Professional Documents
Culture Documents
M.O.B_Notes-Unit_1-Module_1_2_1-C2E09
M.O.B_Notes-Unit_1-Module_1_2_1-C2E09
1) Primary Production- This involves the extraction of a good from natural resources. i.e.
land/sea. These goods are sometimes used by themselves or as raw materials to produce
other goods. For example farming, fishing, oil extraction and quarrying.
2) Secondary Production- This involves the conversion of raw materials into finished
products. The raw materials used in this stage are obtained from primary production. For
3) Tertiary Production- This involves the provision of a service. All services are classified
as tertiary production. For example hairdressing, transport services, banking, tourism and
hotels.
The Private Sector compromises business owned and controlled by individuals or groups of
individuals. The main aim of business in this sector is profit. Business owners decide what to
produce, when to produce and how much to produce (The Economic Questions). Private
1) Sole Traders
2) Partnerships
4) Cooperatives
5) Franchises
6) Joint Ventures
Public Sector
government or state. The main aim of this sector is not profits but the provision of
services and general welfare of the citizens of the country. Public Sector organizations
include:
2) Utilities(WASA,T&TEC,TSTT)
Public Goods
Public Goods are those where the consumption of that product by one individual
does not diminish its use or consumption by another. It does not reduce the amount
that is available to others. It is impossible to exclude anyone from benefitting from its
Merit Goods
Merit Goods are goods that are made available to the public not by their choice
but based on the materialistic judgment of the government. For example, (free)
Sole Traders:
Ownership
Sole trader businesses are owned by only one person even though there are numerous workers.
Sole traders are unincorporated and there owners experience unlimited liability.i.e. the owner
and the business are one and the same in the eyes of the law.
4) They are required to pay income tax and NIS for their workers.
5) They are required to pay corporation tax if their profits are over the threshold.
7) OSHA (Occupational Safety and Health Act) compliance is necessary according to the
2) Personal savings
Control
Advantages
5) Flexibility
6) These businesses usually provide a personal service which can lead to customer loyalty.
Disadvantages
1) Unlimited liability- the owner is held personally liable for the debt of his business. Some
cases he may be forced to sell personal suggestions to pay off debt. They can be sued for
3) Lack on continuity.
4) Lack of Capital to use in the formation of the business and in the purchase of factors of
production
7) Lack of specialization
Partnerships:
As defined by the Partnership Act of 1890 it is a relation which exists between persons carrying
Ownership
Liability/Legal Status
N.B. In the absence of a Partnership deed profits and losses are shared equally. This is
Control
All partners take part in the decision making process however the decisions taken by one
partner binds all the other partners- this is called Mutual Agency i.e. one partner has become
Advantages
4) Larger capital base because there are more owners than sole traders
Disadvantages
1) Unlimited liability- According to Partnership Act of 1890 each partner is equally liable
5) There is lack continuity in the event that something happens to all partners.
-The Limited Liability Partnership Act of 2007 allows for a partnership where all partners
have limited liability. There are however certain conditions with which they must comply.
-The Limited Partnership Act of 1907 allows for the formation of a limited partnership.
-Some partners will provide capital but not take part in the business (Silent Partners).
-(Limited Partner) - Such a partner is said to have limited liability in the partnership. i.e. they
will only lose the original amount of their investment in the business. This type of partner is
-In a limited partnership there must be at least one partner with unlimited liability.
Companies:
These may be described as groups of persons who form a business which has a separate
legal identity from its owners. These businesses are said to be incorporated this means that
they can own assets, form contracts, employ people, sue and be sued in their own right. The
owners do not have to use their own assets to repay the debts of the company. The capital of
a limited liability is divided into shares. Each member of the company is known as a
Limited Liability Companies (LLC) are run by a board of directors (BOD) who are
appointed by the shareholders via the voting system at annual general meetings. The head of
Types of Companies:
-This business entity usually comprises two to fifty (2-50) shareholders. *Shares are sold to
family members and close friends.* A Private Limited Companies’ shares are not traded on or
sold on the public stock exchange.
2) Public Limited Company
-In this business entity there must be at least 7 shareholders (there is no maximum
limit). *This business form is allowed to trade on the public stock exchange.*
There are two main documents that require completion when registering a limited company.
Namely:
1) Memorandum of Association
Name of company
preference)
States the procedures for appointing the directors and their powers
registered. If the documents meet the approval of the registrar the company will be awarded a
certificate of incorporation.
5) Privacy- private limited companies do not need to display their financial statements to the
public.
4) Sales of shares make take a while because it’s dependent on a directors’ consent.
1) Large amount of capital can be raised from the sales of shares to the public on the stock
exchange.
5) Limited liability: - the business and its owners are separate legal identities therefore any losses
6) Continuity
7) There is added pressure from shareholders on the B.O.D which forces them to be efficient in
3) There is no privacy since the accounts of public limited companies need to be accessible
to the public
4) There is no personal customer service like what would have been experienced with sole
traders or partnerships.
5) Conflict may arise as a result of differences between the ownership and board of
directors.
7) Conflict may cause the decision making process to be much longer than needed
Holding Companies:
This is company that owns and controls a number of separate businesses yet it does not
tie them into one unified company. Usually the different businesses are in different markets
Cooperatives:
social or cultural need via democratic control. The members of a cooperative will elect a board
of management who will operate the business on behalf of them. The main purpose of a
cooperative is to serve its members and any profits made are distributed among them. The
members of the cooperative can also be customers of the business. The members of cooperatives
own shares and they can get loans or obtain dividends based on the number of shares that they
4) Worker- O.W.T.U
Principles of Cooperatives
- The Cooperatives Acts in all Caribbean territories state that the maximum share
capital holding of a member should not exceed 20% of the entire share capital of the
cooperative
4) Education
1) Transfers to reserves
2) Payment of dividends
3) Surplus reinvested
Advantages of Cooperatives
Disadvantages of Cooperatives
Franchises:
Types of Franchises
1) Distributorship – one business sells on behalf of the parent company like auto
2) Trademark – also known as brand name licensing. The parent company sells the rights to
3) Business format- the parent company gives permission for the smaller company to use its
2) Operate the franchise according to the rules and procedures of the franchisor
Advantages of Franchises
2) The taxes paid on imported goods for the franchise are a source of government revenue.
(Government)
4) The franchisee benefits from the marketing and promotional networking of the
6) The franchisee has to pay royalties for the right to use the franchisor’s name. They may
also demand a share of profits. This increases profits for the franchisor but decreases the
7) The franchisor benefits from an expansion of their name and popularity. (Franchisor)
8) Expansion reduces the amount of cost associated with advertising for the franchisor.
Disadvantages of Franchises
1) There may be increased competition for local firms and government intervention may be
needed.
2) There is a lack of control by the franchisee since the franchisor tends dominate
operations.
3) The franchisee is obligated to buy imports from the franchisor so they lose the
5) Sometimes franchisees are difficult to control, they tend to do things their own way and if
Joint Ventures:
This is a contractual agreement between two or more parties or businesses for a given
period of time. This is for the purpose of a particular undertaking for mutual liking or profit.
When two or more companies share the cost, responsibility and profits of a particular
business venture. The financial arrangements may differ however most tend to share costs
Features
1) The Joint Venture Agreement will dictate areas of control and sharing of profits and
losses.
In the Caribbean the most common form of joint ventures exist between foreign firms and
4) Starbucks and Tata Global Beverages came together and formed and formed Starbucks
Tata Limited.
1) Possible increase in profits for both parties if the joint venture is successful
2) One business may lose credibility if joining with a lower status business or if the joint
venture is a failure
4) Conflict
PUBLIC SECTOR:
This represents that part of the economy that is owned control by the government.
- These businesses are formed by an act of Parliament and have a separate legal entity
from the government, i. e. they are incorporated. The state owns the enterprise on
A state board manages the public corporation. A state board comprises of managers
who run the business and are responses for policy making. A government minister is
appointed to the state board and he or she may head it. Parliament oversees the
Capital:
Distribution of profits:
Advantages:
5) There is usually only one supplier and as a result there is no competition. This
6) These businesses are usually large and can benefit from economies of scale
Disadvantages:
2) Lack of accountability
4) Bureaucracy “Red tape” affects the length of the decision making process
STATURARY BOARDS:
These are state controlled organizations that have a specific responsibility for a certain aspect of
BOARD MINISTRY
NON-PROFIT ORGANIZATION:
These are organizations run according to business principles however their main aim is
not making profits. If any profits are made they are usually shared with employees, customers or
organizations.
Charities:
These are organizations with specialized aims. They exist to raise money for good causes and
draw attention to the needs of disadvantage groups in society. Local examples include:
2) Cancer Society
Charities rely on donations for their revenue. Also use fundraisers such as fetes. Most staff
This is a nonprofit making business which works with people to achieve long term
improvements in their quality of life. For example, Living Water’s Community and Lion’s Club
Formation:
1) These businesses are incorporated are a nonprofit company. The Companies’ Act
provides for the registration of a nonprofit making enterprise. This type of company has
which must be done with the Registrar of Companies. There is no legal structure for this
business.
2) These businesses are incorporated by a statute. Parliament passes an act to establish these
entities
Sources of Revenue:
The primary source of revenue for NGOs is from donors. They do not directly benefit
from the organization programs. For example; contributions, donations, volunteering, special
Another source might include membership fees, service charges, investment revenues, sale of
NOTE WELL: In accounting the capital for NGOs is known as the accumulated fund and the
loss.
PRIVATIZATION vs. NATIONALISATION
Privatization
This is the process of partially or completely selling state owned and controlled
businesses to investors in the private sector. Privatization can take different forms:
private sector.
2) It can also be the removal of barriers that stop other companies from competing with
3) Contracting out services that would otherwise be done by public sector firms, for
1) Much needed income can be generated from the sale of state owned assets. This income
3) If the government can no longer afford to finance and operate that state owned company.
Disadvantages of privatization:
1) It can cause the creation of private monopolies which may exploit consumers.
2) The income generated from the sale of state owned assets is a one off receipt. Instead of
fixing the business and having it earn revenue for years to come the business is sold.
form unfair pricing and inferior quality of goods. Additionally they may be pollution and
5) Private businesses main aim is to make a profit and if these businesses prove to be non-
profitable they may close them down resulting in the loss of essential service once more.
NATIONALIZATION:
This is the process of obtaining a private industry or private assets from the private
sector. It will be taken into public ownership by the government of the state.
1) When there is a natural monopoly occurring that the government does not want in the
2) The government will want to have control of essential services so that the citizens are no
3) The government will want to control businesses that have significant positive
externalities to society.
Arguments against Nationalization:
1) Businesses of the public sector are notoriously known for being inefficient.
3) Since there is no profit motive in government businesses there is a lot of wastage and lack
of innovation.
4) The length of decision making in government businesses is very long which hinder
N.B. The arguments for and against nationalization can be used conversely as the arguments
for and against privatization but the explanations must be tailored to suit the question.
An objective or goal of a business is an outcome which allows a firm to achieve….
A- Agreed– everyone responsible for achieving the objective must be in agreement with it
R- Realistic- objectives should be achievable if given the available resources and prevailing
market conditions.
T- Time Specific- the objective should have a specific period over which it is to be achieved.
1) Provides guidelines for decision making: Objectives or targets provide direction for the
business. Decisions can be taken to lead the enterprise in that direction. The objectives
2) Consistency: Objectives provide guidance in terms of the amount of effort required per
employee. The absence of objectives, efforts would vary because employees would not
3) Efficiency and Productivity: If employees are clear on how much is required, they would
absence of clear objectives, resources may be wasted because there is no target for
workers to meet.
4) Facilitates Evaluation- Objectives are a measuring tool that management can use to assess
1) Long term objectives (Strategic objectives) -These are sometimes called primary
objectives and are set by senior management. It represents targets and the core of the
business. Time period- these usually exceed 1 year. Example; increasing profits by 10%
over the next 2 years, to create a new product over the next 5 years and to increase
2) Medium form objectives (Tactical objectives) – These need to be achieved for the
strategic objectives to be met. It is set by middle management and are derived from
strategic objectives. Time period- within 1 year. Example; to increase production levels
by 20% in 6 months, to keep advertising cost at 3% of sales over the next 8 months.
3) Short term objectives (Operational objectives) -These must be set and achieved in order
for the tactical objectives to be achieved. They are set by low level management to
govern its workers. Time period- daily or weekly. Examples; to meet weekly sales of
Corporate Aims
These are very long term goals which a business hopes to achieve. They are the starting
point for the entire of objectives which effective management is based. They possible the
framework within the strategy or plans of the business can be drawn up.
Mission Statement
This outlines the overall aims or fundamental purpose as well as the value of the
business. It states the primary objectives of the business. Other objectives flow from the
mission statement. It is usually more general in nature and does not include a measure of
performance.
This is a statement of the business core aims phrased in a way to motivate employees and
Kingfisher mission statement- the aim to be world class retailors with markets leading
businesses that meet customers’ needs by offering reliable and consistent value.
1) They quickly inform groups outside of the business of what the essential aim and essence
of the business.
mission statement.
1) They are sometimes too vague & general and detached from the business.
These are based on the central aims and mission statement of the business but give
1) Maximizing Profits- profits are essential for rewarding investors and financing the future
Profit maximization - producing at that level of output where there is there is the greatest
profits.
2) Some analyst assess the performance of the business through the return of capital
employed.
3) Profit maximization may be the objective for owners but either stakeholders would
Growth is usually measured in terms of sales and large firms usually enjoy EOS
as a result of growth.
Limitations of Growth
4) Using profits to finance growth can tend to lower short term returns for shareholders
This occurs where the marketing department of the business is proving to be more successful
3) To refrain from certain parties which may cause conflict from consuemrs
Maximize Sales
1) Corporate culture- this is defined as the code of behavior and attitude the influence the
2) The size and legal structure of the firm- small business owners may only concerned about
3) Public or Private sector businesses- according to which sector the business belongs to, the
4) The number of years the business has been in operations- new businesses may just have
survival as their objective while others may pursue other objectives such as growth and
profits.
Operational Objectives
Once corporate objective have been established they can be broken down into specific
smaller operational objectives. The operational objectives will guide the divisions, departments
Divisional Objectives
These relate to the several divisions in the business and are set by various senior
managers. For e.g. to increase market share by 10% within a particular region.
Departmental Objectives
These are objectives set by the various departments of a business. E.g. the marketing
Individual Targets
These are objectives set for individual employees. For e.g. to update 5 new clients by the
next month.
Strategy- those are long term plans to meet aims and objectives. They are means to an end.
Directors -To direct the strategy and major decision making of the business.
-To increase their own power and status from business growth
share price
-To secure their jobs through the survival and expansion of the business.
Customers -To obtain ‘good value for money’ from the goods and services purchased
-To direct the operations of the business for the benefit of the
community/nations
-To assist the business in accordance with local and national policy
Advantages
1) If management and their subordinates know what to do their wil be no confusion and
duplication of work.
3) MBO can be used as a means of control to ensure workers can remain focus on
Disadvantages:
2) It is expensive to implement.
4) Using objectives to evaluate performance may be difficult especially when the actions of
3) There may be changes in the macro environment overtime which may make the
objectives outdated and as a result they need to be adjusted, for example inflation.
Business Ethics
This refers to the moral principles that guide managers in their decision making to do what is
right. An ethical decision is the right thing to do and an unethical run but not necessary
illegal since laws and their enforcements have not quite caught up with modern societies.
2) Animal rights
4) Discrimination
issues may arise. Ethical codes may vary from business to business and industry to
1) Environmental responsibilities
N.B. The code of ethics will also focus on details of punishment or repercussions for
unethical actions.
Social Responsibility:
This is the obligation on the part of a business to do things which protects and improves
and improving quality of life for the workforce and local community. It reaches beyond the law
and financial benefits to pursue the long term benefits for society. It is management
1) Enhanced brand image and reputation- in markets with high competition companies strive
for unique selling points that can distinguish them in the minds of consumers. Social
2) Increased sale and customer loyalty- Consumers tend to gravitate towards businesses to
practice social responsibility. Returning sales plus new customers results in increased
profitability. With the increased supply on info available to consumers they can now
research how products are made i.e. eco-friendly or non-eco-friendly, child labor or under
dangerous working conditions and may then make a decision as to support or not support the
business.
3) The ability to attract or retain employees- Employees are now looking beyond paychecks
and benefits and seeking out employers whose philosophies and operating practices match
their own principles. Employees are more motivated and productive and many even stay on
in the business longer thereby reducing cost and any distributions of recruitment or training.
4) Access to capital- Investors also consider a business corporate social responsibility when
5) Reduced regulations and penalties- Corporations are keen to reduce interference in their
business operations in form of taxation or penalties. By taking voluntary actions the business
try to convince the government and wider public that they are taking issues such as health
6) Lower operating costs- Reduced resource use and waste emissions also encourage
1. It reduces profitability- This as a result of higher costs from implementing anti polluting
devices. Also through overhead from continuous training and communication of its codes of
ethics
2. Increased costs are passed on to consumers in the form of higher prices thus masking their
3. There is conflict between the objectives of shareholders for profits or the benefits to
society
This a groups created by people with a common interest or aim who put pressure on businesses
laws.
3) The Worldwide Fund for Nature –This organization aims to improve animal welfare,
Corporate Governance:
3) Equity
This will focus on ensuring that the needs and interest of all stakeholders are taken into
The basic Economic Problem of society choice is the main issue to be dealt with various
1) What to produce?
Households work on the land to produce goods for their own needs and wants. Living
standards are usually low and there is very little specialization. Exchange took place in the form
of sales.
State ownership and control of most economic resources. State decides what to produce,
methods of production and distribution of output. Consumers have little influence over what is
produced and the price mechanism is of little consequence. No competition between producers
Mixed Economies
1) There is some private business activity and some state-owned & controlled organizations.
2) Main motive of private sector business is profit and main aim of public sector is the
4) Can be differentiated along the following lines; aims, funding, intervention, distribution
GROWTH
Planned Economies usually have large state owned organizations. E.g. Companies for
electricity generations, farming being owned and controlled by large co-operatives, state owned
airlines.
Free Market Economies may have large and small privately run enterprise and even
Mixed Economies will have a number of large state owned corporations and varying
Making the right decision helps a business to achieve its aims and objectives.
Decisions are usually taken after consideration of substantial amounts of internal and external
1) Accurate- the information should be accurate to inform the decision making process.
4) Cost effective- the cost of gathering data should not exceed the benefits of using it.
volume conditions from alternatives available. They are objective. Qualitative decision making
examines wider factors especially on and from human beings. They are subjective.
Decision Trees
1) Environment
3) Labor supply- there needs to be sufficient labor in a particular location for a business to
be successful
4) Management skills and experience- this must be present to create and execute plans
5) The availability of finance- there must be sufficient cash to execute the plans
6) Inflation
7) Customers
8) Competitors
9) Production issues
10) Suppliers
11) Feasibility
1) Problem analysis- before making a rational decision it is necessary to define the issue that
will be decided upon or the problem to be solved. This means separating the symptoms of
the problem from the causes of it. There is the identification of the data that needs to be
collected.
2) Data collection- this involves the techniques of investigation that will be used to gather
qualitative and quantitative data. The source of this information need to be identified
whether primary or secondary. Data is looked at as raw materials used in the decision
making process.
3) Analysis and evaluation of data- the data analyzed and constraints concerning the
problem identified. Constraints are factors that limit the choice of actions and/or prevent
the organization from achieving its goals. Constraints can be internal or external (within
or outside the firm) or the can be qualitative (E.g. leadership) or quantitative (E.g.
money)
4) Formulate and test alternative strategies- in this stage there is the generation of possible
alternative solutions that will respond to the needs of the situation and even correct the
underlying causes of the problem. Decision alternatives can be thought of as the tools for
reducing the differences between the organizations current and desired performance.
Alternative solutions need to be tested. There is an element of risk associated with any
decision and as such managers will try gage success. Managers may try to simulate
manger’s risk propensity and the nature of the risk involved in the decision. This stage
also involves the use of managerial administrative and persuasive ability of managers to
ensure that the choice of alternative is carried out. The success of the alternatives depends
6) Evaluation and feedback- the success of the strategy has to be assessed and reviewed
against the original objectives. If it is not meeting the objectives then further management
action may be needed. A decision may fail giving rise to a new cycle of decision making
beginning with the problem analysis and then leading to the selection of new alternatives.
decisions of firms in the private sector to protect consumers, workers, society and the
environment. Some of the activities governments can use controls to stop or limit are:
1) Dangerous goods
2) Pollution
3) False advertising
4) Formation of monopolies
Laws are passed to protect the rights of workers. Contracts are written and signed by
employers and employees with respect to pay, working conditions and disciplinary
1) Minimum wage
4) Discrimination (Nepotism)
5) Termination- workers who are terminated unjustly can claim unfair dismissal where
These aim to protect consumers from discomfort and physical pain in the workplace.
Providing a healthy and safe environment for work is now law in most countries. For
example, OSHA (2004 T&T), in this act all businesses with 25 or more employees had to
prepare written document with a respect to health and safety in accordance with the
The government is responsible for passing various laws and requirements that establish
3) Changes in administration
The legal environment is also influential on decision making with the various laws that
businesses have to adhere to. Within the CSME laws are actually implemented for
health and safety, immigration, dispute resolution and minimum wage. Businesses
must adhere to these laws otherwise there may be legal ramifications resulting in
financial lost.
2) Laws to promote competition- laws may be passed to prevent the formation of
monopolies via mergers or take overs. For example, T&T government allowing
3) Consumer rights laws- these protect consumers from exploitation and unfair business
practices. For example, inferior quality products, unfair pricing, false advertising and
poor after sale service. In Jamaica consumers can seek redress from the Consumer
Affairs Commission and in T&T the Bureau of Standards and in other Caribbean
4) Environmental laws- with the emphasis now being on global warming firms have to
be more careful on their impact on the environment. Governments are being also
more vigilant on the enforcement of environmental laws. For example, firms in the
food industry have to be mindful of the off seasons for fishing as well as pollution in
2) Ecological
This deals with how businesses treat with the environment in which they operate.
Businesses are being urged to be more socially responsible and laws are being passed to
monitor their behavior. For example, laws prohibiting deforestation, dumping, zoning for
Decision makers need to be aware of these when choosing the correct course of action.
As countries grapple with the effects of global warming they implement laws to protect
themselves from further derogation. The derogation of the environment has serious
implications on the region’s agricultural industry and may cause food shortages. A lot
more businesses have adopted “Go green” campaign by using eco-friendly packaging and
recyclable materials.
3) Technological
Decision makers need to be aware of the pros and cons of technology and capitalize on
the opportunities they bring by also being mindful of their threats. The world has become
a global market place and firms are faced with competition all over the world.
Ecommerce has grown considerably and firms in the Caribbean they have to compete
with others from Europe and Asia, for example banks. An individual can do banking with
almost any bank in the world via online banking. Locally they can also pay bills, transfer
funds and check balances. Technology in the Caribbean has improved significantly
especially in the area of communication. Decision makers must assess how changes in
technology will affect decision making. For example, the problem of social networking
has provided firms with new mediums to promote products and gain customer feedback.
E.g. As people look for comfort and high quality service there is an increase in the
number of credit card transactions and online shopping firms who provide this. All of this
Decision makers must bear in mind the social responsibility policies of their firms. Some
governments enforce environmental and animal protection laws. The impact of global warming
must be considered by businesses that make their own decisions. Businesses also need to be
aware about the cultures of the market in which they are entering and operating. Culture is
defined as a combo of beliefs and values, rituals and practices that shape ones behavior overtime.
Culture plays a critical role in some markets in terms of food, dress and marketing. Social and
cultural factors may also be extended to the structure of the population. Decision makers need to
households in the Caribbean. Firms need to be mindful of this trend when marketing.
Families’ incomes will be affected by these structures and will in turn affect
consumer demand.
tertiary institutions. More educated people will have changes in their spending
3) Population age and working habits- The age of the population is influenced by life
1) The skill level of employees which may hinder the implementation of certain decisions.
4) The size and composition of the work force, for example, age, gender and ethnicity
Natural Factors
Natural Factors refer to natural resources that used are inputs in production. This
these resources will find it difficult to produce its products in large quantities.
Economic Factors
Economics is a social science which studies human behavior and how scarce resources
are allocated to satisfy human beings unlimited wants. The economic factors that affect decision
making are more macro-economic factors. E.g. it is the study of the economy as a whole. Macro-
Economic factors include; inflation, unemployment, interest rates, exchange rates, economic
growth, BOP.
Inflation- this is the continuous or sustained increase in the general price level of the economy.
High inflation rates may cause increases in production costs. It also means that revenue will lose
its value and the purchasing power of consumers will decrease. Consumers will not be able to
purchase the same amount of goods that they were able to before. Two main causes of inflation;
1. Force Pull- this commonly referred to as “too much money chasing too few goods
“. It occurs where total demand is increasing while the availability of goods is decreasing. This
will lead to shortages. The excess demand will cause prices to increase.
2. Cost Push- This occurs where the prices of inputs in the production process
increase. This causes producers to increase their prices as well this type of inflation is influenced
The unemployment rate measures the percentage of the population between the ages of 18-65
that are not working but actively seeking employment. It is calculated using a formula; # of
1. Frictional- this is as a result of the search process when people are between jobs.
For the period of time they are out of a job they are frictionally unemployed.
2. Cyclical- This is caused by the recession phase of the economic cycle. When total
demand falls firms team to lay off people and employ less causing the unemployment rate to rise.
organization. As a result of some skills being needed by people to secure their jobs which can
production. This odd evident in the agricultural sector as some workers are not required when the
Interest rates
The interest rate is the amount that borrowers pay to lenders for money borrowed it is the rate per
dollar of the amount borrowed. In other words it is the price paid for the use of money that is not
yours. Interest rates are important to management since high interest rates hinder growth because
the cost of borrowing to expand will be too high. The government’s macroeconomic policy of
interest rates may increase or decrease business activity and decision makers need to be aware of
this.
Fiscal policy
These are decisions made my government to increase or decrease taxation which affects
Exchange rates
This is the rate at which one country policy is traded for another. Exchange rates can be high or
low. If the exchange rate is high it may hurt businesses who import most of their inputs of
production and if it is low it will hurt exporters by reducing the amount of revenue they could
receive.
It gives exporters a lower rate of return than converting to a lower currency countries of the
1. Fixed exchange rates-This is one when government fixes the external value of its
currency in relation to other countries. For example, $1 US to $2 Bajan dollars. The rate is
maintained by the Central Bank who intervenes in the foreign exchange market by supplying US
dollars when there is shortage or purchasing the excess when there is a surplus.
2. Floating exchange rate- This allows the value to be managed or determined by the
interaction of demand and supply. This may sometimes get out of control. So countries have
come up with a fluctuating rate where the market rate fluctuates within a managed float.
Economic growth
This impacted by both fiscal and monetary policies and as a result decision making most be
aware of changes in these policies and how they will affect the economic growth of the country.
If growth is negative income falls and so to the demand for products for example, if corporation
taxes are decreased businesses may be inclined to raise prices causing demand to fall.
Conversely if economic growth is positive business activity may increase and as a result different
Multinationals
These are businesses that have their headquarters on one country but operate branches
factories an assembly plants (subsidiaries) in other countries. E.g. British gas, British petroleum,
Mc's are major traders and take up a large portion of the international trade between their
subsidiaries. Ford makes gearboxes in its factory in Bordeaux an exports them to be assembled in
fiscal and monetary policies to attract MNCs. This move also helps increase
2) Nearness to markets
MNCs put themselves in strategic locations globally. E.g. BP has claimed that T & T is a
gateway to South America for their production sites in Trinidad USA and Canada. It provides an
easy distribution depot for goods to be shipped to and from South America. It also has good
Advantages:
4) Lower production costs; lower labor rates, cheaper rent and site costs, Government grants
incentives
E.g. the minimum wage in Trinidad is $17.50/hour. This is significantly lower than the parent
Most Caribbean countries have some sort of import restrictions, the MNC may enter the local
market to avoid these, locating within the region give them easy access to markets without
E.g. within the CARICOM there is free trade but trades with external countries are subjected to a
Common External Tariff (CET). MNCs take advantage of this by setting up companies in
member states. They will enjoy free trade as well as protection from competitors from outside
the region
In 2005 50% of all US investments in T & T was in oil and gas. Some of the foreign companies
that were here were: BP Chevron Exxon Mobil and BHP Billiton
7) Avoid laws
Some MNCs move their operations out of their home country to avoid laws affecting them e.g.
Due to the global reduction in barriers in international trade an movement of people and capital ,
companies now find it easier to establish operations in various parts of the world where markets
Drawback/limitations:
1) Communication links with headquarters may be poor especially if the country does not
have the necessary technology. E.g. phone calls may be possible but teleconferencing
may be impossible
2) Language and cultural barriers -There maybe hindrances in communication between local
the MNC group. The policies must be adhered to in the various countries
4) TRAINING COSTS-The local workers skills may not be of the same standard as the
workers in the headquarters therefore additional training is required to bring the training
up to par
5) Loss is control-As power is delegated to the MNCs in other countries decision making
Trade Liberalization is the process of achieving free international trade with fewer and fewer
Globalization is the growing interdependency between nations that results from increasing
free trade and the free movement of capital between the countries.
Trade Liberalization:
This is the removal of barriers to trade and the granting of free access to markets. This access
may be limited to certain products or they may be a total lifting of the barrier. Trade
Liberalization in the Caribbean started in 1965 with CARIFTA and then then in 1973
CARICOM was started as an improvement to CARIFTA. Under CARICOM there was the
implementation of the Common External Tariff (CET) which would have facilitated easier
and cheaper trade between CARICOM member states. Today CARICOM has evolved into
CSME which came into being in 2006. It was designed to represent a signal economic where
people, goods, services and capital could move freely between its member states.
3) Economic development
8) CET
12) Monetary policy measures- coordinating foreign exchange and interest rate policies
In the wider world Trade Liberalization was initiated GATT- the general agreement on tariffs
and trades in 19477. Its main objective was to regulate trade amongst its 150 members.
GATT was later replaces WTO- World Trade Organization. The WTO on two main
principles:
3)
Disadvantages:
1) Local firms may be driven out of the market resulting in a loss of jobs an output
2) Over dependence on imports may put countries at risk of there is conflict between them
Caribbean Territories are characterized by mostly small developing economies. They are
characterized as having:
3) Preferential Agreements
4) Poverty
9) Lack of Technology
They also face the problem of brain drain in critical sectors of the economy. People leave
taking their capital as well. A large percentage of the state revenue comes from the taxes of the
MNC's.
MNCs do not always share skills and technology because it is not to their advantage. As well
Caribbean Governments are forced to accept the behavior of the MNC's because of the
What is needed?
Transformation of the Caribbean economic environment to one that is more conducive and
encourages growth and development of local businesses. Also Caribbean businesses need to
become more efficient and change some of their methods to produce goods that meet
international standards. Efforts must be made in the area of technology and expertise.
Caribbean Business Culture
The Culture of an organization is made up of the values, beliefs and attitudes of the
people working in it. Managers must be aware of the culture of their organization because it
will influence behaviors, attitudes to change, motivation, morale and performance of staff. It
also affects the firm’s ability to attract qualified and experienced employees.
1) Environment
2) Communication
3) Leadership
4) Employee Attitudes
5) Daily Procedures
The Environment:
The Environment in which a business operates affects its culture. Caribbean businesses
operate in an environment that has a rich history imbedded in the colonization of the region.
As such some managers still utilize a very autocratic style rather than democratic. Locally,
the cultures are such that the businesses try to ascertain the needs and wants of customers
while aiming for profit maximization. This is sometimes at the cost environmental
Communication:
This has grown rapidly in recent times and can be seen in social gatherings and other staff
events. Networking employees are more likely to influence their colleagues as well as the
Leadership Styles:
The style of leadership and personalities of the leader do influence the organization’s culture.
For e.g. A leader who encourages participation of his employees would foster a hospitable
culture as opposed to one who isn’t. The leader’s personality may help to motivate the
Employee Attitudes:
Employee’s norms, beliefs and attitudes will transcend into the culture of the organization
itself. Most of the time employees are in contact with customers who are now representing
the company. Their actions are now a reflection of the culture within the company.
Daily Procedures:
The procedures that have to be followed on a daily basis form the culture of the
organizations. E.g. Some businesses are very strict and bureaucratic while others are laid
back. Some are paper based by while some are highly technological.
Benefits of Culture
Limitations of Culture
2) Some businesses are too large and therefore it is difficult to communicate to all
employees.
Impact of Globalization on Governments
Facilitating or enabling the right environment. It creates the right business environment however
a country’s business environment can either impede or foster the establishment of MNCs. It must
be one that is inviting to international firms, e.g. by providing proper infrastructure, roads and
communication networks. The government will be the one to make the environment conducive to
them setting up. The government should also lower crime and violence which can be a deterrent
Governments also need to develop the legal framework to properly monitor overseas based
companies. The laws should also protect consumers from exploitation. Governments would not
want MNC’s growing so large within the country that they start to gain control of the economy
so the government via laws should try to monitor this and use globalization for the benefit of the
country rather than its detriment. Some companies may want to avoid taxes and oppose labor
laws.
1) Increased choices- Consumers benefit from a greater variety of goods and services now
available to them. They are now exposed to goods previously unavailable via
2) The increased competition created by new firms entering the market is beneficial to
consumers in terms of price, quality of produce, service and after sale service. Businesses
3) Employment-locals can also benefit from being employed at these new firms.
N.B. With the emergence of a wide variety of goods and services consumers can now
change their taste and preferences and gravitate towards foreign products. In terms of
quality some MNCs have the tendency to provide high quality products to their home and
country and substandard ones to their host country. Consumers need to be aware of this
and not stand for mediocrity. Consumers need to take responsibility to ensure that they
are not exploited by these larger companies by being aware of the consumer laws. Some
consumers also see globalization being a threat to their local culture. Globalization also
provides consumers with information to inform their decision making. The internet has
made it possible for consumers to compare goods and their prices easily.
The Impact of Globalization on Businesses
1. Competition
As barriers to trade are reduced through globalization new, larger firms are allowed to
enter the local Caribbean markets. They will naturally cause an increase in the
competition among firms of the same industry. In some cases it may force the closure of
2. Economies of Scale
Local firms are now also given the opportunity to expand their operations into
internationals markets. Some firms make the best of this opportunity, invest an expand
their operations. This growth results most times in Economies of scale. Costs are spread
over higher productivity lowering unit costs. E.g. Technical, Marketing and Financial
economies of scale
3. Levels of Technology
The domestic business will now be exposed to the usage of new, more advanced
technology of the larger firms. In an attempt to increase efficiency the smaller local firms
may copy their operations which is also made easier because through globalization the
Through the internet forms can advertise themselves and their products internationally.
These open opportunities for increased sales and consumer awareness of the local firms.
This may even lead to local firms expanding and setting up operations in those countries.
products and shipments and payments online as well. This provides an easier access to
5. Linkages
Linkages can be created when firms gain more exposure to the global economies. They
can be part of forward and backward linkages in factor markets and financial institutions.
Local businesses can copy the production methods of the successful global firms. This
protectionism. This is the attempt by government to restrict the importation of goods and
services.
Why?
1) to protect dumping and unfair competition between foreign and local firms
1) Tariffs - taxes on imports. The tax makes the imported goods seem more expensive.
2) Quotas - this is a restriction placed on the quantity of a product that can be Imported
at a given time
Goods
2) import licenses