1 The nature of business

The nature of business

Caribbean Business
Chapter One

Caribbean Business for CSEC® Principles of Business © OUP 2010

 1 The nature of business

The nature of business

1.1 Starting a business
1.2 Functions and stakeholders
1.3 Business organizations
1.4 Economic systems
1.5 Money and trading instruments

Caribbean Business for CSEC® Principles of Business © OUP 2010

 1 The nature of business

1.1 Starting a business

Caribbean Business
Chapter One
The nature of business

Caribbean Business for CSEC® Principles of Business © OUP 2010

1 The nature of business

Kerhoca Designs
and Concepts –
office and factory

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 1 The nature of business

Kerhoca Designs and Concepts

Read the case study. Check the definition of these terms …

● Producer ● Firm
● Specialization ● Partnership
● Organization ● Company
● Entrepreneur ● Capital
● Enterprise ● Market
● Manager … continues next slide

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 1 The nature of business

Kerhoca Designs and Concepts

Read the case study. Check the definition of these terms …

● Producer ● Market
● Specialization ● Consumer
● Organization ● Economy
● Entrepreneur ● Goods
● Enterprise ● Trade
● Manager ● Services
● Firm ● Exchange
● Partnership ● Barter
● Company ● Profit
● Capital
Caribbean Business for CSEC® Principles of Business © OUP 2010
 1 The nature of business

1.2 Functions and

stakeholders
Caribbean Business
Chapter One
The nature of business

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 1 The nature of business

Needs and wants

Needs Wants
Basic needs for human Luxuries and semi-luxuries to
survival: make life more pleasant:
● Food ● Consumer electronics
● Water ● Luxury foods
● Clothing ● Designer clothing
● Shelter
● Health care

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 1 The nature of business

Goods and services

Goods Services
Products which have a Products with no physical
physical presence: form. Cannot be stored:
● Rice ● Education
● Milk ● Insurance
● Clothes ● Tourism
● Cars ● Beauty and hair care
● Sugar ● Medical services
● Bauxite ● Travel services

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 1 The nature of business

Stakeholders
● Stakeholders benefit if a business succeeds.
● Stakeholders suffer if a business fails.
● Businesses promote good relations with their stakeholders.

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 1 The nature of business

Stakeholders
● Owners and entrepreneurs
● Employees
● Customers
● Bankers
● Suppliers
● The government
● The wider community

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 1 The nature of business

Functions of a business
● Financial – making a profit
● Economic – creating jobs, providing goods and services
● Social – community development
● Political – national stability and development
● Ethical – should show respect for the rules, respect for
stakeholders.

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 1 The nature of business

Mission statements
Goddard Enterprises Trinidad Cement Limited
Limited
“To be successful and “To be a World Class group of
responsible while satisfying companies providing quality
customers, suppliers, products and services to our
employees and shareholders.” customers and generating a
superior rate of return to our
shareholders through the
optimisation of our human,
technological and natural
resources,”

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 1 The nature of business

1.3 Business
organizations
Caribbean Business
Chapter One
The nature of business

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 1 The nature of business

Business organizations

Private sector Public sector

● Sole trader ● Government departments
● Partnership (including ministries)
● Companies ● State corporations and
● Private companies nationalized industries
● Public companies ● Local government
● Conglomerates
● Multi-nationals
● Franchises
● Co-operatives

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 1 The nature of business

Sole traders
● An entrepreneur owns a business alone.
● Most are small businesses.
● May be well-managed and profitable.
● Can benefit from new technology
● Unlimited liability for debts

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1 The nature of business

Richard Quamie – sole trader

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 1 The nature of business

Sole traders – paperwork

● Anyone may do business in their own name.
● Business names should be registered.
● All businesses must register with tax authorities and national
insurance.
● In some countries, a business licence is needed.
● For some businesses, there are other legal requirements.

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 1 The nature of business

Sole traders

Advantages Disadvantages
● Easy to establish a ● Unlimited liability for debts
business ● Owner responsible for
● Few paperwork damage caused
requirements ● Difficult to raise finance
● Owner can make decisions ● Difficult for owner to take
alone time away
● Owner takes all the profit

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 1 The nature of business

Partnerships
● Two or more people own a business together.
● May be well-managed and profitable.
● Can benefit from new technology.
● Has unlimited liability for debts.
● Many law firms operate as partnerships.

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1 The nature of business

DunnCox – a partnership

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 1 The nature of business

Partnerships– paperwork
● A partnership may operate without a written agreement.
● It is much better to have a written agreement to set out the rules
of the partnership.
● This may be registered as a Deed of Partnership.
● Most countries have a Partnership Act.
● Business names must always be registered.

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 1 The nature of business

Partnerships

Advantages Disadvantages
● Each partner contributes ● Unlimited liability for debts
experience and knowledge. ● One incompetent or
● Each partner may dishonest partner
contribute capital. endangers the whole firm.
● Partners can take time ● Disagreements may be
away with no major hard to resolve.
problems. ● In a large partnership,
● Partnership does not pay communication becomes
tax. Partners are taxed difficult.
separately.

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 1 The nature of business

Companies
● Most businesses operate as companies.
● A company is a legal entity and can own property.
● A company is owned by its shareholders.
● Shareholders elect a board to run the company.
● The board appoints managers who handle day-to-day business.

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1 The nature of business

Shareholders, board, managers

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 1 The nature of business

Companies – paperwork
Documents needed for company registration
● Application for name search
● Articles of incorporation
● Notice of address of registered office
● Notice of directors
● Certificate of incorporation
● By-laws – sets out rules and procedures

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 1 The nature of business

Companies

Advantages Disadvantages
● Limited liability ● Some costs in setting up a
● Company may own property company
and borrow money. ● Managers may make
● Professional managers run decisions shareholders do
day-to-day business. not approve of.
● No need for investors to ● Lawyers are not allowed to
spend time managing. operate as a company.
● Shares can be bought and ● Few other disadvantages
sold.

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 1 The nature of business

Public and private companies

Private companies Public companies

● Shares are not offered to ● Shares are offered to the
the public. public.
● Financial affairs may be ● Shares are traded on the
kept confidential. stock exchange.
● A simple annual return lists ● A full annual report
directors, address and other publishes financial and
brief details. other information.

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 1 The nature of business

Public companies

Advantages Disadvantages
● Can raise capital by issuing ● Public companies must
new shares on the stock publish full financial
exchange. information. Some owners
● Shareholders can buy and prefer to keep this
sell shares more easily. information private.
● The market sets a value on ● Other businesses may buy
shares, and therefore on shares to take control, in a
the worth of the company. takeover bid.

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 1 The nature of business

The former system

● In 1979, Caribbean governments decided to adopt the Canadian
model for company law.
● Under the former system, the documents needed to form a
company were:
● Memorandum of association
● Articles of association.
● A private company was one with fewer than 50 shareholders.

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 1 The nature of business

Conglomerates
A conglomerate is a group of companies operating in many
industries. It may include:
● A parent company
● Holding companies
● Subsidiaries
● Associated companies
● Joint ventures

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1 The nature of business

The structure of a conglomerate

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 1 The nature of business

Some Caribbean conglomerates

● Grace Kennedy
● Neal and Massy
● ANSA McAL
● Goddard Enterprises Limited

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 1 The nature of business

Conglomerates

Advantages Disadvantages
● If one subsidiary has ● Senior managers involved
problems, others provide in many businesses and
support. cannot be experts in all.
● Financial strength attracts ● A weak business may
bank lending. reduce the strength of the
● Moving into new activities conglomerate.
allows growth.
● Businesses such as a bank
or advertising agency may
serve the whole group.

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 1 The nature of business

‘Butch’ Stewart and Sandals

● A conglomerate of private family companies
● Started with Appliance Traders Limited
● Sandals pioneered the ‘all inclusive’ resort
● Other businesses include motor vehicle sales and the Jamaica
Observer
● Adam Stewart and other family members are closely involved

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1 The nature of business

Butch Stewart and

Sandals

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 1 The nature of business

Multi-nationals
● A multi-national is a group of companies which operates in many
countries.
● The parent company has headquarters in the home country.
● Subsidiaries operate in other countries.
● Most multi-nationals focus on one core industry.
● Some multi-nationals are conglomerates.

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 1 The nature of business

Multi-nationals

Advantages Disadvantages
● Can use resources from ● More powerful than local
many countries. partners.
● Worldwide pool of know- ● Local businesses find it
how and expertise. hard to compete.
● Access to worldwide ● Profits may be moved or
markets. hidden to avoid taxation.
● Can raise capital for major ● May be in conflict with
investments. national governments.

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 1 The nature of business

Some multi-nationals
● BP ● Microsoft
● Shell ● Apple
● Texaco ● Toyota
● Alcoa ● Honda
● Royal Bank of Canada ● Arcelormittal
● Scotiabank ● DHL
● Google ● Digicel

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 1 The nature of business

In 2008, BP had…
● 66 major subsidiaries and associates
● 92,000 employees
● 1.2 million shareholders
● Operations in 100 countries
● 17 oil refineries
● 22,600 service stations
● Sales revenue of US$362 billion

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 1 The nature of business

Goddard Enterprises Ltd

● Founded in 1921
● 4,000 employees
● Close to 80 subsidiaries, associated companies
● Operates in 23 countries
● Sales revenue close to US$500 million
● 1,830 shareholders
● Airline catering joint venture with Lufthansa

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 1 The nature of business

Franchises
● Allows a local business to use an international brand.
● Franchisor owns the brand.
● Franchisee acquires right to use the brand.
● Franchisor and franchisee are separate companies.
● Franchise licence and contract govern relations between them.

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 1 The nature of business

Some franchise brands

● KFC ● Four Seasons
● Subway ● Marriott
● McDonald’s ● Hilton
● Pizza Hut ● UPS
● Coca Cola ● Ace Hardware
● Pepsi Cola ● InterContinental
● Hyatt ● 7-eleven

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1 The nature of business

Advantages Disadvantages

For the ● Can use an international ● Regular payments to

franchisee brand. franchisor
● Receives advice and ● Loses some independence
training. in running business.
● Start-up is fast.

For the ● Can enter new markets. ● If a franchise is badly run,

franchisor ● Gains from franchisee’s the brand will suffer.
local knowledge and hard
work.
For the ● International standard of ● May lose local variety and
customer goods and service. choice.

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 1 The nature of business

Co-operatives
● A co-operative is owned by its members:
● Savers – in a credit union
● Customers – in a retail co-operative
● Producers – in a producers’ co-operative.
● Each shareholder has a single vote.
● Managers are paid a salary.
● Profits re-invested or shared as a dividend.
● Supervised by a government body.

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 1 The nature of business

Do not confuse …
● Co-operation means working together, as in a co-operative.
● Corporation is an organisation which runs a business. Some
businesses include the word corporation as part of their name.
(Microsoft Corporation, Caribbean Broadcasting Corporation).
Corporations may be privately owned, or owned by the
government.

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 1 The nature of business

Credit unions
Are owned by their members, who
● Buy shares
● Deposit savings
● Elect a management committee
● Earn interest
● Borrow from the credit union if they need to.

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 1 The nature of business

Examples of co-operatives
● Belize Fishermen Co-operative Association
● Barbados Public Workers’ Co-operative Credit Union
● Eastern Credit Union (Trinidad and Tobago)
● The Co-operative Group (Britain)

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 1 The nature of business

Co-operatives

Advantages Disadvantages
● Can promote: ● Some co-operatives
● good-quality products are not well
● fair trade managed.
● ethical standards. ● Savers risk losing
funds if a credit union
● Profits are shared.
collapses.
● Managers are elected.
● May find it difficult to
● Government supervision of raise additional
management capital.
● Limited liability for shareholders

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 1 The nature of business

Private and public sectors

Private sector Public sector
Types of business Sole traders, partnerships, Government departments,
companies, co-operatives state corporations,
nationalized industries
Ownership and Owners and shareholders Government and voters
control
Main motive Profit Public service
Source of capital Savings, banks, private Taxation, government
investors borrowing

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 1 The nature of business

Do not confuse…
● Public companies are owned by their shareholders. Their
shares are traded on a stock exchange. They are part of the
private sector.
● The public sector is made up of organizations which are owned
by the government.

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 1 The nature of business

Government departments
● Ministries are under direct political control
● Staffed by non-political public servants=
● Senior public servants are permanent secretaries.
● Judiciary and some other bodies are independent of political
control.

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1 The nature of business

Ministries and state companies

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 1 The nature of business

Government departments

Advantages Disadvantages
● Provide services which are ● Resources may not be
needed but not profitable. managed effectively.
● Can employ professional ● Politicians may micro-
experts and consultants. manage day-to-day
● Can raise funds for major decisions.
investments. ● Some staff may not work
● Can consider social hard to provide service.
objectives as well as profit. ● Favouritism may affect
● Voters can remove services and job allocation.
politicians if service is poor.
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 1 The nature of business

State corporations
● Owned by the government
● Government appoints a board to manage.
● Some are established by the government.
● Others are private sector companies which the government has
purchased or nationalized.
● Some companies are in mixed private and public sector
ownership.

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 1 The nature of business

Guysuco
● ‘Guyana Sugar Corporation Inc.’.
● Formed in 1976 when two British-owned sugar companies were
nationalized.
● Operates eight sugar estates and factories.
● Employs 19,000 staff.
● Pays taxes and dividends to the government.
● Skeldon sugar factory is a major investment and was completed
in 2009.

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 1 The nature of business

Public corporations

Advantages Disadvantages
● Some pay dividends and ● Some make big losses and
taxes to the government. require subsidies.
● Can pursue objectives such ● Objectives such as job
as job creation or creation may conflict with
environmental protection. profit motive.
● Professional managers have ● Political control may bring
more independence than in sudden changes in
government departments. management or policy.
● Government may help raise
funds.

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 1 The nature of business

Local authorities

Advantages Disadvantages
● Elected democratically by ● Few powers
voters ● Many voters are not very
● Local representatives can interested or involved.
understand local problems. ● Local officials may lack
● National government may expertise.
provide finance and advice. ● Relies on national
government for finance.
● Tasks such as garbage
collection may be
politicized.
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 1 The nature of business

1.4 Economic systems

Caribbean Business
Chapter One
The nature of business

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 1 The nature of business

Economic systems
Economic systems decide:
● What should be produced
● How production should be organized
● How products should be shared.

Economic systems are:

● Subsistence economies
● Planned or command economies
● Capitalist or market economies
● Mixed economies.

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 1 The nature of business

Subsistence economies
● Direct satisfaction of needs and wants
● Caribbean economies operated this way until 500 years ago.
● Very few subsistence economies survive today.

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 1 The nature of business

Subsistence economies

Advantages Disadvantages
● Strong sense of tradition ● Few choices for individuals
and community ● Limited range of goods and
● In balance with natural services
environment

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 1 The nature of business

Command or planned economies

● Operate on a government plan.
● The government makes all major decisions.
● Were common in the mid-20th century.
● Only North Korea is a clear example today.

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 1 The nature of business

Command or planned economies

Advantages Disadvantages
● Should guarantee basic ● Few individual choices
needs for population. ● Limited range of goods and
● Developed basic industries services
in 20th century Russia. ● Government controls
personal freedom
● Planning may be inefficient
● Fails to stimulate
technology and innovation.

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 1 The nature of business

Capitalist or market economies

● All businesses are privately owned.
● Decisions are based on the profit motive.
● No safety net for the poor.
● Few economies are 100% market-based.
● Some services are always government-run.

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 1 The nature of business

Capitalist or market economies

Advantages Disadvantages
● Wide range of choices ● Basic goods and services
● Hard for state to control may be neglected.
personal freedom ● Encourages wasteful use of
● Competition stimulates resources for short-term
efficiency and innovation profit.
● Consumer demand ● Needs of poor neglected
encourages goods and ● Cycle of boom and bust
services which people want. ● State control is needed to
control crime and violence

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 1 The nature of business

Mixed economies
● Almost every country today has a mixed economy.
● There is a public and a private sector.
● The public sector provides social services and runs some
businesses.
● The government facilitates private investment.
● The private sector runs most businesses.
● Taxation pays for most government services.

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 1 The nature of business

Mixed economies

Advantages Disadvantages
● Combines strong points of ● Public sector may lack
other systems. funding to provide services.
● Combines personal ● Public sector may be
freedom and respect for inefficient.
law. ● Private sector may evade
● Public sector protects poor taxes and regulations.
and vulnerable. ● Corruption may damage
● Private sector stimulates relations between public
choice and competition. and private sectors.
● Both sectors are partners.
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 1 The nature of business

1.5 Money and trading

instruments
Caribbean Business
Chapter One
The nature of business

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 1 The nature of business

Barter
● In subsistence economies, trade was by barter.
● Difficulties with a barter system include:
● Coincidence of wants – both parties must be willing to trade
● An rate of exchange is needed for each trade
● Some goods are not divisible
● Some goods cannot easily be stored.
● Counter trade is a modern form of barter.

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 1 The nature of business

Money can be used as…

● A medium of exchange
● A measure of value
● A store of value
● A standard for deferred payments.

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 1 The nature of business

Money is…
● Durable – can be stored
● Widely accepted – is legal tender
● Divisible – into smaller units
● Portable – can be used in many locations
● Fungible – one unit can be exchanged for another
● Scarce – forgery is a criminal offence

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1 The nature of business

Bank accounts
Most money is in bank deposits, not notes or coins.

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 1 The nature of business

Cheques
● A cheque instructs a bank to make a payment.
● Cheques take several days to clear.
● If there are insufficient funds, a cheque is ‘bounced’.
● Many businesses do not accept cheques.
● Most utility companies accept cheques.

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 1 The nature of business

Bills of exchange
● A bill of exchange promises to pay funds at a later date.
● They are often used in international trade.
● The first bills of exchange were written more than two thousand
years ago.

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 1 The nature of business

Debit cards
● Debit cards can be used to:
● Withdraw cash from an ATM
● Pay for goods or services.
● A magnetic strip holds data which connects to bank account
information as card is swiped.
● A customer PIN authorizes use of the card.
● Money is transferred at the end of the day.
● Customer and merchant pay a small charge.

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 1 The nature of business

Credit cards
● A credit card borrows money.
● Use is authorized with signature or a PIN.
● Some companies accept telephone payments.
● Payments must not exceed a fixed limit.
● Merchants are paid after after two days .
● They pay a 3% charge to the credit card company.
● Customers make a monthly payment, and pay interest on
outstanding amounts.

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 1 The nature of business

Electronic transfer and telebanking

● Internet banking uses a secure website and password for
electronic funds transfer.
● Telephone banking uses a security code.
● These systems can be used to:
● Check an account balance
● Transfer money between accounts
● Pay a credit card balance
● Pay electricity, telephone and other bills
● Get information about recent payments.

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 1 The nature of business

E-commerce
● Businesses use the internet to advertise and sell their products.
● Payment may be by credit card.
● Specialist companies provide secure payment.
● Electronic agreements may be legally binding.
● E-commerce is used for air travel, hotels, car rental, electronics,
entertainment, software and other products.

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