should be
prepared to assume a reasonable degree of risks, be a good leader in addition to being highly
innovative; while an entrepreneur is the actual person who develops a new idea and takes the
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risk of setting up an enterprise to produce a product or service which satisfies customer

needs.
Entrepreneurship is an attempt at creating value through recognition of business

opportunities, management of risk-taking appropriate to the opportunities, and through the
communicative and management skills to mobilize human, financial and material resources
necessary to bring a project to fruition; while an entrepreneur is one who is the risk bearer,
has the capacity economically to produce goods and services; organizes and supervises
production; and introduces new methods and new products, and searches for new materials.

List and explain four success nuggets for entrepreneurs
Four success nuggets for entrepreneurs are as follows:
An entrepreneur must have Need for a vision: You must understand what potentials, gifts
and talents God has given you. These are things you think you are capable of doing and doing
very well. The vision should be written on your heart and you meditate on it at all times. Do
not go into a business simply because it is the one that is in vogue. Start a business in which
you have a keen interest; you can only have an enduring success in a business that gives you
personal satisfaction.
Need for effective planning: There is no substitute to effective planning. To achieve a lot
within the time available, organize your work, plan your time, have time schedule for your
work, state what you will achieve per day, per week, per month, per year. Make a habit of
ticking through what you have achieved each day.
Need for discipline: Have a purpose and goal. Be determined to follow your plan through.
Stick to your goal despite setbacks and challenges. Discipline yourself as to the use of time
and financial resources. Organise yourself, work and plan your time. Have a time schedule
for what you will like to achieve per period and avoid time-wasters like too much time spent
on telephone conversations, unwanted visitors, unplanned social engagements, etc.
Need to endure initial hardships: You should know that visions are not achieved overnight.
It is a long term thing. Do not be in a hurry. Try and endure the initial hardships. Anything of
a lasting value would usually have a gestation period – a waiting period, a time lag between
sowing and reaping.
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Write short notes of not more than three sentence each on the early and modern stages of
entrepreneurship development.
The Early Stage of entrepreneurship started when people produced more products than they
needed, so they had to exchange (trade by barter) these surpluses. Even before the advent of
any form of money, producers came to realize that they could concentrate in their areas of
strength to produce more and then exchange with what they needed and through this
exchange of products, entrepreneurship started.
People of the Ibo community in Nigeria are considered one of the oldest entrepreneurs in
history, their expertise stretching back to times before modern currency and trade models had
developed elsewhere on the planet
The Modern Stage: Modern entrepreneurship in Nigeria started with the coming of the
colonial masters who brought in their wares and made Nigerians their middle men. In this
way, modern entrepreneurship was conceived. Most of the modern entrepreneurs were
engaged in retail trade or sole proprietorship.
MODULE TWO
Study Session 1
SAQ 1.1 (tests Learning Outcomes 1.1, and 1.2)

Discuss briefly the four organic functions of business.
The four organic functions of business include marketing, production, finance and human
resources.
The Marketing function involves the identification of consumer needs which initiates the
business cycle. Market research is the tool used for identifying and assessing consumer
needs. The function of the marketing department is to engage in Market research which
involves gathering, recording and analyzing facts and data concerned with the market. The
market research will take care of such questions as
g) What can be sold in a given market?

h) Where can they be sold?
i) Who are the buyers?
j) What quantity can they buy?
k) What price can they pay?
l) Where can they get the product?
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These questions must be answered before the product can be developed and for the business
to succeed. Hence, the marketing function embraces a wide range of sub-functions requiring
special skills such as product planning, public relations, sales and physical distribution,
product advertising, and product promotion.
Production being the process of converting raw materials into finished products means that
the function of the Production department is relating the output of a firm to the amount of
inputs. The production function includes stating the amount of product that can be obtained
from every combination of factors, assuming that the most efficient available methods of
production are used. It can, for example, measure the marginal productivity of a particular
factor of production (i.e., the change in output from one additional unit of that factor). It can
also be used to determine the cheapest combination of productive factors that can be used to
produce a given output. The production department can use either or a combination of the
types of production. The types of production systems are Job Shop Production, Batch
production, Mass production and Process production.
The basic objective of the finance function is to formulate policies ensuring that the most
effective use is made of the financial resources of the organization. It assists the company to
make use of the funds at its disposal and to select the most favourable sources of additional
funds to finance future operations.
Accounting provides the source of information for financial analysis and planning.
Accountants measure such variables as performance, sales expenses, profits, assets and
liabilities and express their findings in numerical terms. This is then communicated to
individuals, management and all interested parties both in and outside the enterprise.
Financial Accounting is part of the finance function. It takes care of preparing the company’s
balance sheet, profit and loss account and the manufacturing accounts in the case of
manufacturing companies.
The Human Resources Function (HR) deals with people at work and their relationship
within the working environment. The Human Resources approach further deals with the
employee’s entire working life in the company, and not just their contractual relationship
with it. It is also involved with values and aims of their commitment to management goals.
The HR function (Personnel Management and Industrial Relations) is a critical function

performed in any organization of human effort. Plants, office computers and machines are
unproductive except for human effort and direction. Managing the human component is the
central and most important part because everything depends upon how well it is done.
Human Resources function involves:
• Recruitment and Selection,
• Training and Retraining,
• Remuneration of employees,
• Formulating of personnel policies and procedures,
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• Acting as a clearing house for information about employee’s conducts, attitude

towards management, the job and the firm,
• Assisting line managers with employee problems e.g. promotions, transfers,
demotions, discharges, etc
• Prepare job analysis and evaluation for each position in the firm, and
• Collective bargaining negotiation

The marketing function embraces a wide range of sub-functions requiring special skills. State
three of such sub-functions
Three of the sub-functions of the marketing function include: Sales and physical distribution,
product promotion and Advertisement.
Sales and physical distribution sub-function ensures that customers are attracted and retained,
and that goods and services reach the ultimate users of the product. In many companies, sales
and distribution are a joint operation. However, before any distribution can take place, a
selling process has to be evolved. The sales department requires an imaginative or creative
centre based on the marketing plan.
Product Promotion is an act of showcasing a good or service manufactured by a firm with the
sole aim of increasing sales within the short or long run. Companies use different techniques
and communication mediums to promote their products.
Advertisement is an act of showcasing goods or services via TV, Radio, Newspaper or use of
bill boards. In the recent time, many companies have been trying to make use of online social
media to promote their product.

List the four subdivision of the production function.
Depending on the organization, the production function can be subdivided into: Production
Administration, Production Design, Production Management and Production Ancillaries.

What are the basic contents of a feasibility study? Itemize and write short notes on at least
three using not more than two sentences each.
• Brief Description of the Project and its Objective

• Ownership
• The Product or Service
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• Production Process and Production Plan

• The Market for the Product
• The Marketing Plan/Strategy
• Technical Feasibility
• Land/Property
• Organization and Management
• Economic or Financial Feasibility
Brief Description of the Project and its Objective
Describing the project and its objective briefly entails stating the name of the business, the
type of business (partnership, sole proprietorship, Limited Liability Company, etc) and the
industry to which the business belongs e.g. food and beverage industry, agricultural industry,
textile and clothing industry, banking industry among others.
Ownership
It is expected that you provide the name(s) of the promoters or proprietors of the business,
their origin (whether indigenes or foreigners), their business experience, what they do
currently, their skills and ability. This element will also include the ownership structure in
case more than one person owns the organisation.
The Product or Service

This entails describing the product or service you want to deliver to the consumers and the
nature of the product or service. You need to state whether it is a consumer good or an
industrial good, whether it is an intermediate or final product, the uses of the product or its
importance to the consumer, and the particular segment of the market it will serve.

State briefly the contents of a financial statement in a feasibility study
The contents of a financial statement require stating the estimated total capital needs or
requirements which is divided into capital expenditure & working capitals. Capital
expenditure takes care of capital items like plant and machinery, land and building, tools,
office furniture and fixtures, motor vehicles, etc. The working capital or start up capital
which is the anticipated expenditure before revenues are realized will also be stated. This
includes anticipated payment for labour (wages and salaries), utilities, rent, suppliers, repairs,
raw materials, administration expenses, production overhead and other expenses at the
initiation of business. Financial feasibility also entails making financial projections and
profitability analysis, that is, having a budget of the estimated expected costs and revenue or
returns and stating the profit margin and expected net profit.
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Study Session 2

Briefly explain the following concepts, challenges, business and management
Challenges are defined as the test of the abilities of a person, or thing. So, anything or act
which poses some difficulties and tests one’s ability to achieving success could be seen as
challenging. Normally things we are used to doing, no longer tests our abilities because it is
established that we can do it. Therefore we could further say that challenges are obstacles,
obstructions, difficulties, opposition, hindrances, hurdles that business people face.
Business as a word has also been defined in various ways by various people. Some view it
“As an organisation set up to make profit”; others describe it as “an organization consisting
of a person or a group of persons who produce and distribute goods and services for profit”.
Business therefore is “the sum of all the legal activities involved in the creation and
distribution of goods and services for private profit”. Therefore, business is any legal means
of satisfying human wants with the motive of profit.
Management means different things to different people depending on its usage. Some refer
to it as “Those at the top level of an organisation”, that is, the decision makers in an
organisation. Management is the process of planning, organizing, influencing, and controlling
to accomplish organisational goals through the coordinated use of human and material
resources. Management can then be visualised from two perspectives – people at the top
level/decision makers (managers) who ensure that organizational objectives are achieved
through the efforts of people (workers) and other relevant resources.

List and discuss five of the external factors affecting business operation in Nigeria
Five of the external factors affecting business operation in Nigeria include: Unstable
Government Policy, Poor infrastructure, Irregular Power Supply, Inflation/High Cost of
doing business, and Low level of Savings/Spending.
Unstable Government Policy: Government policies are often unstable and inconsistent
especially in the past as a result of political instability. This affects planning and decision
making. Examples are policies on import and export, fiscal and monetary policies, policies
on licensing, monopolies, foreign investment, distribution and pricing and their controlling,
customer protection policies, etc.
Poor Infrastructure: Facilities such as roads, rail, air transport, schools, health facilities,
water, etc, if not in good shape will affect everyone whether a business person or not. As for
business people, bad roads, deficient rail or air system, lack of usable or portable water will
affect the cost of doing business. Bad roads for instance, will cause heavy traffic jams
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thereby increasing the number of hours spent in going for a business deal as well as put the
vehicles under stress and thereby reducing the life span of vehicles.
Irregular Power Supply: Most businesses currently operate on generator almost twenty-
four hours daily. Business has to cope with the cost of purchasing generator, powering with
the appropriate petroleum product (cost of products unstable), servicing and maintaining it,
and of course repairing when it is faulty. All of these will add to the cost of the final product
or service to the end users.
Inflation/High Cost of Doing Business: Inflation is the pervasive and sustained rise in the
aggregate level of prices measured by an index of the cost of various goods and services.
Repetitive price increases erode the purchasing power of money and other financial assets
with fixed values, creating serious economic distortions and uncertainty.
Low level of Savings/Spending: Economic growth is slow even though government is

working through the National Economic Empowerment and Development Strategy
(NEEDS) to stimulate growth. Price levels are high and people only spend on essential
goods and services (food, shelter, clothing, education etc.); therefore, little or nothing is
reserved for savings. The level of savings and spending is low and this is not good enough
for business especially those who are into some of the goods and services considered not-
too-essential for human survival.

Challenges of Business Management are those issues, factors, conditions, situations,

uncertainties which test the abilities of business managers as they work towards satisfying
human wants and in return make profit.

Challenges of Business Management are those issues, factors, conditions, situations,

uncertainties which test the abilities of business managers as they work towards satisfying
human wants and in return make profit.
Study Session 3

Define Strengths, weakness, opportunities and threats
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Strengths are the ability of an organisation, resources, and weaknesses of the competitor or
the opposition. The internal strengths include a company’s core competencies, corporate
capabilities and resources that provide the basis for strategy, e.g. workforce, decision making
process, flexible board, good working environment, and financial capability.
The weakness of an organisation is its failures, defeats (what other people do better than
you), losses and inability to match up with the dynamic situation of the growth of change.
This includes the critical parts of your business you must strengthen or hide from your
competitors.
Opportunities are possibilities of what can be done and where effectiveness is possible, the
benefits that are likely to accrue from pursuing your vision.
Threats are changes in business environment usually in the PEST forces which are pitfalls,
dangers, variation and exceptions that are present in an environment.

What are the indicators of unmet needs? State five indicators
The indicators of unmet needs are some of the situations or event which point to the fact that
there are gaps which can be filled by a business if all criteria to filling it are met. These
indicators are stated below:
8. Poor delivery of products/services:- If there are complaints and visible problems

faced by customers, one can see it as an opportunity and come up with better method
of delivering such products/services. E.g. in the past, letters, parcels, etc, were
handled by NIPOST, but the courier companies saw the visible complaints and
dissatisfaction in customers and today have taken over the market from NIPOST.
9. Dissonance (lack of Agreement in beliefs) with current means of satisfying existing

needs: If people’s expectations are not met in certain products or services,
dissatisfaction sets in. For instance, when it became obvious that our public or
government schools were no longer meeting the expectations of the populace, the
private schools came in. Nigerian Airways with its abysmal service paved way for
private airline operators.
10. Emergent Needs: These are needs in the early stages of development. Every need at
a point in time was emergent. Tapping into this opportunity has so much to do with
foresight. Your ability to foresee a need to be met in the future, perhaps needs that
may arise through the use or availability of a current product. Nigeria for instance has
need for storage/preservation of our fruits and vegetables especially because they are
mostly seasonal produce. This is a gap identified.
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11. Technological Changes: The issue of technology is dynamic and requires an

innovative entrepreneur who is constantly thinking of how to improve an existing
technology to suit customers. This way he may find it as a business opportunity to
launch the better technology which customers or users may prefer to the existing one.
For instance, it took an innovative and ingenious business men to realize that grinding
of tomatoes, pepper, pounding of yam, etc. which hitherto was done manually through
the use of mortar could get a better result using machines (Blender, Poundo machine).
A gap existed there because some career women have little or no time to pound and a
machine was just apt.
12. Envisaged Large Market: When the users of a product are many such that those
serving the market may not be doing that effectively, other business men could go
into that market, since it is large enough to accommodate all. For instance most of the
Igbo traders that bring in radio face the northern market knowing that this group of
people especially the lower status like listening to the radio a lot.

List and explain five micro causes of business failure
Five micro causes of business failure include:

i. Poor business planning/financial decisions.
ii. Inadequate capital before commencement of business
iii. Bad management
iv. Cash flow problems: you spend more than you receive
v. Fall in demand for the product

Identify three institutionalized sources of business ideas
Three institutionalized sources of business ideas are: Universities and Research Institutes,
Consulting Firms/Market researchers, and Industrial and business publications.
Universities and Research Institutes: These are centres where students and consultants
have done a lot of research on new businesses and the reports have largely been left to waste.
Examples are Federal Institute of Industrial Research Oshodi (FIIRO), Project Development
Agency (PRODA) Enugu, and all other universities and research bodies.
Consulting Firms/Market Researchers: These are people who specialize in consulting and
researching for business people at a cost. They take the burden of researching for
opportunities from entrepreneur and business people at a fee.
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Industrial and business publications: There are very vital information published by
business journals /magazines etc. This can help a searching mind to identify a business
opportunity. For instance, Business Day, Financial times, etc.

State three constraints to exploiting business opportunity
These are:
4) Economic Factors. These include, cost consideration (capital needed, level of
competition in the market, resource availability such as adequate skilled manpower
and suitable material resources, location and the size of the market.
5) Technical factors. Lack of technical know-how to provide such goods and services
that will satisfy customers. From some perspective people will jump at products that
can prevent baldness, loss of sight, death or sickness, but there is no technology to
that effect yet.
6) Knowledge factors. This could be a constraint because the right knowledge to the
opportunity or gap may be missing.

Mention four strategies for business survival
1. Have adequate capital requirement

2. Engage in customs-made goods since large firms engage in mass production
3. Be innovative and ingenuous
4. Have an effective sales force
Study Session 4
SAQ 4.1 (tests Learning Outcomes 4.1, 4.2 )

In two sentences define social responsibility
Social responsibility according to Schermerhorn (2002) is defined as an obligation of the

organization to act in ways that serve both its own interests and the interests of its many
external stakeholders. Social responsibility is therefore the obligation of organisations to
protect and improve the welfare of society as well as its own interest.

Compare three arguments for and against social responsibility
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1. Arguments in favour of social responsibility opine that business is unavoidably

involved in social issues because it is an entity of society, allowed by society to exist
and if society does not exist, organisations will also not exist. Thus, when there is a
change in societal expectations about business, so should their actions change; while
arguments against thinks It is a subtle socialist idea Since it looked like an indirect
way of using political mechanism as opposed to market mechanisms, as the most
appropriate means of allocating scare resources.
2. Arguments in favour of social responsibility opines that corporate businesses

have the obligation and resources to help solve some of the problems facing the
society, while those who are against thinks that as an economic institution, business
lacks the ability to pursue social goals because business is not equipped to handle
social matters.
3. Those in favour of social responsibility feel Organisations tap their natural,

material and human resources used for production from the environment (society),
it therefore behoves them to be socially responsible in return; while those against
think that the Social responsibility of business is to use its resources and engage in
activities designed to increase its profits. So long as it stays within the game,
“competition without deception or fraud”.

State the benefits accruing to a socially responsible organisation
The following benefits are likely to accrue to organizations practising social responsibility.
1. A better awareness of the organisation is created

2. Public opinion sways in favour of such organisation
3. There is increase in profit as more customers/public patronizes the organization
4. The organization is likely to attract socially conscious investors.

Define ethics and state at least three causes of ethical compromise and influence
Pearce and Robinson (2007) refer to ethics as the moral principles that reflect society’s
beliefs about the actions of an individual or a group that are right and wrong. Ethics are
principles or standards of human conduct, sometimes called morals (Latin ‘mores’ ‘customs’.
Ethics are “Moral rules or principles of behaviour for deciding what is right or wrong”.
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There are several causes of ethical compromise. Some of these are:
♦ The pressure of competition can lead people to engage in unethical practices.

♦ When the judicial process is weak and people can get away with any type of crime
committed, then many more will be encouraged to go into unethical practices.
♦ What is considered a vice in one setting may be a value in another; and so people with
wrong sense of value and who engage in unethical practice do not see certain action
as a vice. For instance the wish to succeed by all means in a society that does not
recognize hard work as a means of success can make some business people to be
unethical in their behaviour.

Identify four ethical issues in business and two factors encouraging compliance to ethics
a. Conflict of Interest: In this context a worker allows his or her personal interest to
override the official obligation.
b. Honesty and Fairness: Where dishonesty and inequity becomes the norm in a
business organisation as they deal with the stakeholders.
c. Communications: Ethics demand that there should not be deceit or exaggerated
claims in any contact or communication with the public; instead vital facts that can
assist third parties to take decisions should be disclosed.
d. Respect in the Workplace: Business ethics emphasises the establishment of a work
environment in which all individuals are treated with respect and dignity. All forms of
discriminatory practices e.g. sexual harassment should be avoided. Employees on
their own should treat one another with respect.
Factors encouraging compliance to ethics may be:
vi. Manager’s personal value system

vii. Religious beliefs

Describe measures to ensure ethical practices are followed in the organisation
e) Code of ethics is written and not oral. This code should specify what is adduced to be
right or wrong within the organisation.
f) Information relating to ethical practice is not centred only on cost and profit
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g) The establishment of specific job positions responsible for enforcing the ethical codes
of their organisation.
h) Top management act as strong role models for lower level personnel

List at least five stakeholders or interest groups in Social Responsibility
The five stakeholders or interest groups in social responsibility include:

Employees, Customers, Government, Shareholders and the community.
MODULE THREE
Study Session 1

Differentiate between regulatory and facilitating roles of government
The regulatory role of Government as the name connotes is all about regulation of the
activities of business. This is carried out through the agencies set up by the government.
These agencies exist at the Federal and State levels and they have responsibility over the
legislation for different sectors of the economy. For examples we have the Corporate Affairs
Commission, Economic and Financial Crime Commission (EFCC), Security and Exchange
Commission (SEC), among others who are all agencies of government carrying out
regulatory roles.
The facilitating roles of government are meant to provide favourable business environment
which will be attractive to investors. This is also called Promotional role. Some of the ways
the roles are carried out are by providing tax and custom duties incentive to business
institutions in order to encourage them to develop and compete favourably with their foreign
counterpart, promoting free competition in the economy, amongst others.

Give four reasons for government control of business
Governments regulate and control business in order to:
vii. Maintain free competition
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viii. Protect public health and safety i.e. the welfare of the people.
ix. Ensure adequate service at reasonable rates by businesses deemed essential to the
public welfare
x. Protect infant industries against dumping

State three objectives of the Nigerian Enterprises Promotion Decree (NEPD)
The following are the objectives of NEPD amongst others:
1. To create more employment for Nigerians.

2. To allow Nigerians have a larger say over the running of the economy.
3. To obviate foreign undue dominance and safeguard the best interests of the Nigerian
economy.

List two benefits of the NEPD
1. Increased local retention of profit.

2. A pool of indigenous personnel with better technical and management skills.

Write brief notes on schedules I and II of the decrees
Schedule One: The enterprises in this schedule were to be exclusively reserved for Nigerian
citizens and associations, provided the capitalization was less than N20 million. Foreigners
were free to invest in these enterprises provided their investment was more than N20 million.
Some of the items in schedule 1 are: Advertising, Public relation business, Assembling of
radios, television, Bottling of alcoholic drinks, Baking of cake and bread etc.
Schedule Two: The enterprises listed in this schedule are those in which Nigerians were
expected to have a majority ownership of at least 60 per cent. These include: Banking
(commercial banks, merchants banks and development banks), Basic iron and steel
manufacturing, Beer brewing, Clearing and forwarding agencies.

Outline at least three structural imbalances that led to SAP
Some of the structural imbalances that informed the introduction of the Structural Adjustment
Programme include:
• High levels of subsidies
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• Bloated government expenditure/high budget deficits

• Poor agricultural prices

Itemize four requirements for a successful commercilization process
• The reduction or elimination of subvention to the enterprise

• Reduction to the barest minimum or elimination of political interference by the
supervising government ministry in the day to day running of the enterprise.
• Appointment of a reputable board of directors and commitment to sound corporate
governance principles.
• The appointment of a competent management team

Discuss two methods used by BPE to privatize firms in Nigeria
6. Concessioning. This is the approach that has been used to privatize Nigerian port
terminals, using the landlord model. Nigerian Ports Authority remains the owner and
landlord, but the port terminal assets have been given out to private terminal operators
to operate for as long as 25 years and in return they pay agreed sums to government
for the use of the terminals. They also commit themselves to invest in and develop
the terminals for the period they will control and operate them.
7. Core Investment Approach – used in selling large commercial enterprises like oil
and gas marketing companies, telecommunication and power companies, etc. This
was the method used by the Federal Government through the BPE to dispose of its
investments in National Oil and Chemical Company Ltd, where the core investor was
Consolidated Oil Ltd (Con Oil). Ltd and Unipetrol, where the core investor was
Oando Ltd. Whenever a core investor approach is used, it is assumed that the
remaining shares are already in the hands of other private investors as in the case of
Unipetrol which was previously partly taken over by government.
Study Session 2

NEEDS focused on four key strategies. List them.
The four key areas NEEDS focused on were:
(1) reforming government and institutions

(2) growing the private sector
(3) implementing a social charter and
(4) reorienting the value system of the populace.
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Outline seven critical areas that NEEDS sought to address.
• Health/HIV AIDS – reducing the huge disease burden and the HIV/AIDS pandemic
• Education – realizing that half of Nigeria’s population is young, the strategic role of education
in knowledge diffusion, skill building and human capital development
• Agriculture – recognizing the primacy of agriculture and giving farmers the necessary
tool, materials and finance they need to produce food in abundance, create wealth and
employment and transform the rural sector
• Pension Reform – putting in place a modern contributory pension scheme
• Infrastructure – bridging the huge infrastructural gap necessary for Nigeria’s
economic development and social transformation
• Promoting the Private Sector – as the engine of growth of the economy
• Political and Administrative Reform –changing the way government does business,
shrinking the size of the public sector and drastically reducing the high cost of
governance

Mention five principles on which NEPAD was founded and state two of its objectives.
• African ownership and leadership, as well as broad and deep participation by all
sectors of society;
• Good governance as a basic requirement for peace, sucurity and sustainable, political
and socio-economic development;
• Anchoring the redevelopment of the continent on the resources and resourcefulness of
the African people;
• Partnership between and amongst African peoples;
• Acceleration of regional and continental integration;
Two of NEPAD’s objectives are:

e) To place African countries, both individually and collectively on a path of sustainable
growth and development, and
f) To halt the marginalization of Africa in the globalization process and enhance its full
and beneficial integration into the global economy.

Explain two long-term potential benefits of AGOA to African Countries
• It is expected that AGOA will provide improved access to U.S. technical expertise,
credit, and markets; and
• Establish a high-level dialogue on trade and investment.
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Study Session 3

Briefly discuss five objectives of the International Monetary Fund’s (IMF)
The objectives of IMF among others include:
1. To contribute to the development of the productive resources of all members.

2. To assist developing nations pay their trade partners in foreign currencies.
3. To standardize currencies by ensuring currency stability and preventing disloyal
competition by depression of the rate of exchange.
4. In order to encourage international trade, IMF ensures that· member countries’
currencies are freely convertible.
5. To give advice and help member nations solve their domestic economic problems.

Discuss three advantages and disadvantages each of globalization.
Advantages of globalization include:
10. It permits countries to concentrate on the production of goods and services in which
they have comparative advantage.
11. It raises productivity and improves the living standard of the people through
international division of labour and efficient allocation of resources.
12. It makes a country to have access to a large volume and diversified sources of
external funds or finance.
Disadvantages of globalization include:
a. It leads to dumping of goods/products

b. It reduces the demand for the products of infant and local industries
c. It may result to unemployment due to capital flight.

Outline five groups of the World Bank and state their function
6. International Developing Agency (IDA). The group provides loan assistances to
middle income and poorer countries
7. International Bank for Reconstruction and Development (IBRD). The group also
provides loan assistances to middle income and poorer countries like the international
developing agency
8. International Finance and Cooperation (IFC). It promotes private sector investment,
both foreign and domestic services as an investor and broker between foreign
investors, local partners and government authorities.
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9. Multilateral Investment Guarantee Agency (MIGA). It promotes foreign direct

investment by offering political risk assurance. It conveys direct benefits to host
countries by providing information on job creation and training for employers.
10. International Centre for settlement of Investment Disputes (ICSID). It offers
opportunity to new big investors entering new markets and government to provide
enabling environment. The group also creates effective and stable financial markets.
There is also the provision of facilities for the settlements by conciliation or
arbitration of investment dispute between investor and their host.

List and explain briefly four documents used in international trade.
Four documents used in International trade are:
Sanitary Health Certificate: The certificate certifies that the product or goods
is fit for human consumption.
Certificate of Inspection: the manufacturer or supplier issues the certificate to show that
they have inspected the goods shipped and they are in conformity with buyer‘s purchase
order.
The pro-forma invoice contains the particulars of exporter and importers.
Form M: the importer fills a set of the form by transferring the information on the pro-
forma invoice into the form M. Thereafter, the form M and the pro-forma invoice are sent to
the importer’s bank for processing.

State two each of the reasons and problems of regional economic integration
The reasons for regional economic integration are:
• Removal of all impediments to free trade and investments.

• Efficient resource allocation to promote greater output of goods and services and
overall economic well-being of member states.
The problems of regional economic integration are:
Loss of some measure of economic and political independence by member states.

Inability to fix tariffs and impose restriction not in line with the framework of the
integration agreement.
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Concept of Business Environment and Business Ownership

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Study Session 1 The Concept of Business

THE CONCEPT OF BUSINESS, ENVIRONMENT AND BUSINESS

1.1 Learning Outcomes:

After studying this module you should be able to;

Study Session 1 The Concept of Business

Learning Outcomes for Study Session 1

1.3. Explain the Nigerian Economy and Business(SAQ 1.1)

1.4. Summarise the Business Economic foundations (SAQ 1.3)

1.5. Describe the different Categories or Classification of Business (SAQ 1. 2)

1.1 Definition of Business

enterprise, business enterprise, commercial enterprise, company, firm, organization,

1.2 The Purpose for business

1.3 Brief history of business development in Nigeria

1.4 Business and Economic Foundations

o Nigeria’s economic system is built on modified capitalism or mixed economic

1.5 The Nigerian Economy and Business

business is able to effectively utilize a set of resources to achieve the highest

1.6 Categorization of Business

1.7 Why Study Business

Summary of Study Session 1

Self Assessment Questions for Study Session 1

Give a brief account of the Nigerian economy and business

Multiple Choice Questions

1. ................ is a group of business firms whose primary activities involve mining,

3. One of these is not a method of classifying business

(a) types of customers

5. All the following are objectives of business except

References and Suggestions for further readings

your e-tutor via the LMS.

Study Session 2 The Business Environment

2.1 The Concept of Environment

Environment literally means the surroundings, external objects, influences or circumstances

2.2 The Concept of Business Environment

2.3 Components of the Business Environment – An overview

2.3.1 Internal Environmental Factors

The internal environment of the business is made up of micro-environmental factors such as

In Kazmi’s (1999) view:

Organizational behaviour is the manifestation of the various forces and influences

Strengths are inherent capabilities that give strategic advantage.

Weaknesses are inherent limitations or constraints, which create strategic disadvantage.

Distinctive competence: The specific ability possessed by a particular organization that

Organizational capability: This is the inherent capacity or ability of an organization to use

Fig. 1.1: Components of the Business Environment

2.3.2 External Environmental Factors

2.3.2.1 Macro environment (General or Remote Environment)

Technological Environment The technological environment refers to new techniques or

Political and Legal Environment Organizations must operate within a framework of

biodegradable packing materials as part of marketing strategy. The major purposes of

Demographic Environment Demographics tell marketers who current and potential

Social/Cultural Environment Social/cultural forces are the most difficult uncontrollable

2.3.2.2 Micro (Specific or Task or Operating) Environment

Marketing Intermediaries: Like suppliers, marketing intermediaries are an important part

Fig. 1.2: Business and External Environment

• In what class of environment would technological and demographic changes fall?

2.4 Importance of understanding the environment

♦ The present and future viability of an enterprise is impacted by the

2.5 Characteristics of Business Environment

o The characteristics of environment can be described in four ways. The environment is

Summary of Study Session 2

Self Assessment Questions

In three sentences distinguish between internal and external environment

Multiple Choice Questions

1. .............. environment is regarded as the general environment while ...............