Management of Business

• Primary sector


  Incorporates all the extractive industries, including mining, fishing, forestry and farming. Products are raw materials used for secondary production.
• Advantages of reliance on the primary sector


  • Country can supply raw materials to firms for conversion
  • Country can gain a comparative advantage over others in producing certain goods
  • Creation of jobs
  • Generation of export revenues
• Disadvantages of reliance on the primary sector


  • Depletion of natural resources
  • Potential to earn more revenue if raw materials were converted into finished products
  • Decrease in demand for finished products will decrease demand for primary products and reduce revenue
• Secondary sector


  Involves changing raw materials into finished goods, including manufacturing and construction industries
• Advantages of involvement in the secondary sector


  • Reduction in importation of goods
  • Earn foreign exchange from exported products
  • One primary product can create multiple secondary products
  • Creation of jobs in different areas
• Disadvantages of involvement in the secondary sector


  • Profit motive could lead to depletion of primary products
  • Multinationals may repatriate profits instead of reinvesting
  • Some raw materials have to be imported, using up foreign exchange
• Tertiary sector


  Does not produce goods, but provides services
• Advantages of involvement in the tertiary sector


  • Generates foreign exchange, especially from tourism
  • Creation of jobs, as sector is labour intensive
  • Does not depend heavily on primary products
• Disadvantages of involvement in the tertiary sector


  • Services are volatile and may not be sustainable
  • High training costs to ensure consistent service
  • Tourism can impact culture and social behaviour
• The private sector consists of businesses owned by individuals or groups with the main aim of making profits
• Sole trader


  Business owned and operated by one individual, who manages it, makes decisions and enjoys profits/bears losses
• Main features of a sole trader business


  • Simplicity of formation
  • Owner is in control
  • Requires little start-up capital
  • Owner and business are the same legal entity
  • Lack of continuity
• Advantages of a sole trader business


  • Easy to form with few legal requirements
  • Decisions can be made quickly
  • Owner enjoys all profits
• Disadvantages of a sole trader business


  • Owner has unlimited liability
  • Difficulty sourcing finance
  • Business dies with the owner
• Partnership


  Business where 2-20 people work together to make profits, often the main source of finance
• Main features of a partnership


  • Unlimited liability on partners
  • 2 or more members
  • Profits/losses shared
  • Few legal requirements
  • No separation between business and partners
• Advantages of partnerships


  • Easy to form with few legal requirements
  • Partners contribute capital
  • Responsibilities shared
  • Allows division of labour
• Disadvantages of partnerships


  • Partners have unlimited liability
  • Decision making may be slow
  • Potential for conflict
  • Lack of continuity
• Private limited company


  Incorporated business venture separate from its owners, usually small and family-owned, with shares not traded publicly
• Main features of private limited companies


  • Usually small and family-owned
  • Name must be registered
  • Shares cannot be traded on stock exchange
  • Shareholders need agreement to sell shares
  • Limited liability
• Advantages of private limited companies


  • Shareholders have limited liability
  • Continuity of existence
  • Greater capital potential selling to family
  • Lower risk of losing control to outsiders
  • Separate legal identity
• Disadvantages of private limited companies


  • Raising capital hampered by limited share trading
  • Profits shared among larger group
  • Financial statements must be submitted publicly
  • Share transfer limited by existing members
• Public limited company


  Larger than private limited, can raise capital by selling shares publicly, listed on stock exchange
• Main features of public limited companies


  • Must be registered
  • Separate legal identity
  • Can raise capital by selling shares
  • Managed by board of directors
  • Limited liability
• Advantages of public limited companies


  • Shareholders have limited liability
  • Continuity of existence
  • Easier to raise large-scale capital
  • Freedom to transfer shares
• Disadvantages of public limited companies


  • Many legal requirements, costly and time-consuming
  • Risk of takeover bids
  • Published accounts viewable by public
• Cooperative enterprise


  Business formed by a group of people to perform a venture more efficiently collectively than individually
• Main features of cooperatives


  • Democratic organisations, each member has a say
  • Profits distributed equitably to members
  • Each member has one vote
  • Membership is voluntary
• Types of cooperatives


  • Consumer cooperative
  • Producer cooperative
  • Workers cooperative
  • Financial cooperative
• Advantages of cooperatives


  • Members have limited liability
  • Profit shared among members
  • Members have equal say
  • Economies of scale
  • Opportunity to earn interest
• Disadvantages of cooperatives


  • Profits may be minimal or non-existent
  • Potential for member conflict
  • Longer decision-making process
  • Capital deficiency may impede growth
• Franchise


  Contractual arrangement where an established business (franchisor) allows semi-independent owners (franchisees) to operate under its brand
• Types of franchise arrangements


  • Pure franchise
  • Product distribution franchise
  • Trade name franchise
• Advantages of franchise


  • Franchisee receives management training and support
  • Brand name appeal
  • Advertising by franchisor benefits franchisee
• Disadvantages of franchise


  • Franchisee must pay fees and royalties to franchisor
  • Strict adherence to franchisor's standards
  • Limited ability to deviate from franchisor's product line
• Joint venture


  Business jointly owned by two or more parties to undertake an economic activity, parties continue separate operations but pool resources
• Advantages of joint ventures


  • Parties share assets, lowering production costs
  • Fosters specialisation
  • Easily dissolved
  • Greater access to resources and technology
  • Firms benefit from expansion
• Disadvantages of joint ventures


  • Parties may have disagreements
  • Differences in culture and strategy may lead to poor integration
  • Decision-making process may be long and tedious
  • Loss of independence
• Firms may change legal structure over time, often motivated by growth or desire for more funding
• Public sector organisations


  Businesses owned and controlled by government or local authorities, main purpose is to provide benefit to society rather than make profits