GuySuCo- a business that contributes to nation building Large and small businesses make a major contribution to the life of any country, providing important products as well as employment for people. They also contribute to the earning of foreign currency when goods are exported to ather parts of the world Guyana Sugar Corporation inc. (GuySuCo) is or important businesses in Guyana, altho has faced increasing competition from huge sugar-growing producers across the globe (such as india, Brazil, China and Thailand). GuySuCo generates about 2-3 per c annual revenue andis a key part of the agricultural sector. Its famous fo brown sugar produced in the Demerara River basin. On 26 May 1976, the government of Guyana nationalised and combined the large sugar estate owned by private businesses The Guyanese govemment is 2 major stakeholder in GuySuCo because the corporationis such an important provider of jobs, government revenues and a basic staple agricultural product. A stakeholder is someone who has an interest in how a business is run. Other groups with an interest in the success. of GuySuCo include its workers as well as other businesses that benefit from contracts with the company, such as those using agricultural machinery. Most cently, GuySuCo is working towards diversification through value added products such as the production of white sugar (plantation white) and co-generation. Heritage tourism (sugar/plantation} is also being explored Why is GuySuCo considered to be a business? Why does the government of Guyana have a stake in the success of GuySuCo? Who are the other stakeholders with an interest in the succe GuySuCo? Identify their specific interests. at large businesses do you know that make a major contribution to the ‘of your country? To what extent do you have a stake in the success of one or more of these businesses?After reading this chapter, you should be able to: Explain the development of barter 10 Describe the role of money ul Identify the instruments of exchange 12 Interpret information on various instruments of payment 16 Differentiate bedveen private and public sectors 1 Describe the various forms of business organisation and arrangements 20 stems %6 28 Differentiate among the types of economic sy Describe the functional areas of a busi Identify the stakeholders involved in business activities 31 Discuss the role and functions of the stakeholders involved in business activities 33 Explain the ethical and legal issues in the establishment and operation of a business 36 Explain the principles that must be adopted in the establishment and operation ofa business 37 Explain the consequences of unethical and illegal practices in business 38 Describe the careers in the field of business, Once you have complete you can check you answers online at: wnw.oxfordsecondary com/97tPRS rd Business activity: the activity of producing and selling goods/services to consumers. Barter: the exchange of goods and services for other goods without the use of money, Double coincidence of wants: two people who want what each other has to offer. 1. Identify situations where you have engaged in ‘barter’ with friends. What were the key factors, that made an, exchange possible and desirable? 2. Identify situation where you refused tomakea swap with someone, Why did you turn down their offer? What does this say about barter? 3. Business in action Find a picture ofa cowrie shell online, What are the distinctive features that you think helped tomakethe shella means of exchange? Explain the development of barter Business activity only became possible when a means of exchanging goods and services was developed. As we shall see in the units below, it was the development of money that enabled the development of a trading economy, and therefore the development of business activity. Business activity is concerned principally with producing and selling goods and services to consumers (people who make use of these goods and services). In order to understand how business has developed, itis first necessary to explain the development of money, and how trade took place prior to the development of money. Barter Before money, people would barter, ie. they would exchange goods and/or services for other goods and/or services without the use of money (such as a goat for several chickens). This requires two people who want what each other has to offer (@ double coincidence of wants). An advantage of bartering is that money is not needed; so long as you have what someone else wants, you can barter. It also allows for variety because anything can be bartered so long as its desired by someone else. You could barter a holiday home for an urban flat, or a car for an expensive watch, etc. The obvious disadvantage is that one person may not have enough goods to make the exchange fair, or they may not want a whole goat for example. Over time, people realised that small but valuable items, such as cowrie shells, beads, stones and animal teeth, could be used instead of simply exchanging goods. Bartering does actually still happen to this day, particularly on websites that allow people to swap goods or services. Is not possibleif there is no double coincidence of wants Facilitates trade without money There is often a lack ofan equitable exchange rate Enables the disposal of surplus production There are often difficulties in dividing goods fairly Itdoesnot allow for wealth to be stored overtime ‘Advantages of bartering Disadvantages of bartering Increases the availability of goods | Lays the foundation for the organised methad of trading we enjoy nowadaysDescribe the role of money Money: anything that A subsistence economy is one in which people simply produce enough serves as a generally to survive on an individual, family or group basis. The group may grow acceptable means of crops and raise livestock, as well as hunt, gather fruit and berries, and exchange. Includes catch fish, There's little need for exchanging with other groups, so the physical objects, e.g, requirement for money does not arise. cowrie shells and paper money, as well as cards and electronic forms of Subsistence economies were used in early societies before money was invented, However, as soon as these early societies started to look outwards to obtain food and possessions that they didn’t produce payment, themselves, they needed to trade. Barter is helpful for trading, butit Characteristics of only goes so far, because in order to barter you need to have something money: features of a that others want. form of money, such as Over time, monetary systems developed to combat many of the whether it is easy to carry problems associated with bartering, Market or money economies around (portability) developed as a way of making purchases from others, using money. Functions of money: the We saw in the previous unit that objects such as cowrie shells became things that money does one of the earliest forms of money. These shells came to take on the and the purposes it serves, role of money due to their characteristics. Understanding these forexample asa means of characteristics helps us to understand how something (in this case the making an exchange. shells) becomes acceptable as money. Cowrie shells had the following characteristics: * Scarcity: shells were valuable because they were relatively scarce. * Acceptability: people were prepared to accept shells as payment because they knew that they could use them for future trading, * Portability: the shells could be carried easily for long distances. * Durability: the shells were hard-wearing and long-lasting. * Divisibility: shells could be supplied in various quantities, to buy purchases of different sizes. In modern terms, a car can be priced at thousands or millions of dollars. Dollars can be divided into cents for small items such asa packet of chewing gumora piece —_Cowrie shells were an early form of of fruit, Shells could be divided in a similar way. money The functions of money The functions of money are as follows: © Asamedium of exchange: money is generally accepted as a means of payment for most goods. * Asaunit of account: the price of an item can be measured in terms of how many units of currency itis worth, For example, while a low-quality sweater may cost $10, a high-quality one may be valued at $100 or more.PRS rd Make sure that you can distinguish between the characteristics of money (for example, thatit can be divided into units) and the functions of money (what money actually does, for example it serves as a means of exchange). * Asa store of value: you can save money because it keeps its value. Saving enables use of the money in the future. * Asa standard for deferred payments: borrowers are able to borrow money and pay it back at a later date. To put these functions into context, the Bahamian dollar can beused to make payments throughout the Bahamas, and is therefore a medium of exchange. The Bahamian dollar therefore serves as a unit of account, measuring the price of goods and services that can be bought and sold, People in the Bahamas are able to save their money in Bahamian banks, knowing that the Bahamian dollar serves its function as a store of value. In addition, the Bahamian dollar can be used as a means of borrowing money. Itacts as a reliable store of value, and also serves as astandard for deferred payments. hese Why might @ business that sells goods on credit use money as a standard for deferred payments? Why is money so effectiveas.a unit of account in business? Business in action: The currency of your country should act as an effective store of value. If prices are rising, then money will lose its value, Study one of your national newspapers to find stories about price changes in recent times, What do these stories tell you about how effective your national currency is at serving as a store of value? Identify the instruments of exchange An instrument of exchange is anything that enables a transaction to take place. It allows money (or goods) to move from the buyer to the seller. For example, a shopkeeper may buy supplies from a manufacturer (maker of goods) using cash, a bank card, credit (with an agreement to pay later}, or one of the means outlined below. Instrument of Description exchange Barter ‘Asdescribed earlier (page 10), this involves trading tems. For example, swa pping stickers for album cards, ‘Advantages: Easy to use, any item can be traded. Disadvantages: Relies on double coincidence of wants, and some items cannot be divided. Bill of An unconditional order from one person/organisation {the drawer) to another (the drawee) exchange agreeing to make a paymentiin the future. The payment will be paid on presentation of the bil for payment a sight bill, orat a given date in the future (a term bill, usually in one, two orthree months).Bills of exchange are used frequently in international trade where an importer will need time to sell goods before paying for them. Bills of exchange are therefore an excellent way of aiding trade to take place because paymentis guaranteed at a stated time. Advantages: Payment is guaranteed on a specific date. Disadvantages: Often does not give instant funds Electronic | Any transfer of funds or payment that is made electronically, for example: transfer + transferringfunds from one bank accountto another account + paying for goods using a credit card (see below) + abusiness paying wages each month to its employees directly to their accounts through electronic funds transfer + paying for goods online through the payment pages of a website Advantages: Electronic transfer has become increasingly popular because it can be done safely (in the main), quickly, without the need for detailed paper records, and large numbers of transactions can be carried out simultaneously. Disadvantages: Online fraud is becoming increasingly commons criminals steal the personal banking details of others. Itcan also be easy to make mistakes when entering details online, and electronic systems sometimes crash, leading to widescale frustration Tele-banking | Tele-banking refersto making banking transactions using a computer network, and e-commerce and refers to trading goods using online communications, e-commerce | Sometimes ‘tele-banking is used to describe making banking transactions over the phone, but itis nave used more widely to describe online banking. Currently bank customers can still transfer money over the phone; however, the majority of these transactions are now carried out online, Additionally, most products or services are bought and sold via e-commerce using websites that either specialise in a narrow range of products, for example books and music, or a widerrange of goods, suchas an online supermarket. Advantages: Easy to use from anywhere with a phone or Intemet access. Disadvantages: Security can sometimes be an issue. Cheque ‘Aprinted form (printed by a bank and sent to customers in a cheque book). The person wanting, to make a payment (the drawer] fils out the cheque to instruct their bank to pay a set sum to a specific payee/person/business, ‘Advantages: Cheques are guaranteed as a means of payment, they can bemade outforany sum (dependingon the funds in the drawee's account), and are safe because cash (notes and coins} does not haveto be catried around or stored Disadvantages: Cheques are becoming less widespread today as they are being replaced by online payment systems. Drawer: a person making outa bill of exchange, such as a cheque ordering the payment of funds. Drawee: usually the bank responsible for following the drawers instruction to transfer funds to the payee. Tele-banking making banking transactions using a computer network E-commerce: buying and selling goods electronically via the intemet. Payee: a person entitled to payment by the drawee as a result of instructions made by the drawer.PRS rd Money order] Amoneyorder can be paid for at a bank, post office or telegraph office. The establishment then sends it to the payee. The payee can then present the money order for payment at any branch of the post office, bank or telegraph office. International money orders are used for intemational money payments, This form of paymentis also becoming less common, and is only really used when the person making. the payment does nat have a bank account or is wary of other forms of payment. Advantages: Enables the transfer of money by those who do not have bank accounts. Good for transfer of funds overseas. Disadvantages: A slow process when compared with electronic means of transferring funds. Debitcard | This is ameansof payment where the details of the card ate ‘read! by a card machine, and funds are transferred directly and immediately from the user's account to the person/account they are paying, The amount that can be spent on the debit card depends on how much the user hasin their account and any agreed overdraft (amount that the bank has agreed they can overspend/borrow). Debit cards are sometimes referted to as check cards or simply ‘plastic cards’ Advantages: Ease of use for making payments, and the transaction is recorded electronically. Debit cards also enable users to withdraw cash from an automated teller machine (ATM). Disadvantages: Money comes out almost instantly, so if the money is nat in the account, it will become overdrawn and liable for fines Coins and Round metal or paper items that are used as legal tender. They are usually issued by a banknotes government, and have a standard size or weight based on their denomination. (paper money) | advantages: Easy to use, and widely used. Disadvantages: Forgery is common, and governments have to constantly find ways to prevent fake coins and notes from circulating. Credit card | Acard usedto make payments on credit - the user's eHfectively borrowing money (from a finance house which is usually owned by a bank) to make a payment. Users therefore buy goods and pay for them later. Every month, users receive a statement showing how much they owe. If they pay by a given date, they will not have to pay interest, However, if they do not pay the bill in full, they are charged a rate of interest. Many businesses use credit cards to finance short-term cash flow needs. Advantages: Users can borrow money before they actually have the money themselves. Disadvantages: Users can end up paying high rates ofinterest if they do not pay charges in full. Bank draft Acheque made out by a bankon behalf of a customer, to allow the customer to make a substantial payment, for example when buying a house or a car. Advantages: As it isthe bank making out the draft, the person receiving it as payment (the seller) feels reassured that the payment will be made. Bank dralts therefore act asa means of payment for expensive items, often where the seller does not personally know the credit status of the buyer. Disadvantages: Drafts could be lost or stolen. They can also be expensive to set up if used frequently. Tou) ‘Automated teller machine (ATM): 8 machine that dispenses cash. Users put their bank card or credit card into a slot, input a personal identification number [PIN), select a given sum and wait to receive notes, ATMs can also be used to withdraw and deposit funds, transfer money and view account balances.Telegraphic | This isa fast way of transferring money, usually from an account in one country to an account in money another country (sometimes referred to as a wire transfer transfer To set upa telegraphic money transfer, the bank/financial body requires the following details (assuming they already have the account details of the person making the payment): + name of the account to be paid into + bank account number of the recipient + bank code number of the recipient's bank + address of the recipient + the amount to be paid, Advantages: A safe way to transfer money, and a customer would normally go into their bank or post office to make this payment. Disadvantages: Transfers are sometimes used for transferring money illegally (money laundering), Treasury bill | These are bond investments from the goverment. A customer pays in acertain amountof money and, aftera settime, receives their money back, plus a percentage of interest. Advantages: As the investments are backed by the treasury, there is less chance of their value falling, Disadvantages: Investments could still lose value, in which case the customer receives less money than they put in. Banktransfer_| Away to send funds from one bank account to another anywhere in the world. This is similar to a telegraphic money order (see above). All that is required is the details of the two accounts, for example names, account numbers, bank details (address), etc. ‘Advantages: Fra bles fast movementof money in a safe way, and gives the receiver access to the payment quickly. Disadvantages: There can be hidelen charges, especially when sending money to international accounts Memoney, | Theserefer to the use of cellphones to make payments or to transfer money electronically. They mabile money | are growing in popularity because most people carry their own phones, and rather than pay in ‘and mobile | cash they can use apps to transfer funds quickly. wallets The term ‘mobile wallet’ refers to the system of using a cellphone as a way of making a payment. ‘The payer texts a message to thelr provider using a code, which is then validated, enabling the user to make a payment directly from their cellphone. Advantages: Easy to use anywhere with a phone or Intemet access. Disadvantages: Hacking and scammingcan sometimes be an issue. There are three main types of payment instrument for making credit transfers (paying money into your account) and debit transfers (making a payment from your account). These are: 11. paper based (cheque, bill of exchange and cash) 2. card based (creditand debit cards} +3. electronic based (mobile wallet or electronic funds transfer) There are five main channels for delivering money and payments through the banking system. These are: 1. bank teller (person working in a bank} 4. computer 2. ATM (cash machine) 5. cellphone. 3. electronic debit cardPRS rd 1. Which ofthese instruments of exchange do you use most frequently, and why? Identify a situation where a business might: (a) Make payment by cheque (b) Make a payment by credit card (©) Make a paymentusing a bank draft Business in action: Access the website of a well-known bank in your country. Find the part of the site that deals with personal banking. Identify examples of methods of payment that are highlighted Interpret information on various instruments of payment This unit outlines what some of the instruments of payment look like in practice, and what information is displayed on them. Bill of exchange Let us suppose that Caribbean Cotton Supplies sends $30000-worth of cotton to London Importers, to be paid for two months later Caribbean Cotton Supplies will make outa bill of exchange for this sum, and a copywill then be sent to London Importers. Caribbean Cotton will send another copy of the bill to its bank in Jamaica, and on the due date this sum will be paid to the Jamaican bank by London Importers’ bank in London. The Jamaican bank will then credit the account of Caribbean Cotton with the set amount. The bill of exchange will look like the following’ BILL OF EXCHANGE Issued at __Kingston'1 January 2019) ‘Amount _# 30000. To the order of Caribbean Cotton (payment to our account to be paid two ‘months after the issue of this bill of exchange) ‘The sum of USS30.000 For value received in the form of cotton Instruction to pay: o: London bank, Central London Offices on behalf of London importers Payment to be made to Jamaican bank, Kingston, Jamaica on 31 March Bill accepted by: _SurilGupta Bill created by: Seymour Jennings {import Director, London importers) (Gxport Director, Caribbean Cotton)Cheque Let us suppose someone is writing a cheque to give to a friend. The cheque will look like the following: Name of the bank from which the payment will be ae Who the cheque will be paid to (the payee) 1 The nature of business Name of the drawer (person making the payment) NANONAL BANK Front Stret, Por of Spain, Tinidod and Tobogo Pay_John Smith === ity dollars only Sort Code 01-02-03 ‘Account Number ‘Cheque Number 123456789 123456 /\ bate 12/12/2018 Sum in dollars that is being paid {written twice — once in figures and once in words) { Number of thecheque. There are three main types of cheques: 1 Signature of the drawer (so the bank can check this is not a forgery). NATIONAL BAN waa frei var RO, ane i ai en i ys af 4 ‘faba 5 so00 pare J, 5000 ‘lel iy Js 5000 ‘An open cheque: there iso crossing on the cheque, and the recipient (who may not be the payee) simply needs topresent the cheque for payment at their bank, ‘Acrossed cheque: two vertical lines aredrawn on the cheque. This cheque cannot be exchanged for cash, and instead must be deposited into an account. ‘An a/c payee only cheque: the chequecan only be paid into the bank account of the person identified as the payee on the cheque. This invalves setting out ‘two vertical lines on the cheque with the words ‘a/c payee only’ written between them, This s thesafest way of making a cheque payment and provides some protection ifthe cheque is stolen or mislaid,PRU rd 1 2 Look at an actual debit card and identify the features and key pieces of information contained on the card, Cosmetics International Limited make a crossed cheque payable to its supplier Better Ingredients PLC. Why might ithave used a crossed cheque rather than an open cheque? What are the most important details that 2 company receiving a bill of exchange would look for on the bill to check that it meets the company's expectations for payment? Business in action: Visita local post office and enquire about sending a money order. What are the steps tequired to make out such an order? Are money orders for set denominations or ‘can you make them out for any amount? Money order Let us suppose you want to send some money by money order to James Brown, The money order will look like the following: NEY ORDER ‘Sid Niner Yes; aenh Dey fein US, alo Ca 19377815919 2012-09-04 282708 ©$O80.008 Pay tothe order of; James Brown Amount to be paid: NINE HUNDRED AND EIGHTY DOLLARS: Signed: _Ofictat of Cartbbean Taian 1068008082: 19377813919: Debit and credit cards Debit and credit cards look like the following: The card number a long number consisting of 16 digits, which identifies the specific card and what Bank ssuingthe ) | tyPe of carditis, e.g a credit card or debit or credit card, debitcard, CARIBBEAN BANK Chip that canbe read by acd AN reader. 0200 0000 0000 PCat re) Bro). 39 Date on which the card was “The type of debit or issued, and |(Adebitcard) {Adebit cardwill) |creditcard, eg, Visa the date when || willincudea} | includethe | | (fora debit card) or itexpires, J) sortcode- | | numberofthe || mastercard fora ‘number | | bankaccount credit card) identifying | | (each customer thebankand| | basa personal the branch, number)Differentiate between private and public sectors There are two main sectors of the economy: private and public. The private sector The private sector consists of small-, medium- and large-scale businesses. The owners of these businesses are individuals who have set up on their own (sole traders}, those who have formed partnerships, and shareholders who are the owners of companies. Individuals set up private businesses principally to eam a profit, and for the pleasure of running a business and being their own boss. They might also have wider social concems, such as to provide essential services like hearing aids or incomes for those in need of a job. Private sector businesses seek to anticipate customer requirements, and respond to signals provided by the market in the form of demand and prices. You should know that public corporations are goverment owned and arein the public sector. In contrast, public companies are in the private sector and are owned by private shareholders. The public sector The public sector consists of enterprises owned and run by the government. In many countries, the government owns and runs key utilities such as rail and bus companies; oil, gas and electricity industries; the central bank; and water companies such as National Water Commission in Jamaica. Government departments directly run by government officials, such as the tax department, are also part of the public sector. Motives for operatingin the public sector Motives for operating the private sector Provision of goods and services To earn profit Cater to the entire population Cater toa target market or niche market Provide public and merit goods, eg. education, national defence, et. Provide consumer goods, ete. Limited or ne competition Strong competition among firms 1 The nature of business Economy: a system in which production (making goods), distribution (moving goods around the system) and consumption (use of goods) takes place, Customs and excise authorities working for the Barbados Revenue Authority ore government officers paid by the government and are therefore partof the public sector, so theirwages are part of public spending Make sure you can identity services offered by the public sector, such as healthcare, education and national defence, as well as those offered by the private sector, such as banking and insurance, etc.PRS rd (CEES) 1. Putforward arguments for placing the water supply industry: (a) inthe public sector (b) in the private sector 2. Whydoyou think the fashion industry is less likely to be in the public sector than electricity supply? 3. Business in action: Create a poster showing sixindustriesin your country that are inthe private sector, and at least twoin the public sector. Identify two businesses that have been privatised or nationalised in the last ten years VY Privatisation and nationalisation The public sector The private sector (enterprises onned (government-owned enterprises) _| by individuals, e.g. shareholders) Examples include public Examples include sole traders, corporations and partnerships, companies, franchises government-owned companies _| and co-operatives Eo, atsatior ‘Movement from the public sector to the private sector —_—_—_—_—_——_—_——— Nationaisation ‘Movement from the private sector to the public sector When a business moves from being run by the government to being publicly owned, this is called privatisation. Movernent from the private sector to the public sector is described as nationalisation. In recent years, there has been a trend for more businesses to become privatised - to move from the public sector to the private sectorin the belief that the private sector encourages more competition, which leads to better use of resources Describe the various forms of business organisation and arrangements (formation, management and characteristics) There are many different forms of business organisations, all of which have varying types of formation, management and characteristics. The main forms of business are outlined below. Sole trader Asole-trader enterprise is the most common form of business, and is the easiest to set up. It comprises one person running a business {although he or she may still employ a large number of people}. The table below shows some of the advantages and disadvantages of setting up as a sole trader rather than as a larger business. Hairdressers/ barber salons Types/examples Landscaping services of sole traders Small personal Grocery shops/ service businesses convenience stores Fruit vendors/food service businesses1 The nature of business ‘Advantages: Disadvantages Easy to set up; little paperwork required Having unlimited liability (see below) endangers personal possessions Usually a small business, so less capitals required _| Finance can be difficult to raise ‘Speedy decisionscan be made by theowner,as__| The small scale limits discounts and other benefits of fewer people are involved large-scale production Personal attention given to business affairs Prices are often higher than those of larger organisations Special services can beoffered to customers. li health and holidays etc. mayaffect the running of the business Can cater for the needs of local people, with whom | Only one owner may mean a narrower range of skills, the owner is more likely tocome into contact Profits do nat have to be shared Mistakes are possible if there are no colleagues to consult Business affairs can be kept private for advice Unlimited liability When you set up a business, you will need capital to run it. Sole traders have only their own resources to draw on. They will finance their business through savings, and borrow from banks and on credit cards. Any debts that sole traders build up have to be paid by the owners. They are personally responsible for all of the debts of the business. This situation can be contrasted with larger companies where owners of @ company have legal protection known as limited liability. This limits the debts owed by individual owners of a company to the sum of money they have put in to the business. in contrast, sole traders’ debts are unlimited. if sole traders find themselves in debt, they may have to sell their house, car and other possessions in order to pay what is owed. Limited liability: the maximum sum that a company’s owners might have to pay out to meet debts, the maximum being the sum that they invested in the business. (This is the extent of their liability.) Partnerships A partnership is a business association between two or more owners of an enterprise. Partnerships are common in many types of business, such as small shops and professional practices like vets, doctors, solicitors and dentists. Setting up a partnership usually involves creating a legal agreement (a partnership deed) between the partners. Partnerships usually have between 2 and 20 members, although this varies between countries. In some countries, legal restrictions allow a maximum of 20 partners. There are different types of partnership, such as ordinary (also known as ‘unlimited’, where each partner is involved in the management of the business and shares the liability), and limited (also known as. “sleeping’; these partners are not involved in the management or day-to-day running of the business and just invest in it instead). The table below shows some of the advantages and disadvantages of partnerships.PRS rd ‘Advantages. Disadvantages More partners can increase the amount of capital | Unlimited liability (except for sleeping partners who put available, and itis easier to access capital compared | money into the businessbout do not get involved ints toasoletrader running) Can work on a larger scale thana sole trader Disagreements between partners Members of the family can join Limitation of the number of partners (in many countries thisis restricted by law toa maximum of 20) Business affairs can be kept private ifthe partnership is set up by legal agreement, itwill need to be re-formed if one partnerdies Risks and responsibilities are spread among partners | Decision-making can be slower than for sole traders, a5 more people are invalved More people areinvolvedthan sole traders, which | Increase inthe operation cost asa result of a higher potentially leads to more informed decision-making _| overhead costs ‘As more people ae involved, specialisation and division of labour/workload can occur Most partnerships are not protected by limited liability. Co-operatives ‘co-operatives a business organisation formed by a group of “co-operators” who work together to achieve shared objectives. Profits are typically shared among the co-operators. Co-operatives are formed in the following areas. © Agriculture: groups of farmers take their produce to market jointly and share the income from sales. For example, a group of smallholders may run a market stall to sell their produce. They will keep a detailed record of what is produced and sold to divide the income in a fair way. Co-operatives can operate on an even larger scale, for example in sugar production where the product will often be sold to large multinational companies. Co-operators benefit from banding together to negotiate a price with the buyer. © Manufacturing: groups of small-scale manufacturers may combine together principally to market what they produce cooperatively. © Retail: the purpose of forming a retail co-operative is to sell items for what is seen to be a fair price, and protect shoppers from large retailers who may not share their profits with their shoppers. Shoppers at a retail co-operative benefit from potentially lower prices, or they may receive stamps which enable the purchase of future goods by using those stamps. © Workers: when a company is struggling and likely to close down, the workers may want to take it over to protect their jobs and because they believe that the business can be made to run for a profit. Ina workers’ co-operative, a management committee will be set up to manage the business, and any surpluses (or losses) will be shared ‘among the co-operators.1 The nature of business The table below shows some of the advantages and disadvantages of co-operatives. Private companies: ‘Advantages sdvantages companies that are Profits are shared among members _| Limited access to capital ‘owned by private Members work collectively to salve | Members may lack managerial and shareholders and whose problems technical experience shares are not openly Employment is created for members | Decision-making is slow if members tradedonastock: are consulted exchange. Shares can only be bought and transferred with the permission of the board of directors. Companies (private limited and public limited) The word “company” suggests a group of companions who have come together to set up a business, which is, in essence, what a company is, To becomea company, a business needs to become legally incorporated, which includes registering the company in the country in which the company has its head office. Once the business is set up, it becomes a legal body, separate in law from the owners, For example, this means that you can sue the company for wrongdoing, in contrast to sole traders and partnerships, where you would sue the people who own the business. Public companies: companies whose shares are traded on a public stock exchange. Buyers and sellers can buy or sell these shares through an intermediary The owners of a company are its shareholders, and they appoint a (a market maker). They board of directors to make the strategic decisions. The decisions they can trade shares without make include how much profit to distribute to shareholders, and faving to get permission what direction the business should take. The managing director is lap lows responsible for managing the business. aectars There are two main types of company: private companies and public companies. The main difference between a private company anda public company relates to where they receive their finances. A private company is privately owned by founders, managers, owners, etc., and investments come from them. In contrast, public companies have in part or in whole been “sold” to the public, who become investors in the business. The table below shows the main differences between the two types of company. Private limited company Public limited company Financial support comesfrom private individuals (such | Financial support comes from the general public or as family members), personal savings, ete. loans fram financial institutions The shareholders have limited liability, therefore “Ltd."is | Liability is limited to the amount invested in shares included in the company name “Two to fifty shareholders Aminimum of seven shareholders and no maximum The business is considered a legal entity The business is registered with the registrar ofthe companyPRS rd The tables below show the advantages and disadvantages of private limited companies and public limited companies. Private limited companies ‘Advantages Disadvantages Profits are retained by the owners Shares cannot beissued to members of the public Greater access to capital than ather forms of business Liability ~if the business gets into financial difficulty, the owners risk their private possessions as well as the assets of the business Greater level of continuity even if a shareholderdies, ‘Shares are not easily transferred without the consent of thedirectors The original owners can stop outsiders from buying up ‘their company Financial statements are audited by the registrar of the company Decision-making can be slow Having a smaller number of people from whom to draw funds may restrict growth Public limited companies ‘Advantages Disadvantages All shareholders have limited liability - ifthe business gets into financial difficulty, shareholders ris losing only the value of their shareholding, Their private possessions are protected by limited liability, and only the assets of the business are at risk. Financial statements are audited and published. Financial statements and company reports have to be very detailed to satisfy the requirements of the bodies responsible for managing the stock exchange (the Listing Authority). This requires a lot of detailed paperwork, which is expensive and time consuming to generate. Greater access to capital, since the general public can invest in the business/more collateral is available ‘The business may get too large, causing diseconomies ofscale ‘Shares are transferable Decision-making can bevery slow ‘An incorporated business iseasier to sell than an unincorporated one, because ll ofthe complicated arrangements of setting up the business have already been made. There is @ huge amount of administration needed to register the company and to produce annual reports. Detailed accounts must be kept. Make sure you can define limited liability, showing how it protects those entitled to it. You should be able to identify which types of business enterprise benefit rom limited liability, for exemple limited partnerships and limited companies.Franchises A franchise business is made up of a franchisor and franchisees. The franchisor is an established business (often a public limited company) with a well-known name and products or services. It grants a licence to a franchisee so thatit can sell the franchisors products/services, and pay for the rights to use the name, logo and marketing, etc. Examples of franchises include KFC, Costco, Payless ShoeSource and United Colors of Benetton. The franchisee pays for the franchise to trade in a given area, and will receive training and equipment from the franchisor. The franchisee will be expected to share the profit with the franchisor. There are several franchised coffee shops in the Caribbean, where the local franchisee trades under an established ‘name, with an established format Advantages Disadvantages The franchisor only has to invest a limited amount of capital in each franchisee, but takes profits from all of them. The franchisee loses control over the branding and image of the business. The franchisee ill work hard to make a success of the business. In tum, the franchisee benefits from working with proven businessidea, trading under a well-known name, “Thereis a reduction in profit that the franchisee earns from having to pay royalties to the franchisor, and having to adhere to regulations established by the and receiving support and materials from thefranchisor.__ | franchisor. The franchisee has broader access to the intemational market, and greater access to technical, managerial and financial support provided by the franchisor. Joe and Maxim’s gym business is a partnership that currently has two members-only gyms. They want to expand their business What other forms of business ownership could they adopt in order to expand? Outline the benefits and risks associated with the new forms of business that you have identified, Leon’s restaurant business suffers from a lack of capital. He is currently the sole owner of the business, and is thinking about registering as a company and offering shares in the business. He has approached several investors who have told him that they will only investif they have limited liability. Explain what is meant by limited liability, and how this would be of benefit to shareholders in Leon's company.PRS rd Differentiate among the types of economic systems Over time, countries have had to develop economic systems so that the key decisions about what to produce, how to produce, and who will receive goods and services can be determined. As we shall see below, what is referred to as the ‘mixed economy’ has become the most common form of economic system. Traditional (subsistence) In the early days of development in the Caribbean, the islands were populated by indigenous people who lived a largely subsistence way of life, Trade was carried out primarily through bartering (see page 10). People who populated the islands leamed to provide for themselves through fishing, hunting, subsistence agriculture, and collecting fruits and berries, Subsistence therefore relates to producing enough goods and services to live, but without making a significant surplus to build for the future. This economic system is simple, but limited, Command or planned (socialist) Acommand/planned economy is one in which the government creates plans far the production of goods, jobs and how goods are allocated between citizens of the country. Some Caribbean countries have ‘embraced central planning more wholeheartedly than others, with Cuba being a good example of a country in which (until recently) most of the decisions were made by the state, Guyana is another example of acountry in which many industries have been nationalised to become state-controlled and managed. Ina socialist economy, long-term plans will be made by the government, for example a five-year plan for production that sets out what the lead industries will be and how resources will be allocated to these industries, State planning may focus more resources on capital industries (such as ones that make machinery and equipment) and public utilities (such as electricity and raihways), and fewer resources on consumer goods industries (industries providing goods for consumers}. Command economies are advantageous because they often lead to low levels of unemployment and inequality; however, as there is a lack of competition, there is no incentive for innovation and entrepreneurship. Free market or capitalist In contrast, a free market economy is one in which the decisions about how to produce, and what to produce, are made by private businesses and consumers. This type of economy relies on demand and supply. Consumers effectively ‘vate’ for the goods they want by buying them, and1 The nature of business businesses respond by serving these requirements, supplying goods that will eap a good profit for the capitalists (owners of the businesses). Businesses in capitalist economies are all striving for profits, which creates real incentives for innovation and entrepreneurship. However, italso leads to massive inequality and waste. Mixed (public and private) A mixed economy combines elements of command (state) planning with the free market. Some key decisions are made by the government, which might own some industries such as public broadcasting, water and electricity. However, many decisions will be made by large and small businesses, who will have considerable freedom to make their ‘own business decisions. The reality is that all countries in the Caribbean today have mixed economies, but some lean more towards the free market and some more towards central planning, as illustrated by the chart below. You should be able to. compare and contrast the different types of economic system. Mixed economies which lean towards the free market lean towards central planning Barbados | | Jamaica | | Tinidad Guyana Cuba 1. Identify what type of economic system operates in your country, and in one neighbouring country. Give examples of businesses that are in the public sector and businesses that are in the private sector in your country. Find out which of the following industries are in the private sector and which are in the public sectorin your country: (a) Retail (4) Banking (b) Watersupply (e) Insurance (c) Telecommunications Business in action: Cuba is often cited as an example of a country where the role of the public sectors greater than in most other countries. Carry out some online research into the Cuban economy tofind out which industries are in the public sector and which are in the private sector.PRS rd Business function: 2 business unit within an organisation, for example a department such as the finance department. Describe the functional areas of a business The functional area of a business (business function) describes the work that needs to be carried out by a particular section of a business. For example, the production department is made up of specialists and non-specialists who focus on making the goods. Five of the key {functional areas of a business are described below. Production The production department is responsible for making goods to meet customer orders, to the standards expected and in a safe way. In a company that concentrates on making goods on a large scale, such as office chairs or cement, the production unit will usually be some form of factory or other industrial unit, for example a cement works. The departmentwill be overseen by the production manager, who may sometimes be called the factory manager or production director. He or she will manage the organisation of the production lines, and will develop a regular (often weekly) plan of production activities. This will map out the use of machinery and equipment, as well as the allocation of production workers between the various production activities. Below the production manager are other, less senior managers, who will help to make plans and schedules. Under these will be supervisors, with the responsibility for supervising the production workers. Much of modem business involves service activity (as opposed to product activity), therefore new titles have developed relating to the main work carried out by a business. The term “operations manager” or “operations director” is used frequently instead of production manager. For example, in an insurance company, the head of operations may be responsible for creating the production plans and schedules. The production /operations department typically employs a lot more people than the other functions described below (except in specialist organisations, for example those that concentrate on marketing or research and development). Marketing As we shall see in Chapter 6, the marketing department is responsible for identifying customer requirements, and developing plans to satisfy these requirements. The marketing departments led by a marketing director who, alongside the production director, is likely to be a member of the board of directors of the company. Marketing is often split into a number of specialist areas, anditis the responsibility of the senior marketing managers to make sure these areas work closely together.1 The nature of business Important marketing functions include: * Market research: carrying out and commissioning research to find out about customers and their requirements, to understand customer perceptions of a product, and to find out what the competition is doing. * Advertising: creating television and radio commercials or other types of advertisements to bring customers’ attention to the product. ‘* Promotional activity: designing and delivering promotions to generate customer interest, for example price reductions, free sample offers, etc. Finance The finance department provides financial information for a company. It will be responsible for: ‘© Overseeing the raising of finance for the company, and servicing, debts, for example by making sure that interest is paid on loans. © Keeping and presenting management accounts. These are created to help managers make decisions such as whether to make a product or to buyit from another company and then sell it. Management accounts help production managers to identify where savings can be made to production processes. ‘© Keeping and presenting financial records, These set out the past financial performance of a company, for example the sales made and costs incurred in the last 12 months, and how much profit has been made. The finance depart ment will be staffed by financial and management, accountants, and by accounts clerks. Their works highly structured, and they workto strict deadlines. Human resources The human resources (HR) function of a business is concerned with managing and motivating people in an organisation. Itis sometimes referred to as the personnel department. HR seeks to look after people from the point when they are recruited until they leave (and sometimes into their retirement). HR organises training and development, including induction training when you first join an organisation, It also liaises with the trade unions that represent workers in an organisation. HR is responsible for creating job advertisements and pore ofthe role of Risto help organise the interview job descriptions, setting out what a job role contains. process so that the best candidate can be selected Itwill then help the relevant employees to organise forapostPRS rd selecting candidates for interview, managing the interview, choosing suitable role holders, training them, managing their welfare at work, Prototype: an carly paying them, taking away deductions for income taxes, managing version, sample or mode! | aspects of sickness and allowances for time taken off work, and finally of product, built to organising the termination of an employee's work, for example through test the effectiveness of retirement. Research and development Research and development (R&D) is concerned with carrying out research into new products and processes, and developing prototypes into finished products that work effectively in the market. Some organisations focus their work entirely on R&D, while for others this is just one aspect of the organisation's work. For example, in a pharmaceutical or chemical company, R&D will be carried out to create new products and to establish new formulae for existing products. R&D specialists will need to have good technical training and understanding associated with their company, for example scientific research knowledge or IT knowledge. The objective of R&D is to keep a business abreast with - and at the leading edge of - new developments in the industry. (S] Retna mules 1. What functional areas are involved in the following? (a) Taking responsibility for the stages involved in making a product (b) Checking that services supplied are to the standard expected. (c)_ Organising the payment of wages. the product concept. The idea is to learn from prototypes in order to make improvements, and working models are part of an ongoing process of product development. Make sure you can identify the key functional areas of (a) Keeping a record of the costs and revenues ofa business, (e) Organising an advertising campaign. 2. Business in action: identity the key functional areas in a locel business, How many people are employed in each of the functional areas, and what are the key responsibilities of the employees in each function? Set this out in the form of a poster that you can present to your classmates. business, and the specialist work carried ‘out by employees in each of these functional areas.LCR Identify the stakeholders involved in business ‘Stakeholder: individual activities or organisation that Astakeholder is 2 person or group who hasan interest in business ‘owns one or more shares activities. For example, the diagram below details the stakeholders ina company. involved in the business Grace Foods. ‘Owner: person or people to whom Future generations Managers Suppliers a company legally belongs. These may be the independent owners Shareholders or the shareholders of a - Stakeholders in ke ‘company. le Eoaee aot Dividends: the shares of Communities Government. the profit of acompany that are paid outto shareholders. The sum a ‘The environment Owners Employees Consumers | shareholder receives in . dividends depends on Grace Foods produces a range of Caribbean cuisine and foods that 4 how many shares they are soldin the Caribbean, the United States, the United Kingdom hold, and how much and elsewhere. The company was created in 1922 with the intention profit the company of supplying Jamaica with food supplies, initially selling foods like salted fish, flour and rice. Today, it sells far more, and everyone in the Caribbean is familiar with Grace Foods. decides to pay as dividends. Dividends can only be paid when other claims on a company’s, profits have already been Owners \ settled The owners of the company are the shareholders. Today, there are many shareholders in Grace Foods. These shareholders are mostly financial companies seeking @ good investment, as well as people who benefit from Grace Foods’ pension fund, descendants of the Kennedy family, employees and others. (Grace Foods was originally set up by John Grace and Fred Kennedy. Descendants of the Kennedy family are still shareholders in the company.) All of these shareholders want Grace Foods to do well and to make a healthy profit. The stake that a shareholder has in the company is called shares, and the share of the profit they receive each year comes in the form of dividends. The different types of stakeholders involved in a business are detailed further below. Employees Employees are contracted to work for an organisation in retum for a wage or salary. The stake that employees have in a company is their job and the wages that come with it, For example, employees atPRS rd Make sure you can identify the key stakeholders in a business, and explain the role and function of each stakeholder. Can you explain how there might be aclash between the interests of two of the stakeholder groups, and how this difference in interest arises? Grace Foods want to feel proud to work for such an important organisation, and the better the company does, the better the chance of receiving a wage increase. Employees who are also shareholders will take regular dividends. Consumers Consumers benefit from good-quality products sold by companies at what they consider to be affordable prices. Consumers want a steady supply of the goods they like, such as Grace baked beans and Grace aloe vera drink. They want these products to have good nutritional qualities, and to be healthy and safe to consume. They want these products to be available at their neighbourhood stores regardless of whether they live in Jamaica, London or New York. Suppliers Grace Foods’ suppliers include large- and small-scale farmers as well as manufacturers of non-food products, and a host of other suppliers such as those supplying packaging materials. These suppliers also want Grace Foods to do well because, for many of them, the company will be a major customer taking regular supplies of a range of Caribbean food ingredients. Suppliers will often have supplied produce and materials on credit, and so have a vested interest because they will expect to be paid at a future date. Communities Grace Foods supports local communities. Employees are encouraged to engage in community schemes, particularly in educational, environmental and cultural programmes. The communities in which Grace Foods operates therefore have a strong interest in the success of the company and in partnership relationships with Grace Foods. Grace Foods offers scholarships to students at colleges and universities. In addition, the company pays careful attention to the needs of local communities, making food donations to the poor and those in need. The environment The environment is a key stakeholder in business. There are many ways that companies can degrade the environment through pollution and wasteful use of resources. Atits manufacturing locations, Grace Foods has well-established processes that reduce waste and save enerpy. The company is committed to meeting standards set by the International Organization for Standardization, and has in place number of environmental management systems, These include careful management of the use of water in production processing, and1 The nature of business careful management of food waste so that as much as possible can be recycled, for example as animal feed. Future generations . Identify a local Future generations are key stakeholders in any process of decision- bustiessthat making, Decisions made today by companies like Grace Foods will often have long-term effects, such as the provision of healthy foods that enable people to stay healthier for longer. If current resources are used to build hospitals, schools and factories, then these will benefit, people who may not yet be born, The government also playsa key role in providing business solutions that benefit future generations through long-term investment planning. However, just as future generations will benefit from wise business activity today, they will also lose out due interests you or one whose products you consume. Who are the key stakeholders in this business? What is their specific stake in the organisation? to poor decision-making. Poor decision-making about materials used In what ways can a in products and packaging creates waste, pollution and other harmful business that is local effects for society. toyou take actions thatwill benefit Government future generations in The governments a key stakeholder in business activity, as it wants your area? to see a prosperous economy that benefits citizens, The government will also benefit from larger tax revenues when businesses like Grace Foods are doing well. The government is also a key player in business activity, for example in the running of utilities such as water and gas provision, Discuss the role and functions of the stakeholders involved in business activities The role of a stakeholder is to play a part in decision-making processes in an organisation, Some stakeholders are part of a business (owners and employees), and are referred to as internal stakeholders. They work for the organisation, helping itto carry out its operations (what it does to produce goods and services). They have a stake in the company because their earings are directly related to how successful the business is. The employees will want to work for an organisation of which they can be proud, and which pays them well and provides secure jobs External stakeholders are people outside an organisation who have an interest in how the organisation runs and the products it produces. External stakeholders include consumers, suppliers, communities and the government. Below we examine some of the roles and functions of key stakeholders.PRS rd Entrepreneur: someone who shows vision and creativity, and who takes risks by creating a business venture. Employers An employer pays for the services of employeesas well as paying for the resources that go into making goods and services, Employers are frequently referred to as entrepreneurs because they take the risk of setting up a business. They will use some of their own capital (money) to finance the start-up of the business and ongoing operations. Their role and function is to combine the inputs of labour, capital (machinery and equipment) and land (resources provided by nature such as oil, gas and raw materials). Employers want to see their businesses make healthy profits, and many entrepreneurs want to see their businesses grow over time, although some are happy to manage a relatively small enterprise. Employees Employees provide labour services in the form of physical labour and also mental labour (for example making calculations, creating spreadsheets, designing new product ideas, etc.). The employees will exchange their labour for a wage (usually paid weekly) or a salary (oaid monthly). Employees want the business they work for to do well because this willimpact directly on the wages they earn, However, more than this, employees will want to work for an organisation that provides prospects and job security, and often they will also look for interesting workwith responsibilities. We can illustrate the work of employees by looking at the work of an accounts clerk and a compliance officer. © Therole ofan accounts clerk is to serve as supportto the accountant (in alarger company). The clerks roleis to verity, organise, process and store the financial records of the company, and to provide financial reports for managers and financial records for the stakeholders. In a small business, there may only be one accounts clerk, and therefore the clerk. may have responsibility forall ofthe financial reporting, including the book-keepingoperations (for example, keeping regular financial records oftransactions and of themajor financial activities of the business}. * The role of a compliance officer is to ensure that the business ‘operates in accordance with accepted standards, and to execute the compliance policy to ensure that the business meets professional and accepted business standards. Businesses are expected to meet certain standards of professional behaviour, for example upholding laws relating to health and safety. A compliance officer will create allist of standards, and then put practices into place to ensure the various sections of the business are complying with acceptable working practices, such as making sure waste products are handled safely, and ensuring that staff are appropriately trained. Consumers In many ways, consumers are the key stakeholders in an organisation They purchase a company’s goods or services, and when they are notsatisfied they may switch to buying from a competing organisation. an Consumers also provide feedback to the business on their goods/ (a es services. It is the responsibility of the marketing department of a Social compact: the business to collate and analyse this feedback, and we will find out term used forongoing mote about marketing in Chapter 6. Consumers want to be supplied agreements between with goods and services that meet their requirements, and the sums the business sector, of money that consumers are willing to pay for goods is often a clear the government and indication of positive or negative consumer feedback. employee representatives, Suppliers Tripartite agreement: an agreement between three parties, suchas the tripartite social compact Therole of suppliers is to supply raw materials, components, services and finished products to allow businesses to create their products/services for their customers. A supplier will seek to build relationships with businesses, enabling ther to supply ordersin the short and long term. IniBerbedosibetiveen: employer representatives, Communities employee representatives The community consists of the groups and individuals who live in areas and the government. affected by a business. One major role that a community often plays is to Sunrise industry: 3 provide employees as well as infrastructure for the business. Another role relatively new industry that is that communities often give businesses feedback on the impact they isgrowing very quickly. arehaving on the local area. On the negative side, communities maybe | “7 pacted by the noise from the factory buildings or the road congestion caused by factory traffic. They may also be impacted by noise and air pollution, as well as any illegal practices a company may be performing, What is the such as disposing of harmful waste unsafely, Another role of communities difference between isto provide an incentive for businesses to do good work, such as a shareholder anda organising charitable activities and providing necessary services. This stakeholder? leads to happy customers/consumers, whichis good for the business. Cana shareholder torment bea stakeholder ina business? Agovernment’s main role in terms of businesses is to pass laws, make sure there's law and order, and achieve economic stability to encourage business activity. Higher living standards mean consumers have more income to spend on purchasing goods/services. Governments often encourage some businesses and business activities, for example through subsidies (payments to support production) and direct purchases of business output. Governments can also play the role of a partner to businesses. For example, since 1993 in Barbados that operatesin your there has been a social compact between the government, employees locality. \dentify two and businesses (a tripartite agreement) to develop new sunrise stakeholders in this industries, for example those involving tourism, education and export business that have 2. Invwhat ways can government besaid to have astakein business? 3. Business in action: Choose a business services such as informatics, sports and entertainment. Governments different interests. also have a direct interest in supporting successful businesses because How might the flourishing businesses are able to pay more taxes, interests of these two stakeholders clash?PRS rd Make sure that you can define the term “business ethics’, and can identify the ethical issues involved in setting up and running a business of your choice. 1.11 Explain the ethical and legal issues in the establishment and operation of a business Business ethics is concerned with businesses doing the “right thing’, and behaving ina fair and honest way. An ethical business will provide its employees with fair wages, pay its tax dues to the government, and produce safe products that are useful to consumers. An ethical business will not make false claims or try to mislead consumers. “illegal” means going against the law. Being “unethical! is not necessarily illegal, but itis “not the right thing to do”, Laws mean that there are certain statutory regulations that companies have to adhere to, for example the filing of taxation records, licensure, the disposal of garbage, adherence to employment laws, etc. Some examples of ethical issues relating to the establishment and operation of a business are described below, Ethical practice and legal issues Why the issues are important other illicit activities ‘Abusiness should be a bona fide firm or establishment, andnot used as a “front” for money laundering and The United States’ anti-narcoties authority has identified Haiti and Belize as being amonga small number of Caribbean countries where money from illegal narcotics trading has been paid into the accounts of companies set up solely for illegal money laundering, Itthetefore becomes difficult to identify whether money has been acquiredin a bona fide way from honest trading, ‘Acompany should make sure that the capital to set up and run its operations is obtained legally and not tainted with illegal operations as a source of funding Businesses must abtain money legally, and ensure that i, has come from a legal source. legal funds usually come from some form of racketeering or crime, and give a business an unfair advantage over other businesses who obtain their finances through legal means. ‘An ethical business should make sure taxes and national insurance contributions are paid to the government on time Inthe Caribbean, there are major issues surrounding tax havens, where certain territories have set themselves up as offshore financial centres (OFCs). These allow large, international companies and wealthy non-residents to avoid paying taxes in other countries. They have avery low tax regime and therefore attract large pools of capital, particularly from companies that are seeking to avoid paying taxes, This means governments collect less tax and can therefore provide fewer senvces. In recent years, there has been a strong backlash against taxavoidance schemes by those who argue that profitable businesses should makea sizeable contribution to the communities in which they make their profits.1 The nature of business 1. TheCayman Islandsis an example of an offshore financial centre in the Caribbean. What benefits will there be to the Cayman. Islands from operating as an OFC? Do you think there are any ethical issues for the Cayman Islandsas a result of being an OFC? 2. Money laundering occurs where criminals disguise money that has been obtained from illegal activities so that it appears to have been legally generated as profit. Who stands to lose out from money laundering? What measures might governments take to prevent money laundering? 3. Business in action: Study your national newspaper forthe period of a week to identify situations where business ethics have come into question. Write a short commentary on this issue to keep in your business studies notes. the establishment and operation of a business There has been increasing pressure for businesses to operate in a responsible way (referred to as “corporate social responsibility” or CSR), and to adopt certain ethical and legal principles. The Global Reporting Initiative (GRI) is an initiative that has been created by an independent international body to set out the key aspects that companies should be reporting on, including their ethical and environmental practices (for example the minimisation of waste and pollution) Examples of ethical practices are outlined below. The adoption of a business code of ethics ‘Acode of ethics makes clear what “doing the right thing” means. All businesses should have a code of ethics to assist managers and other employees in determining if certain behaviours are appropriate and acceptable in their dealings with customers, suppliers and outside agencies. Royal Caribbean Cruises Ltd. is the world’s second-largest cruise ship company, and has what it describes a “Code of business ethics and conduct”. The chief executive of the company describes its commitment as going “beyond ABC’, for example above and beyond compliance. ahesreaures te cornea 6 This involves doing more than the law requires. Key principles and comply with the lowend respect practices of the company’s code are “people work together with shevrndronment camang other respect and dignity’, “supporting of human rights’, “complying with aspects Royal Caribbean Cruises’ code ofthe law’, “not engaging in corruption and bribery” and “respecting the environment’. All employees are given training in the code, and are 1. What doyou expected to comply with it at al times. understand about i 5 z Policies on environmental issues corporate social responsibilty (CSR) | An environmental policy outlines how a company deals with environmental Winjdo bilsinesses) issues. Most companies have policies on environmental issues such as have aresponsibilty | iminating waste, recycling materials (wherever possible) and minimising ‘we thewider energy use, etc. Policies for the environment work best when they are community? associated with clear targets, with numbers supporting them, such as “we will reduce emissions by 20 per cent by 2025”, or “we will eliminate the 2. Somecommentators - creation of gases that are harmful to the environment by 2025". argue that businesses. do not have to focus Handling of personal information onethics but rather Employees, consumers and suppliers have personal information that ‘on keeping within should not be revealed to others, This includes financial information the law. What doyou | such as their bank account details, or details about how much they think of this view? Is are being paid. Policies should be put in place to protect personal ita view thatis good information, such as only keeping necessary data or not sharing data for business? unless given permission. 3. Business in action: Sk C Explai in the consequences of unethical and illegal creatinga codeof practices in business ethics fora well- iF business acts illegally or unethically, there will be serious known hotel chain consequences, both for the business itself and for society. in the Caribbean. One of the bigissues in the Jamaican music industry since the late 1990s Create a list of the has been the occurrence of Payola. Payola refers to situations where key components of record companies pay (bribe} radio stations to give airtime to their music suchacodeofethics. | and recording artists. There has been much criticism of Payola, and Chris. For example, one Blackwell (the founder of sland Records) madea statement to the effect componentmightbe | — that thiswas leading to the widescale playing of bad music. a statement that the Payola is just one example of a situation where customers areshart-changed, hotel will be honest and get an inferior product as a result of unethical and illegal business, in all ofits dealings practices. An illegal practice is one that contravenes the laws of a country with customers and or group of countries, and unethical practices are ones that go against the potential customers. principles of reasonable conduct and behaviour. Other examples of unethical and illegal practices are explained below. Misleading advertising A misleading advert placed in a newspaper, or broadcast on the radio or television, is likely to breach laws regarding the provision of information about goods. For example, in Barbados, the Consumer Protection