Business studies #1

• Trade


  The exchange of goods and services for money
• Trade


  • Occurs because of demand for goods and services
  • Buyers and sellers (or producers) meet to exchange at an agreed time, place and for a chosen medium of exchange
  • Money is the preferred medium of exchange
• Buyers


  Come with their need or want for particular goods and services
• Producers or suppliers


  Respond by supplying the needed goods and services at a price
• Market


  The ongoing interactions between the buyer and seller
• Barter system


  Exchange of surplus produce due to specialisation
• Traditional barter systems

  • Exchange between two people
  • Larger exchanges involving larger communities
  • Specialist traders facilitating exchanges over longer distances
  • Hiri, Kula trade, Moka, Tei
• Modern trade


  Based on the use of money introduced by European explorers and missionaries
• Characteristics of modern money

  • Durability
  • Divisibility, standard value and portable
• Production


  Converting of resources or raw materials into finished products to satisfy needs and wants
• Basic human needs

  • Food
  • Water
  • Shelter
  • Clothing
• Types of work


  • Farming
  • Carpentry
  • Teaching
  • Security
  • Mining
  • Fishing
  • Providing health care
  • Professional sports
• Stages of production


  • Primary
  • Secondary
  • Tertiary
• Primary production


  Extraction of natural resources
• Secondary production


  Manufacturing whereby raw materials are converted into finished products
• Tertiary production


  Provision of services to help primary and secondary production
• Domestic trade


  Trading within the boundaries of a country using national currency
• Products manufactured in PNG

  • Wire products
  • Plywood and timber
  • Furniture
  • Flour
  • Roofing iron
  • Artifacts
  • Beer
  • Cement
  • Soft drinks
  • Paint
  • Glass containers
  • Cigarettes
  • Bakery products
  • Sugar
  • Canned fish
  • Soap products
  • Cloths
  • Honey
• Visible trade


  Importing and exporting of physical goods
• Invisible trade


  Importing and exporting of services
• International trade is vital for the economic growth of every country
• Countries can only produce some goods and services and require many more which they acquire through trade
• Sole trader


  A common business ownership structure in PNG where there is single ownership, no separation of ownership and management, and unlimited liability
• Advantages of sole trader

  • Easy to start up
  • Fast decision-making
  • Flexible to operate
  • Owner keeps all profits
  • Owner gets personal satisfaction
• Disadvantages of sole trader

  • Limited resources
  • Unclear future
  • Unlimited liability
  • Limited to only small operations
  • Limited expertise
• Partnership


  Business ownership structure where 2-20 persons pool their financial and other resources and share the profits
• Advantages of partnership


  • Easy to form
  • Availability of more equity capital
  • Flexibility of operating
  • Improved decision-making
  • Risk is shared among partners
  • Tax advantages gained
• Disadvantages of partnership


  • Unlimited liability
  • Uncertain future
  • Limited ability to raise external capital
  • All partners affected equally by decisions of one or two partners
  • Higher chances of conflict arising
• Joint venture (JV)


  Two or more businesses unite or merge for a specific business goal, often involving the government
• Examples of JVs in PNG

  • OK Tedi copper mine
  • Porgera Joint Venture
  • Ramu Agro Industries
  • Higaturu Oil Palm
  • Ramu Nickel mine
  • Takkuma gold mine
• Company


  A legal entity registered under the Companies Act that can operate independently from the owners (shareholders)
• Advantages of companies


  • Limited liability
  • Greater source of capital
  • Greater source of management expertise
  • Lower tax margin due to separate entity status
• Disadvantages of companies


  • Profit is distributed if approved by the Board of Directors
  • Expensive to set up and run
  • Expensive to maintain
  • Total tax is higher than other business structures
• Business group


  A special business structure set up for Papua New Guineans to encourage members of the same customary group to start their own business
• Cooperative society


  An association of persons united to meet their common economic, social and cultural needs, democratically controlled with voluntary membership
• Cooperatives are particularly suited to rural people with low income in developing countries like PNG
• Business environments


  • Macro environment
  • Operating environment
  • Internal environment
• Internal environment


  Factors that exist 'inside' the business, such as business structure, policies, processes, planning and staff
• Macro environment


  Elements which affect businesses daily but which businesses have little or no influence over, such as social, political/legal, economic and technological factors
• Operating environment


  Factors in the external environment that the business has more control over, such as customers, suppliers, competitors and interest groups