INTRODUCTION F5 [J-NOTES 2025 EDITION]

Business Studies- is defined as an academic study of how business

operate. It is the study of how businesses work, especially the financial
and management aspects

CHAPTER 1: BUSINESS AND IT’S ENVIRONMENT

Purpose of business activity

Business is a major economic activity. It can be defined as the production of goods and
services needed by people in this world to meet their basic needs. Its purpose is to identify and
satisfy the needs and wants of the people with the overall aim of earning
profit. To produce the goods and services the business will be using
scarce resources
(resources that are limited in supply)

Economic resources (Factors of production)

Business enterprises are established where entrepreneurs combine productive resources
(factors of production) to produce an output. These four factors can be categorised as
Land: All natural resources provided by nature such as fields, forests, oil, gas, metals and other mineral
resources. It includes renewable and non-renewable resources. The reward for land is rent

Labour: The people who are used produce goods and services. Labour is rewarded with a wage/salary

Capital: Finance, machinery and equipment needed to produce goods and services. NB there is also
intellectual capital which refers to the intelligence of the workforce. It refers to the ability of the workforce
to develop new ideas, find new solutions to problems and spot business opportunities. The reward for capital
is interest
Enterprise: The skill and risk taking ability of the person who brings together all the other factors of
production together to produce goods and services. Usually the owner or founder of a business. In return the
entrepreneur will make a profit (or a loss)
Division of labour / Specialisation
Because there are limited resources, we need to use them the most efficient way possible. Therefore, we now
use production methods that are as fast as possible and as efficient (costs less, earns more) as possible. The
main production method that we are using nowadays is known as specialization, or division of labour.

"Division of Labour is when the production process is split up into different tasks and each task is done by
one person or by one machine

Specialisation: is when a person, firm or economy concentrate only on the tasks it is best at.

Pros:
Specialized workers are good at one task and increases efficiency and output.
Less time is wasted switching jobs by the individual.
Machinery also helps all jobs and can be operated 24/7.
-repeating the same job can make the worker more skilled
-the business can enjoy economies of scale

Mbiri 0771020282
Cons
Boredom from doing the same job lowers efficiency.
No flexibility because workers can only do one job and cannot do others well if needed.
If one worker is absent and no-one can replace him, the production process stops.

-Breakdown of a machine at one stage will affect all successive stages

-Use of machines may lead to unemployment

Goods and services

Goods –are divided into consumer and capital goods
i. Consumer goods: these are the tangible goods which are sold
to the general public. This include durable and non durable goods.
Durable goods such as machinery, garments and mobiles can last
for a longtime while non durable goods such as edible things soon
become damaged.
ii. Capital goods: they are physical products, manufactured
specifically to be sold to other industries for production of other
goods and services like commercial vehicles.

Services: They are non tangible products for the public to satisfy their
wants. They could be commercial or personal services. Commercial
services include banking, insurance, transportation which are done on a
large scale. Personal services are one to one services such as hair
dressing, teaching, lawyer etc

NEEDS AND WANTS

NEEDS- are the things that we cannot survive without
-The basic human needs can be classified as:
(a) Social -entertainment
(b) Physical -food, warmth, shelter
(c) Status -sense of achievement, good job, large house etc
(d) Security -privacy, steady job, secure homes etc

WANTS-: are the things that we can survive without e.g cell phones, radios, jewellery etc Human wants are
unlimited but the resources to satisfy them are limited in supply. This gives rise to the basic economic
problem

Nature of economic activity

The nature of economic activity is that there are limited resources to
satisfy
unlimited wants. Due to the limited resources everyone has to make
choices (individuals, businesses, governments)

Mbiri 0771020282
Economic Problem
We have unlimited Needs and wants and there are limited resources. In economic terms we say the resources
are scarce. Scarcity refers to the fact that people do not and cannot have enough income, time or other
resources to satisfy every desire. Faced with this problem of scarcity, human beings, firms and governments
must make a choice.
Problem of choice: businesses must make a choice on how to use scarce resources to fulfil their wants.
Business must choose on whether to use labour or capital to produce their products. The business must also
choose the types of goods to produce. When something else is chosen, it means something else is given up
(sacrificed). Thus choice leads to opportunity cost.
Opportunity Cost-: The benefit lost by not producing or consuming the next best alternative product or the
next best choice given up in favour of the alternative chosen from two choices. E.g If a business has a choice
of purchasing new machinery and new premises. If the business chose to buy new machinery because of its
greater utility, then the premises will be the opportunity cost.

Concept of creating / adding value

Creating Value: the increasing the differences between the cost of
purchasing bought-in materials and the price the finished goods are sold.
To add extra features to a product and the customer is willing to pay
more after the value has been added.

Added value
-refers to the difference between the selling price of a product and the
cost of the raw materials used to make it.

Ways of adding value

There are different ways through which businesses can add value to their products and services.
Creating a brand: Brands represent quality and sometimes status. Consumers are prepared to pay more for
products which have a strong brand attached to it. Why does a pair of Nike sell costlier than its counterpart
Puma, though the cost of production may not be much different.
Advertising: Through advertising the business can create a strong brand loyalty among its customers and in
the process charge more for its goods or services.
Providing customised services: Business providing better quality personalised services to their consumers
add more value. Consumers are willing to pay a little extra for customised services
Providing additional features: A product or service with additional features or functionality can make the
consumers pay extra. This is very often seen in different version of a car model. Toyota has 12 versions of
its Innovation model. The basic engine and build is the same, but the price increase as additional features are
added.
By offering convenience: Consumers love convenience. If you get a product or service without much effort
then you might happily pay a premium for it. For example, free home delivery of your weekly grocery.

Benefits to a business of adding value

Mbiri 0771020282
There are a number of benefits a business derives through adding value to its products or services.
First of all, it can charge more to its customers. This leads to more profitability for the business in the long
run.
A business can differentiate itself from its competitors. By adding more value to its goods or services a
business can stand out among its competitors as producer providing superior or premium quality.
A business can save the cost on advertising and other promotional activities once it has created a perception
of high quality and brand loyalty among its customers. Thus, adding value helps cost cutting in the long
run.

Business environment is dynamic

- Business environment is divided into two categories and these
include the internal and external environment. Internal environment
refers to the operating environment of the business. Elements of the
internal environment are controllable and these include the firm’s
organisational structure, leadership and management style,
organisational resources, vision, mission, organisational culture.
External environment is divided into market and macro environment.
Challenges from this environment are not easy to control. This
environment is dynamic i.t its elements keeps on changing. Some of
the elements includes the Physical environment, Global/
International environment, Political environment, Economic
environment
NB Business environment is dynamic (ever changing) and the
businesses must adapt to the challenges and formulate strategies to
cope with these challenges

What a business needs to succeed

Labour- the business requires different types of workers i.e skilled,
unskilled, temporary or permanent etc
Land.- the business requires the site for buildings. The business also
need renewanle and non renewable resource to produce goods
Capital- the business is need of money to buy factories and machinery
Customers- these are economic agents which then purchases products
made by firms
Suppliers- the business will get raw materials or other services from
other businesses
Government-the government will provide roads, school, law and order
and the business will benefit in one way or the other

Why business fail early on (Why 9 out of 10 small businesses fail?)

Lack of experience

Mbiri 0771020282
Many a report on business failures cites poor management as the number one reason for failure. New business
owners frequently lack relevant business and management expertise in areas such as finance, purchasing,
selling, production, and hiring and managing employees.

Insufficient capital (money)

A common fatal mistake for many failed businesses is having insufficient operating funds. Business owners
underestimate how much money is needed and they are forced to close before they even have had a fair chance
to succeed. They also may have an unrealistic expectation of incoming revenues from sales

Poor location
Whereas a good business location may enable a struggling business to ultimately survive and thrive, a bad
location could spell disaster to even the best-managed enterprise.

Poor inventory management

Poor inventory management might lead to too much of cash being blocked as stock. Excess stock also brings in
additional cost burden of maintaining it and the risk of getting obsolete or damaged.

Over-investment in fixed assets

Blocking too much of cash in fixed assets can again pose danger for the business and can contribute to business
failure.

Poor credit arrangement management

Business might take too much of debt and might find it difficult to service them. Poor credit management, forward
planning and cash flow problems might contribute to it.

Personal use of business funds

Owners of small business usually don’t differentiate between business funds and their own funds. The risk of
utilizing business funds for personal use by the owner might lead to cash shortage for the business.

1.1.2 THE ROLE OF THE ENTREPRENEUR

Who is an entrepreneur?: An entrepreneur is an individual

who organizes and operates a business or businesses, taking on financial risk

to do so.
A more technical definition of entrepreneur is ‘a person who brings together the factors of productions to
produces goods and services.’ It is one of the factors of production.

Characteristics of successful entrepreneurs

Self motivation

Mbiri 0771020282
They are also often very passionate about their ideas that drive toward these ultimate goals and are notoriously
difficult.to.steer.off.the.course.

Positive attitude
There might be initial hurdles and failures in ventures. A successful entrepreneur learns from his mistakes and
does not get dismayed by initial failures. He always sees the light at the end of the tunnel and continues with his
journey. Positive attitude also helps in making a strong team which might be very instrumental in the ultimate
success of the venture.

Risk taker
"nothing ventured, nothing gained". Successful entrepreneurs are risk takers who have all gotten over one very
significant hurdle: they are not afraid of failure.

Excellent leadership qualities

A successful entrepreneur must have excellent leadership qualities. It earns the trust and respect of his team by
demonstrating positive work qualities and confidence. They foster a positive environment and then proliferates
these values through the team.

Innovator
Successful entrepreneur are innovators and usually have an ‘out of the box’ approach to solving problems. They
usually identify gaps in consumer demands or needs which have been ignored for long. They welcome change
and are consistently innovating with the changing demand patterns.

Dependable
Successful, sustainable business people maintain the highest standards of integrity because, at the end of the
day, if you cannot prove yourself a credible business person and nobody will do business with you, you are out
of business. Therefore, a successful entrepreneur should have Strong sense of basic ethics and integrity. In
short, he should be dependable.

Resourceful
Most new businesses have limited resources such as money, information and time. Successful entrepreneurs
figure out how to get the most out of these resources. They are masters at stretching a dollar and making a few
resources go a long way.

Communicators
A successful entrepreneur must be a good communicator. Excellent inter-personal and networking skills go a
long way in business success.

Achievement oriented
Successful entrepreneurs are achievement oriented. They value accomplishment and the intrinsic rewards that
go along with achieving difficult goals.

BUSINESS PLAN
Business Plan
Mbiri 0771020282
 A document setting out the objectives of a business and exactly how the business
intends to achieve them in practical terms. It contains, objectives, strategic and
tactical plans, market information and budgets. A document which describes what will be
done, when, where, how and why it will be done.

Contents of a BUSINESS PLAN

COVER PAGE
 Name of the company
 Logo
 Contact person
 Address and Phone number
 Date and state of incorporation
 Confidentiality and non-disclosure statement
 The word business plan

TABLE OF CONTENTS
 Should refer the reader to the sections and subsections of the business plan
 It gives anyone who is reading your business plan a clear roadmap of which section falls where

EXECUTIVE SUMMARY
 The most important part of the document
 It is the last section to be done
 It include:-
i. What you do
ii. Business goals and vision ( what you want to do)
iii. What you sell and why it’s different from others
iv. Who do you sell to
v. How you plan on reaching your customers
vi. What you currently make in revenue
vii. What you foresee making in revenue
viii. How much money you are asking for
ix. Who you are and why it matters
BACKGROUND
 Give short history of a company ( unless it is a new company)
 Age of company
 Number of employees
 Location of facilities
 Form of ownership ( sole trader, partnership, private limited company, public limited company or non-
profit making organisation)
 Background of key personnel ( owners, senior managers and heads of department)
 Product or service
MARKETING PLAN
 Analysis of business environment ( internal and external environment)
 Product strategy
 Pricing strategy
 Promotion strategy
 Distribution strategy
PRODUCTION AND MANUFACTURING PLAN
 Describes major processes
 Product facility requirements ( size, layout. Capacity etc)

Mbiri 0771020282
  Inventory requirements (raw materials inventory, finished goods inventory, warehouse space
requirements, equipment requirements, fixed costs allocation)
FINANCIAL PLAN
 Sources of funds
 Existing loans and liabilities
 Projected sales and costs
 Breakeven analysis
 Expected return
 Cash flow statement
MANAGEMENT PLAN
 Describing the qualifications and responsibilities of management (key personnel, directors and advisors,
key future personnel)
 Describe organisational structure.
APPENDIES
 Photograph of a product
 Market surveys
 Production flow chart
 Press release
 Advertisements

Importance of a business plan

 Enables the business to have a sense of direction
 It enables the business to implement the main aims of the business
 It enables a business to successfully apply for a loan as the plan clearly sets out
how the money will be used and repaid
 It helps the business to determine whether they have enough internal resources for
what is planned
 Sets out the different tasks that need to be completed and each task is to be
completed
 Examine the business idea and future prospects in detail and in realistic practical
terms. This will highlight any potential problems and make it possible for managers
to address threats.

 To persuade people to invest money into the business
 Is used when a business wants to borrow money from banks

Limitations OF Business plan

1. A business plan can turn out to be inaccurate. Many small business owners feel
like they can avoid increasing business costs by just creating the business plan on their
own, but that requires expertise in multiple fields for it to be successful.
2. A great business plan requires great implementation practices.
poor implementation has ruined many great business plans over the years.
3. It restricts the freedom you once had.
Business plans dictate what you should do and how you should do it. A vibrant
business sometimes needs its most creative people to have the freedom to develop
innovative new ideas
4. It creates an environment of false certainty.
It is important to remember that a business plan is nothing more than a forecast based

Mbiri 0771020282
on plans and facts that are present today. We live in a changing world where nothing is
100% certain.

Role of business enterprises in the development of a country

Business enterprises provide employment
They pay taxes
They increase the GDP of the country
They satisfy the needs and wants of the people
They bring foreign currency if the products are sold outside the country
Reducing poverty levels

Major challenges faced by entrepreneurs/ Barriers to entrepreneurship

 Lack of business opportunity
 Lack of capital
 Not being able to choose and afford suitable location
 Competition from established firms
 Building customer base

The differences between Business risk and uncertainty

Business risk: refers to the possibility of the occurrence of any unfavourable
event that has the potential to minimise gains and maximise loss of a business.
Business risks are those factors that increases the chances of loses in a business.
All business decisions involve risk. Business risk is reduced by creating a business
plan which enables the business to reduce errors.

Business uncertainty: refers to any event that the business is unable to predict
which may lead to negative outcomes as a result.

Business risk Business uncertainty

Risk can be measured and analysed Business uncertainty is not measurable
allowing you to make an informed thus no entrepreneur can prepare for an
decision before acting event they do not foresee
The entrepreneur has the freedom to act Business uncertainty, the entrepreneur
upon them or not has no control over whether or not they
have to face the many challenges it
poses
The freedom to begin investigating in a Occurrence of COVID-19
new piece of technology that could
make their product more efficient

Intrapreneurship
Refers to a situation where the employee will act as an entrepreneur within the
business and this will lead to the on-going success of the business. We have
employees who are like entrepreneurs and whey they cannot setup their own
business, they use their qualities and characteristics for the on-going success of the
business. Business environment is dynamic hence there is need to have employees
who are innovators and risk takers.

The differences between entrepreneurs and intrapreneurs

Mbiri 0771020282
Entrepreneur Intrapreneur
Main activity is to start-up a business Main activity is to develop an innovative
product or project within an existing business
Risk is taken by the entrepreneur Risk is taken by the business
Rewards are enjoyed by the Rewards are for the business
entrepreneur

The benefits of intrapreneurship to the business

 Development of new products to increase sales
 Coming up with better ways of producing goods leading efficiency in production
 The firm will gain a competitive advantage
 It increases the chances of business success even in a dynamic environment
due to the intrapreneurs who will be driving innovation and change within the
business.

1.2 BUSINESS STRUCTURE

1.2.1 ECONOMIC SECTORS/ THE LEVELS OF BUSINESS ACTIVITY
-There are millions of businesses around us. Business can be categorised in three broad categories or
stages.

Primary Sector
It is the first stage of production. All those businesses which are related with extraction of raw material
from Mother Nature such as mining, fishing, farming, and quarrying are known as Primary Sector
businesses. Raw materials that are extracted are send to the secondary sector.

Secondary Sector
They convert raw materials into finished or semi-finished goods. All businesses which manufacture and
process the raw materials which can be used by the end consumers are known as Secondary Sector
businesses. These include building, construction, compute assembly, shoes factories, textile factories
etc.

Tertiary Sector
Whereas all the businesses which provide services and assist both the primary and secondary sector
businesses can be classified as Tertiary sector businesses. These include transportation, insurance,
hospitals, educational institutes, showrooms etc.

Quaternary sector.
The quaternary sector it is economic activity based on knowledge or intellect.
Such businesses will provide information services. This involves all work that is
transmitted with the help and support of both technical and scientific knowledge.
What are some examples of Quaternary industries?

Mbiri 0771020282
 This sector would also include digital stockbrokers, financial planners,
designers, ,educators, computing services, media, information and communication technology,
consulting, and research and development. For example, Study.com is an education resource,
but one built around utilizing digital communications technologies.

A business may exist in all the three sectors also. For example. British Petroleum has its own Oil wells
and it extracts raw oil, this is primary sector activity, this oil is converted into petroleum and other by
products. This is secondary business activity. After processing the oil into useable product BP sells it to
end consumers through its network of Petrol pumps. This comes under the tertiary sector.

Changes in relative importance of sectors over

time
The importance of sector is measured in terms of employment and or output levels as a
proportion of the whole economy. The importance of each sector will change over time
due to
 Industrialisation in certain countries: industrialisation occurs when the economy
which is primary sector based now focuses on manufacturing sector. They will
open up more industries to convert raw materials into finished of semi-finished
goods.

Benefits of industrialisation
 GDP increases leading to higher standards of living
 Increase in exports and reduced imports
 Manufacturing firms will pay more taxes to the government
 Exporting processed goods will bring in more foreign currency
 More jobs are created
Problems of industrialisation
 Rural to urban migration leading to more social problems in town
 Imports of raw materials will increase leading to balance of payments
deficits
 Increase in air pollution due smoke from industries
 De-industrialisation: there will be a decline in the importance of secondary sector
and tertiary sector becomes more important. People who lose jobs will need to be
re-trained. GDP will increase
Local; National & International Businesses
 Local Businesses: are businesses that operate in small, well-defined parts of the
country. Their customers are just people from one part of the economy eg
hairdressing businesses; carpentry firms etc
 National Businesses: are businesses that have branches or operations across a
country. Eg large car retail firms
 International businesses: they sell products in more than one country. They
produce or sell products in other countries (Multinational companies MNCs) MNCs
are companies with production operations in more than one country. They have a
headquarters in the mother country and other production companies in various
host countries.

Mixed Economy
Mbiri 0771020282
A mixed economy is an economy with private sector and public sector. Resources are owned by both the
private individuals as well as the government. Private sector will aim to maximise profit while th public sector will
aim to offer essential goods and services at affordable prices.

Features
 Resources are owned both by the government as well as private individuals. i.e. co-existence of both public
sector and private sector.
 Market forces prevail but are closely monitored by the government.

1.2.2 BUSINESS STRUCTURE

Differences between Private and Public Sector

Private Sector
This sector comprises businesses owned and controlled by individuals or groups of individuals. Such
businesses are commonly found in the free market economy. Their main aim is to make profit through
the sale of private goods. Examples of business found in the private sector include:
i) Sole trader
ii) Partnership
iii) Private Limited Companies
iv) Public Limited Companies
v) Co-operatives

SOLE TRADER
Refers to a business in which one person provides permanent finance and, in return, has full control of
the business and is able to keep all of the profits. It is owned by one person. However the owner may
employ other people. Examples are hair salons, bus operators, grocery stores etc.

Formation: No legal formalities are required

Ownership: owned by one person

Legal status : The business is not a recognised as a legal person. It is referred to as an unincorporated
business

Liability : The owner of the business suffer from unlimited liability. If the business fails the owner may
loose personal possessions (personal property)

Continuity : The business come to an end when the owner dies

Tax Issues: it does not pay corporate taxes, but rather the person who organized the business pays personal
income taxes on the profits made, making accounting much simpler

Advantages
1 –easy to form (less capital and legal requirements)
2 –owner has direct control of the business (makes decisions that best suit his/her conditions
3 –all profits go to the owner
4 –enjoys major exemptions from Government legislation
5 –no double taxation

Mbiri 0771020282
6 –has personal contact with both customers and employees
7 –easy to terminate

Disadvantages
1 –unlimited liability
2 –can raise little capital
3 –limited management expertise
4 –poor quality decision making
5 –difficulty in attracting qualified employees
6 –lack of continuity when the owner dies

2 Partnerships

-a business owned by at least two but not more than twenty people. The partners agree to carry on business
together, with shared capital investment and , usually, shared responsibilities. To enter into a
partnership, partners can have a verbal agreement or otherwise write a Partnership Deed/Agreement which is
a document setting out the following details:

a) amount of capital contributed by each member

b) salaries/wages to be paid to each member
c) rights and obligations of the partners
d) procedure for partnership dissolution) profit/loss sharing ratio
e) Name of firm - includes the name of the business entity.
f) Date of writing - includes simply the date that the contract was written.
g)Duration of partnership - includes how long the partnership should last. It is automatically
assumed that the death of one of the contracting parties breaks the contract, unless otherwise
stated.
h)Business to be done - includes exactly what will be done in this partnership. This section should
be very particular to avoid confusion and loopholes.

Formation: fewer legal formalities are involved

Ownership: owned by at least two to a maximum of twenty partners

Legal status : The business is not a recognised as a legal person. It is referred to as an unincorporated
business

Liability : The partners suffer from unlimited liability. If the business fails the owner may lose personal
possessions (personal property)

Continuity : The business come to an end when the key partner dies

Tax Issues: it does not pay corporate taxes, but rather the partners who organized the business pays
personal income taxes on the profits made, making accounting much simpler

Advantages
1 –easy to form (same as sole proprietor)
2 –more capital available
3 –diversity of skills and expertise
4 –quality decisions are made
5 –personal contact with employees and clients
Mbiri 0771020282
6 –risk is spread over a number of people
7 –relative freedom from government control
Disadvantages
1 –unlimited liability i.e all of the owner’s assets are potentially at risk
2 –disagreements may easily lead to winding of the business
3 –all partners responsible for the acts of each other
4 –lack of continuity when the key partner dies or become insane
5 –profit/loss sharing ratio not necessarily equal
6-the partnership often face intense competition from large firms
7-the owner , by taking on a partner, will lose control of the business

Limited companies
Also known as Joint stock companies. These are businesses where a number of owner(shareholder) pool in
their resources to do a common business and to share the profits and losses proportionally.
In a limited company, the debts of the company are separate from those of the shareholders. As a result, should
the company experience financial distress because of normal business activity, the personal assets of
shareholders will not be at risk of being seized by creditors. Ownership in the limited company can be easily
transferred, and many of these companies have been passed down through generations.

General features of Joint Stock Companies / limited Companies

1 –separate legal entity
2 –shareholders have limited liability
3 –owners are called shareholders (buy shares)
4 –shareholders receive dividends as payments
5 –the Board of Directors manages the affairs of the company
6 –the company is governed by Memorandum and Articles of Association
7 –shareholders hold Annual General Meetings (AGMs)

NB: A share is defined as a certificate confirming part ownership of a company. This certificate also entitles
the shareholder the right to dividends. Shareholder- a person or institution owning shares in a limited
company

a)Private Limited Companies

Refers to a small to medium-sized business that is owned by shareholders who are often member of the same
family. This company cannot sell shares to the general public. They have two but not more than fifty
shareholders. The right to transfer shares is limited. The business should submit financial statements and
auditors reports to the Registrar of Companies

Formation: There are complex legal formalities. Two documents should be drafted by the founders of the
company and these documents include the memorandum and articles of association. Memorandum of
Association is a document which shows the main purpose of the business. Articles of Association is a
document that shows the internal workings and control of the business, the names of the directors and
procedures to be followed at meetings. When the registrar of companies is satisfied with the two documents
then he will issue a certificate of incorporation. Certificate of incorporation is a document that confirms a
company’s existence and the legitimacy of its formation.

Ownership: owned by at least two to a maximum of fifty shareholder

Management and Control: it managed and control by the board of directors

Mbiri 0771020282
Legal status : The business is recognised at law as a legal person. It is referred to as an incorporated
business

Liability : The shareholders enjoy limited liability. If the business fails the shareholders’ personal assets
cannot be taken. They only lose the capital they have invested in the business.

Continuity : There is continuity

Tax Issues: there is double taxation. The shareholders pay tax on their incomes and the business also pay
corporate tax

Advantages
1 –shareholders have limited liabilities
2 –more capital can be raised
3 –greater status than an unincorporated businesses
4 –easy to transform into public limited companies
5 –do not have to publish annual accounts in the press

Disadvantages
1–not easy to form (up to six months)
2–has to fill complex tax forms
3–cannot raise capital through the stock exchange
4- quite difficult for the shareholders to sell shares

b) Public limited companies

-a large business, with the right to sell shares to the general public. The share prices are quoted on the
national stock exchange. They have at least two shareholders to no maximum limit. Shares are freely
transferable. The public can be invited to subscribe to shares and debentures through a prospectus. Can only
start business after complying with all the requirements of the Companies Act. Annual accounting reports
(financial statements) are supposed to be published in the press. Must keep a register of investors and
directors’ shareholding

Formation: There are more complex legal formalities. Three documents should be drafted by the founders
of the company and these documents include the memorandum of association, articles of association and the
prospectus

Ownership: owned by at least two to no maximum limit of shareholder

Management and Control: it managed and control by the board of directors

Legal status : The business is recognised at law as a legal person. It is referred to as an incorporated
business

Liability : The shareholders enjoy limited liability. If the business fails the shareholders’ personal assets
cannot be taken. They only lose the capital they have invested in the business.

Continuity : There is continuity

Tax Issues: there is double taxation. The shareholders pay tax on their incomes and the business also pay
corporate tax

Mbiri 0771020282
Advantages
1 –easy to raise capital through floating shares on ZSE
2 –can operate on a large scale
3 –unlimited life
4 –employees can become shareholders-increases loyalty
5 –managers and directors have room to work independently therefore prove their expertise in their areas of
specialization
6-shareholders enjoy limited liability
Disadvantages
1 –difficult to form
2 –files always open for inspection by members of the pubic
3 –decisions take time to make due to large size of the company
4 –no personal touch between employees and customers
5 –conflict of interest-shareholders are usually interested in expanding the business

5 Co-operatives
-Is a jointly owned business operated by members for their mutual benefit, to produce or distribute goods or
services. Usually members join together to purchase or sell goods that they cannot afford individually.

Main features
1 –formed by people who want to work together
2 –is voluntary
2 –members make equitable contributions
4 –risks and benefits are shared equally
5 –are democratically controlled
6-the name ends with Co-op

Formation
Members should have a common goal. These members will then draft the constitution and the management
committee is elected usually at an annual general Meeting

There are different types of co-operatives:

Housing cooperative
Retailers' cooperative
Worker cooperative
Consumers' cooperative
Agricultural cooperative

Advantages
 Members are highly motivated to work harder as they will benefit from shared profits
 Buyiny in bulk will reduce price of products that they buy
 Members enjoy limited liability
 Members get goods and services at reasonable prices
 There is continuity
 State patronage ( government provides special assistance to the co-operatives to enable them to achieve their
objectives successfully
 They are usually tax exempted

Disadvantages
 unable to raise large amount of financial resources since they cannot sell shares to non-members
 It is managed by members who may be lacking the required management skills
 Can be affected by conflict since it is an association of people from different social, economic and academic
background
 Slow decision-making if all members are to be consulted on important issues

Mbiri 0771020282
Franchising (Legal contract)
Refers to an agreement where one party (the franchisor) grants another party (the franchisee) the right to use its trade
mark or trade name as well as certain business systems. The franchisee sells the franchisor's product or services,
trades under the franchisor's trade mark or trade name and benefits from the franchisor's help and support.
In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the sales revenue.
The franchisee owns the outlet they run. But the franchisor keeps control over how products are marketed and
sold and how their business idea is used.

Well-known businesses that offer franchises of this kind include: Pizza, Bata, McDonalds, Nandos etc

Contractual Obligation
 A franchise agreement should be drafted and signed by both parties. This is a legal contract in which the
franchisor gives the franchisee the right to use the business’s trade mark.
 The franchisor is not allowed to open a similar business nearby
 It must specify the franchise fee as well as monthly royalty payment
 The agreement lays out details of what duties each party needs to perform
 It also state the duration of the franchise contract

Advantages to the franchisee

 Franchisee benefit from pre-opening support e.g site selection, design, financing
 Franchisor assist in training staff
 Franchisor advertise goods on behalf of the franchisee ( saves money)
 Franchisee enters into an existing market which increases the chances of business success.
 Risk is reduced and is shared by the franchisor.
 Relationships with suppliers have already been established.

Disadvantages to the franchisee

 The franchisor might go out of business, or change the way they do things.
 The franchise agreement usually includes restrictions on how you run the business. You might not be able to
make changes to suit your local market.
 The franchisee must pay initial fee and continuing fees to continue to use the trade mark
 The franchisee cannot sell goods from other suppliers
 Breach of contract can result in a penalty charge

Advantages to the franchisor

 It’s a source of income to the franchisor (royalties received)

 Risk of the business is spread amoung different franchisees
 A network of outlets gives the business a far better chance of success

Disadvantages to the franchisor

 Other franchisees could give the brand a bad reputation.

 Franchisor must provide the franchisee with on-going support which then requires constant research
 Setting up a franchise requires a lot of money

Joint Ventures
It occurs when two or more businesses agree to work closely together on a particular project and create a
separate business division to do so. Joint Venture is not a long term business relationship but a short term
Mbiri 0771020282
 relationship based on a single business project. The business is not a separate legal entity. Once the joint
venture has met it’s goals, the entity ceases to exist. An example include Sonny and Ericson formed Sonny
Ericson to produce handsets.

Joint Venture Agreement Should cover:

 The parties involved

 The objectives of the joint venture
 Contributions made by each party
 Dispute resolution procedure
 How the joint venture is terminated
 Non-disclosure agreements
 Day to day management

Advantages

 Provide companies with the opportunity to gain new capacity and expertise
 Allow companies to have access to new technology
 Access to greater resources, including specialised staff and technology
 Sharing of risk with a venture partner

Disadvantages

 The business failure of the partner would put the whole project at risk
 Styles of management and culture might be so different that the two teams do not blend well together
 The parties don’t provide enough leadership and support in the early stages
 Errors and mistakes might lead to one blaming the other for mistakes

Strategic Alliances
A strategic alliance is an agreement between two companies that have decided to share resources to
undertake a specific, mutually beneficial project. A strategic alliance is less involved and less permanent
than a joint venture. The main purpose is to allow two organisations, individuals or other entities to work
toward common or correlating goals. Unlike a joint venture, firms in a strategic alliance do not form a new
entity to further their aims but collaborate while remaining apart and distinct.

Examples of Strategic Alliances

An agreement with a Local University- finance is provided by the business to allow new specialist
training courses that will increase the supply of suitable staff for the firm
An agreement with a supplier- to join forces in order to design and produce components and materials
that will be used in a new range of products.
An agreement with the competitor- to reduce the risk of entering a market that neither firm currently
operates in.

Holding Companies
Refers to a business organisation that owns and controls a number of separate businesses, but does not
unite them into one unified company. They are not a different legal form of business organisation, but
they are an increasingly common way for business to be owned.

Mbiri 0771020282
Multinational Companies (MNCs)
a company that has its headquarters in one country but produces in a number of countries.
The country in which it has headquarters is known as the parent country. Other countries in
which it operates is known as the host country.

Benefits of multinational companies to the host country

 Brings in foreign currency
 Employ local people and reduces the rate of unemployment
 Produces goods and services hence increases the GDP of a country
 Poverty levels are reduced
 Brings in latest technology in the host country

Drawbacks of MNCs to the host country

 Interfere with local politics of the host country by funding political parities
 They can over exploit domestic resources of the host country
 They give local people menial jobs and very low wages
 Profits are send back to the mother country
 Local people may copy foreign cultures

Benefits of MNCs to the Parent country

 Income is brought from host country
 Risk is being spread by operating in different countries
 Increased development in the long run
 Promotes friendship between parent country and host country
 Increased demand for goods and services

Drawbacks of MNCs to the parent country

 MNCs may end up making losses and fails to send back income to the parent country
 Resources are being used to develop other economies
 Unemployment in the parent country may remain high

NB: The differences between international businesses and multinational businesses. International businesses
they trade in other countries. i.e they sell goods and services in two or more countries. Multinational
businesses have production plants in two or more countries

Local Businesses:- produces and sell its products to consumers in its own city, town or geographical area. E.g
one person barber shop

National Businesses:- produces and sell its products to consumers throughout its country

Public Sector
Refers to all the businesses that are owned by the government on behalf of the public. They can be district
councils or public corporations. They are established by an Act of Parliament. They are corporate bodies
with a separate legal entity -they are managed by a Board appointed by the Minister -the Minister can be
questioned by parliament over activities of the corporation

Advantages

 They provide important goods and services at reasonable prices

 Provide employment to the majority

Mbiri 0771020282
  Implement government policies e.g charge low prices to reduce inflation
 They are a source of income to the government

Disadvantages

 They are inefficient and very wasteful due to the lack of profit motive
 They tend to provide poor quality goods and services due to the absence of stiff competition
 Lack of motivation amoung workers leads to inefficiency
 They suffer from excessing political interference

SOCIAL ENTERPRISE
Refers to a business with mainly social objectives that reinvests most of
its profits into benefiting society rather than maximising returns to
owners. Social enterprises are businesses whose primary purpose is the
common good. They use the methods and disciplines of business and
the power of the marketplace to advance their social, environmental
and human justice agendas.

THE RANGES AND AIMS OF SOCIAL ENTERPRISES

Basically these are the characteristics of social enterprises
They operate for the well being of the society
Making profit is not the main aim
Main aim is to solve social problems faced by people
Profit is kept to provide more services
They normally provide education and health
Generate the majority of their income through trade

Triple bottom line

Social enterprises have three main objectives. These aims are often
referred to as the triple bottom line. Triple bottom line is used to measure
the performance of a business:
a. Economic (Profit)
b. Social (People)
c. Environment (Planet)

Benefits of Social Enterprises

 Creation of jobs to the local people

 Produce goods and services which increases the country’s GDP

 They use ethical ways to generate their income

Mbiri 0771020282
  Help the people in need

Public Sector and Private Sector contrasted

Usually the aim of public sector business is to provide services to the community. For example if the transport
system is owned by the government and it is running a bus service to an interior village and it is not getting
enough customers, the government might still continue it as its main objective is to provide service and not to
maximise profits. Whereas private sectors business give priority to profits and may end the service if it does not
find it profitable to run the service.
Secondly Public sector strives to create employment whereas Private sectors main aim is to become efficient
and cut cost and in this process they might cut jobs.
Public sector business usually locates in regions where there is underdevelopment so as to create jobs and
income for local population. Private sectors might not keep these things in consideration and will look for external
economies of scale.

Reasons why business ownership may change

 To have more access to finance
 To gain legal identity
 To protect owners’ private possessions
Challenges faced when ownership is changed
 Legal costs and formalities
 Some los of control and ownership by the original owner
 Profits will be shared

1.3 Size of business

The businesses are classified as small, medium and large businesses. Thus the businesses are
compared using their sizes..
Importance of Business Size
Stakeholder Importance
Government -the government may want to give assistance to small firms
-The government may want to charge different tax rates to different firms
Investors -they may want to compare with its close competitors
-they want to know how safe it is to invest in a given business
Customers -customers may prefer to deal with large forms since they are the most
reputable and are less likely to cease production in the near future
Workers -workers also want to be employed in large firms since they are concerned
about job security
Banks They use business size to determine the maximum loan they can give to
the business

1.3.1 Measurements of business size

In the world around us there are some businesses which are small and some are big. But how do we categorize
these businesses as big or small. We can consider the following factors:

 The number of employees: Small business employ fewer workers than large businesses since they
operate on a small scale. European Classifications of business into small , medium and large firms is
shown in the table below

Business category Number of employees

Mbiri 0771020282
Small/ micro 10 or fewer
medium 11-50
Large 0ver 50

However the method is not suitable if one business uses capital intensive method of production. i.e business
which use more machinery and technology may have few employees but they still might be big. Example
Microsoft has less employees but still it the biggest business on earth.

 The amount of capital invested: Big business have large capital investments in form of properties and
equipment owned. All these properties are bought capital employed. Capital employed refers to the total
value of all long-term finance invested in the business. However this method is not appropriate when one
firm uses a labour intensive method. A business which might not use a lot of investment in machinery
and investment in properties may still be big. Take the example of software companies and consultancy
firms like McKenzie & Co.
 The sales turnover: Bid firms have a very high sale turnover than small firms. They have a good
reputation, they have more outlets and they can afford to advertise their products. However a business
may be going through a bad phase and may not have huge sales does it make the business small? On
the other hand large sales turnover may be seen for a small business that sells small but high value
items e.g an artists may sell CDs for a dollar each but to over a million fans
 Market capitalisation: refers to the total value of shares issued by the company. A higher market
capitalisation applies to big firms.

Market capitalisation= current share price x total number of shares issued

However this method is appropriate when one firm is not operating on the stock exchange. Stock exchange
markets are very volatile and share prices change every day does it alter the size of the business every day?

 Market share: Big firm have a higher market share than small firms. Market share is usually measured
as a percentage. Market share refers to the sales of a business as a proportion of total market sales.

Market share = (total sales of a business/ total sales in the market) X 100

However a business may not be a market leader but still may be huge whereas if the market is itself very small,
a major market share won’t make a business big.

NB: One cannot use measure business size by its profits because profit depends on too many factors not just
the size of the business

Conclusion: So while deciding the size of business as big or small a combination of factors needs to be
considered.

What is a small business?

A small business is a business that is independently owned and operated, with a small number of
employees and relatively low volume of sales.
Different countries have slightly different description for a small business.

Mbiri 0771020282
For example, in United States a business have less than 100 employees is considered as a ‘small business’,
whereas it is under 50 employees to qualify as a ‘small business’ in European Union.
In Australia, a small business is defined as 1-19 employees.
Small businesses are normally privately owned corporations, partnerships, or sole proprietorships.
Apart from number of employees other criteria for classifying a business as ‘small’ are:

 Amount of capital employed

 Annual Sales turnover
 Value of assets

Advantages of being a small business

 Owner has full control of his or her business

 Offering personal service to customers which increases customer loyalty

 They are conveniently located which increases sales

 Are able to adapt quickly to meet changing customer needs

Disadvantages of being a small business

 Difficult for them to raise finance: small business often struggle to get loans from financial institutions
and this will stifle business growth

 The owner will have less time to rest which may lead to health problems

 They operate at a small scale and they are not able to enjoy economies of scale
 Risk of failure is high: customers are unwilling to buy from small firms and the skilled employees are
reluctant to join small firms

Importance of small business to the economy

As we all know that small firms are important for the economy.

 Create jobs: Small businesses employes majority of the workforce in any country.
 They can grow to become big: Every business starts small. These small business today will become bog
firms tomorrow
 Small businesses are flexible and respond easily to changes in demand: they are owned by one or two
individuals hence they are more flexible and adaptable in day-to-day operations
 Small firms often cater to local demands: local or regular customers can place their individual orders.
Small firms provide niche products and services which a larger firm might overlook.

Mbiri 0771020282
 In difficult economic times, such as a recession, small business can be an important source of providing
employment.
 Improves efficiency in the economy: Small firms provide competition to larger firms through providing
customised goods and services.
 Give informal credit: they offer credit facilities to well-known customers
 Boost economic growth: they increase the production of goods and services in the economy. Thus the
Gross Domestic Product (GDP)of an economy will increase.

Disadvantages of small firms

 Lack of capital: they don’t have enough capital to stock enough goods
 They sell inferior goods: they operate usually in the rural communities where they sell poor quality
goods and sometimes expired food items
 Managed and run by employees who are less skilled: small businesses lack the resources to hire
skilled and experienced personnel

Small businesses face the following problems

 Under capitalisation
 Poor debt management
 Lack of managerial skills of the owner
 Cannot retain experienced staff
 Usually find it difficult to attract skilled staff
 Poor stock management

How can small business survive?

Small firms survive by being different (product differentiation). They can survive by

 Segmenting the market by income. They can target niche market segments of high income customers,
position their product as a ‘premium brand’ at a high ‘premium price’ eg Morgan sports cars
 Small firms have the advantage of being able to respond quickly to change - they do not have the
bureaucratic procedures often a feature of large firms where decisions are made only after endless
meetings. This means they can be quick to exploit new market trends.
 The Internet also allows small firms direct access to consumers, by passing intermediaries. The web gives
small firms the opportunity of international marketing.
 Small independent firms can join together to form a buying group to negotiate discounts on joint orders.
 Small firms can survive by selecting a premium niche and offering an exclusive brand’ that exactly meets the
customer requirements of their target segment. They will need to be totally customer orientated.
 Keep well documentation for accounts receivable financing when unexpected expenses arrive.

Family Owned Businesses

Refers to businesses that are actively owned and managed by at-least two members of the same family.
Decision making is influenced by multiple generations of a family related by blood.

Strengths of family business

Mbiri 0771020282
  Stability- family positions typically determines who leads the business and as a result, there is
longevity in leadership. Family leaders stay usually stay in the positions for many years until a life
event such as illness, retirement or death results in change
 Commitment- since the needs of the family are at stake, there is a greater sense of commitment
and accountability. The family owners often show dedication in seeing the business grow, prosper
and get passed on to future generations. This level of dedication is almost impossible to generate in
non-family firms
 Flexibility- you won’t hear “Sorry but that’s not my job description”. In a family business, family
members are willing to wear several different hats and to take on tasks outside of their formal job on
order to ensure the success of their company.
 Long term outlook- non family firms think about hitting goals this quarter, while family firms think
years, and sometimes decades, ahead. This ‘patience’ and long term perspective allows for good
strategy and decision making
 Decreased costs- family members working at family businesses are willing to contribute their own
finance to ensure the long term success of the organisation. This could mean contributing capital or
taking a pay cut. This advantage comes in handy during economic down turns, where it is necessary
to personally suffer in order for the firm to survive.

Weakness of family businesses

 Family conflicts- deep seated, long lasting bitter fights and quarrels can affect every single person
within the firm and can draw divisive lines. These conflicts are usually difficult to solve and result in a
premature ending of the business.
 Unstructured governance- governance issues such as internal hierarchies and rules, as well as the
ability to follow and adhere to corporate laws, tend to be taken less seriously at family businesses.
There is little interest in setting clear and formal business practices and procedures and this situation
can lead to inefficiencies
 Tunnel vision- there lack of outside opinions and diversity on how to operate the business. Family
members are given jobs for which they lack the required skills, education and experience. This has
got far- reaching effects on the success of the business.
 Issues of fair remunerations can be ‘a can of worms’- the issue of wages and salaries can be a
highly sensitive subject. The question is how the pie is going to be divided. Paying family members
and dividing the profits amoung them can be a difficult affair. Many people usually feel that they are
underpaid and family members too. We have family members who comments like this, ‘uncle Jack
sits around and gets more than I do’

Business Growth
Refers to an increase in the scale of operations, expanding production and increasing the sales and
profit of a firm

Reasons why a business want to grow:

 To increase profits- the chances of business success rises when the business grows both internally
and externally
 To reduce risk- business growth where the business introduces new products that are totally different
from the existing ones lowers the risk of failure
 To dominate the market- a business which is a market leader has the power to set prices

Mbiri 0771020282
  To reduce costs- increasing the output leads to the enjoyment of economies of scale. Economies of
scale refers to the cost saving advantages enjoyed by a business as a result of large scale operations.
 To fulfil the objectives of the management- it can be a planned move by the management to spread
the wings of its business into new markets.

Types of Business Growth

i. Internal Growth
ii. External Growth

Internal Growth

Expanding the business from within by using its own internal resources. It involves expanding the business
through increasing the number of employees, increasing production of existing products, opening new outlets
and increasing quantities of goods sold. It is also referred to as organic growth. An example of internal growth
is where a retail business open more shops in towns and cities where it previously had none.

Advantages of internal/organic growth

 It can be financed through internal funds e.g returned profits

 Less risky than taking over other businesses
 Allows business to grow at a more sensible rate
 Builds on a business’ strengths

Disadvantages of internal/organic growth

 Slow growth and the shareholders may prefer more rapid growth
 Growth achieved may be dependent on the growth of the overall market
 Harder to build market share if the business is already a market leader
 The business can be affected by liquidity problems (cash problems)

External Growth
Refers to growth achieved through integration i.e mergers and takeovers. To integrate means to join together.
Integration can be in the form of a takeover or a merger. A takeover occurs when one business gains control of,
or acquires, part of another business. A merger occurs when two businesses combine to form a single company.
Integration can occur between two firms in the same or different industries. Integration leads to rapid expansion
which might be essential in a competitive and expanding market.

TYPES OF INTEGRATION/ MERGERS

a).Horizontal Integration: it occurs when two firms which are in exactly the same line of business and at the same
stage of production process joined together. It is the joining of competitor or rival firms ie firms selling the same
types of goods e.g OK supermarket and TM supermarket

Advantages

 It reduces the risk of failure

 To enjoy economies of scale
 Eliminates competition

Mbiri 0771020282
  To have more power over suppliers
 Easy to manage as compared to conglomerate mergers
 To strengthen financial base

Disadvantages

 Managerial problems will set in when the business become very big
 Previous relations with suppliers or distributors of one firm might suffer
 Horizontal integration leads to monopoly and higher prices

Impact of horizontal integration on stakeholders

 Consumers have less choice and will end up paying higher prices
 Workers may lose job secirity
 Suppliers may have to offer to prices to bigger integrated firms
 Local communities may have job loses

Vertical Integration
It occurs when two firms in the same industry but at different stages of the production process join together to
form one business. For instance, a firm in a primary sector joins with another in the same industry but in the
secondary sector. Vertical integration can be forward or backward

i)Forward Vertical Integration: it occurs when a business joins with another which is in the same industry but at
a next stage in the production process ie joining with a customer of existing business. A car manufacturer joining
with a retailer (showrooms). Thus a firm in the secondary sector joining with another firm in the tertiary sector.

Advantages

 Greater control over promotion and pricing of the products

 Eliminate the profit margin expected by the firm in the next stage of the production process
 Increases the capital base

Disadvantages

 Lack of experience in this sector of the industry

 Lack of control over the suppliers
 Management problems may set in

Impact of vertical forward integration on stakeholders

 Workers may have greater job security and increased carrier opportunity
 Consumers may buy at a lower price
 Profit may rise to benefit shareholders/ owners

ii)Backward Vertical Integration: occurs when a business joins with another business which is
operating at a previous stage of a production process. The business joins with another which used to be the
Mbiri 0771020282
supplier e.g retailer merging with the manufacturer. This is a movement from tertiary sector to a secondary
sector

Advantages

 Give greater control over the quality, price and delivery times of the supplier
 Eliminates the profit margin demanded by another supplier
 Increases profitability of the business

Disadvantages

 Lack of experiences of managing a supplying company

 Supplying business may become complacent due to having a guaranteed customer
 Lack of control over the customers

Impact of vertical backward integration on stakeholders

 Workers may have greater job security and increased carrier opportunity
 Consumers may obtain improved quality and innovative products
 Profit may rise to benefit shareholders

Conglomerate/ Diversification Mergers: this integration is between firms in completely different

lines of business or industries. A firm will be trying to explore different opportunities to minimise or diversify risk.
Eg a car manufacturer joining with a hotel business.

Advantages

 Reduces risk of losses

 Profit margins can be increased due to other businesses
 Market share can be increased

Disadvantages

 Risk of failure might increase due to lack of experience in the new market
 Entry problems might occur
 If the business is new then it’s difficult to lower down the prices as compared to established firms

Impact of conglomerate integration on stakeholders

 Workers may have greater job security and increased carrier opportunity
 Profit may rise to benefit shareholders

REASONS FOR MERGERS

 Expectations of higher profits: synergies usually increases the profitability of the new business
formed. Synergy- literally means that the whole is greater than the sum of individual parts. It means that

Mbiri 0771020282
 the two businesses when they merge, their profitability, efficiency and effectiveness would increase to
more than the combined profitability of the separate businesses
 To reduce competition: the new business formed won’t waste a lot of money on promotion and other
adverting programmes
 Easy and quick way to expand: businesses can easily increase their market share in a short period of
time
 To enter international markets: local business can join with foreign business so that it will be easy for
local to penetrate foreign ground.
 To comply with the law: legislations usually in the financial sector may require business to join in order
to comply with the minimum capital requirements

NB de-mergers occurs when a business sell off a significant part of its existing operations. A company choose to
break-up to raise cash to invest into the remaining sector. Another reason could be to concentrate its efforts on a
narrow range of activities. Lastly, to avoid costs and inefficiencies when a firm is very large.

Take overs
Refers to the assumption of control of another (usually smaller) firm through purchase of 51% or more of its
voting shares or stocks. It occurs usually on public limited companies because their shares are traded openly
and anyone can buy them. When a takeover is complete, the company that has been bought loses its identity
and becomes a part of the buying company. The buying company is known as the acquirer (bidder) and the
company which is bought is known as the target

Types of Takeovers

a).Friendly Takeover: occurs when corporation acquires another with both boards of directors approving the
transaction. Existing shareholders will be inviting new shareholders to buy the shares. Both the owners of the
Acquirer and that of the target business will benefit

b)Hostile Takeover: is a type of corporate acquisition or merger which is carried out against the wishes of the
board (and usually management) of the target company. In a hostile takeover, the target company’s board of
directors rejects the offer, but the bidder continues to pursue the acquisition. It is the acquisition of a firm, despite
the disapproval of, or open resistance from, its board of directors

c)Reverse Takeover : usually occur when a small firm takes over a large one. It’s a friendly takeover as a
smaller firm doesn’t have enough funds to buy a larger firm against its will. The main reason being unprofitable
conditions of a larger company at present.

1.4 BUSINESS OBJECTIVES

Refers to stated, measurable targets of how to achieve business aims or the targets that must be achieved to in
order to realise the aims of the business. Objectives can be seen as the more specific and quantifiable aims,
designed to assist in the achievement of the goals identified in the mission statement. Objectives must state
what the organisation is trying to achieve, how this can be done, when it must be done and how they will know
that it has succeeded

Mbiri 0771020282
Importance of business objectives

 They clarify to everyone what the business is working to achieve

 They aid in decision making and choice of alternative strategies
 They enable checks on progress and corrective action
 They provide means by which performance can be measured
 They motivate employees
 They can be broken down to provide targets for each part of the organisation
 They provide shareholders with a clear idea of the business in which they have invested
 They facilitate the resolution of conflict between departments

Objectives should be SMART

S- specific M- Measurable A-achievable

R- realistic T- time specific/ time framed

NB: Define smart objectives: are aims that are specific, measurable, achievable, realistic and time-framed.

S-SPECIFIC: Objectives should be more precise. Having a bunch of vague statements isn’t very helpful at all.
You must make your project tangible by saying how you are going to go about it. For example, a hotel might
have an objective of filling 60% of its beds a night during October. Thus the issue of accommodation is specific
to Hotels. It answers the questions, ‘What is to be done’. We quickly get to understand what the business is
doing.

M-MEASURABLE: Define your objective using assessable terms. Express it in terms of quantities, frequency,
quality, costs, deadlines etc. It refers to the extent to which something can be evaluated against some standard.
E.g to increase monthly sale by 15%

A-ACHIEVABLE: It is pointless to have objectives that are impossible to achieve within the time period set.
Achievable answers the questions, “Can a person do it”, “Can the measurable objective be achieved by the
person?”, “Does he/she has the experience, knowledge or capacity of fulfilling the expectation?”,

R-REALISTIC/ RELEVANT: The objective should be challenging, but it should also be able to be achieved by
the person using the available resources. Thus the objectives should be realistic when compared with the
resources of the company and should be expressed in terms relevant to the people who have to carry them out.
E.g a target of reducing cleaning materials by 15% to a cleaner.

T-TIME FRAMED: An objective should have end points and check points built into it. They must have a time limit
of when the objective should be achieved. Time specific answers the question,”When it will be done?” e.g by the
end of the month or by the end of the year

HIERARCHY OF OBJECTIVES

Mbiri 0771020282
AIMS (VISSION) : Refers to a broad statement where a business wants to go in the future. Aims states what you
want or your overall intention in the project. It is generally broader than an objective.

MISSION: A formal summary of the aims and values of a company. It explains the organisation’s purpose, what
it stands for and why it exists. It is a statement of the business’s core aims, phrased in a way to motivate
employees and stimulate interest by outside groups (or aims of the business in a motivating and appealing way)

Mission statement should explicitly state things related to its business, such as industry, products or services,
employees, culture, customers and the adherence to things like quality, efficiency, pricing, social responsibility.

Examples of Mission Statements

FACEBOOK: to give people the power to share and make the world more open and connected
FORD MOTOR COMPANY: ‘One team, one plan, one goal, one Ford’

Purpose of the Mission Statement

 Quickly inform groups outside the business what the central aim and vision are
 Help to guide and direct individual employees behaviour at work
 To motivate employees
 They help to establish in the eyes of other groups what the business is all about

Briefly explain two limitations of mission statements.

Often written in very general / vague terms in order to appeal to internal and external stakeholders as to
have little impact.
Often long and aspirational – a wish list with little operational value.
Often seen as a PR exercise – so little motivational impact
If not supported by management has little positive impact

CORPORATE OBJECTIVES

Refers to a detailed plan of a step you plan to take in order to achieve a stated aim. Mission statements and
aims should be complemented with corporate objectives because they specific details for operational decisions

Mbiri 0771020282
and they are rarely expressed in quantitative terms. Thus aims and mission statements should be turned into
objectives that are specific to the business that can be themselves be broken down into strategic departmental
targets. Corporate objectives provide more details about the course of action or strategy to follow

Corporate Objectives include:

 Profit maximisation
 Profit satisficing
 Growth
 Increasing market share
 Survival
 Corporate social responsibility (CSR)
 Maximising shareholders value

a)Profit Maximisation: It is the main aim for most of private firms. Profit maximisation refers to the greatest
positive difference between total revenue and total cost. Total revenue is obtained by multiplying price per unit
and the total number of units sold. Profit is very important for businesses because it is used for rewarding the
investors (owners of the business). Profit is also used for business expansion in the future ( ie to finance internal
growth)

Challenges faced by firms as they pursue this objective

 Maximising profit may encourage new competitors to enter into the industry and the chances for
business success will be reduced
 This objective can conflict with that of mangers who aim to maximise sales
 Other stakeholders may give priority to other issues besides profit maximisation

b)Profit satisficing: the objective will be to achieve enough profit to keep the owners happy but not to maximise
profits. This objective is pursued by owners of small businesses who wish to have more leisure time. The
business will be satisfied by making a certain level of profit.

Challenges faced by firms as they pursue this objective

 The business won’t be having money to grow in the future

 The business may lack funds to implement social responsibility programmes

c)Growth: growth involves increasing the operation of the business expanding to other regions or countries. It is
also measured by the number of employees, number of products sold etc. Growth benefits managers in terms of
higher salaries. Growth helps the business to avoid takeovers. Furthermore, the business will benefit from
economies of scale and it becomes more appealing to new investors.

Challenges faced by firms as they pursue this objective

 Rapid growth can lead to diseconomies of scale e.g financial diseconomies; managerial diseconomies
etc
 Growth can lead to lower short term returns to shareholders since it can be achieved through lowering
prices

Mbiri 0771020282
d)Increasing market share: market share refers to the proportion of a company’s sales to the total sales in the
market. Eg Your company sales 60 toys in a month and there are a total of 100 toys sold in a month. Thus your
company has 60% market share. Market share is related to business growth. Thus increasing market share
indicates that the marketing mix of the business is proving to be more successful than that of its competitors.
Increasing market share reflects to the firm as a brand leader (customers will be loyal to certain brands offered
by the firm)

e)Maximising Shareholders Value: It is an objective usually for public limited companies. Management will be
concerned about increasing the company’s share prices and dividends paid to shareholders. Thus the interests
of shareholders will be considered as first priority. Increased shareholders value is achieved through profit
maximisation

Challenges faced by firms as they pursue this objective

 The objective conflicts with the objectives of other stakeholders

f)Corporate Social Responsibility (CSR): refers to a set of policies designed to demonstrate the commitment
of a business to the well-being of society and others by taking responsibility for the impact of business decisions
on all stakeholders. Some businesses have objectives which are based on their beliefs of how one should treat
the environment and people. CSR applies to those businesses that considers the interests of society by taking
responsibility for their decisions and activities on consumers, employees, communities and the environment.
Some business activities are very damaging to other stakeholders. Thus governments and some pressure
groups must ensure that businesses take responsibility of their actions on people and the planet

NB: Pressure group: refers to an organisation created by people with a common interest or aim, who put
pressure on businesses and government to change policies so that an objective is rechead.

Benefits of being socially responsible

 The business can be given government contracts/ tenders

 The business can easily attract highly skilled and experienced personnel
 Business will gain public acceptance and reduced risk of negative publicity
 Employees committed to the same values
 Customer loyalty

Challenges faced by firms as they pursue this objective

 It conflicts with the profit maximisation objective

 Time is wasted on social responsibility programmes
 The business won’t have enough money for expansion
 Greater criticism and loss of loyalty if things go wrong

Departmental Objectives

Ford Car Company’s main aim is to become the largest car maker in the world and each department must have
some means of helping the company achieve that. Departments like product designing, production and the

Mbiri 0771020282
marketing department will have different roles to play to help Ford achieve its main aim. For a car manufacturing
business, the departmental objectives may include:

Product design: produce designs for a new range of cars that will appeal to the family car market

Production: improve production processes to increase production and reduce costs

Marketing: Create a marketing mix in order to increase sales volume by say 15% per year

Individual Objectives

These are the objectives set for an individual in an organisation. They are basically day-to-day objectives or
targets for each person. This helps ensure that each individual knows what they need to do to achieve
departmental objectives. Individual objective are important for the appraisal of each and every employee.

Factors determining business objectives

 The size and legal form if the business: small business are concerned with a satisfactory level of profits
 Business culture: culture is defined as they way of doing things that is shared by all those within an
organisation. If senior managers are profit centred then everyone will have to follow that.
 The number of years the business has been operating: new business will aim for survival
 Private or public sector: public sector business will aim to offer goods and services at affordable prices

Relationships between Mission, objectives, strategy and tactics

Mission and Objectives

Mission statements and objectives provides the basis and focus for business strategy ie The long-term plans of
action of a business that focus on achieving its aims. Without a clear objective, a manager will be unable to
make important strategic decisions. The setting of clear and realistic objectives is one of the primary roles of
senior management. Before strategy for future action can be established, objectives are needed. Thus setting
mission and objective gives a business a sense of purpose and direction

Strategies and Tactics

Mission statements and objectives alone cannot guarantee business success. They have to be developed into
actual courses of action known as strategies and tactics.

Strategy: is a plan setting out how a business as a whole will achieve its overall long-term objectives. For
example the business objective of a car manufacturer could be, “To manufacture 4 million cars by 2018.” The
strategies to achieve such an objective could include:

 Increasing efficiency
 Building a new factory
 Designing new models of cars

For strategies to work well in the business they need to be complemented with tactics. At tactic is a short-term
plan for day-to-day operations of a business with the aim of contributing towards the overall strategy. For

Mbiri 0771020282
example, in order to achieve productivity improvements the workforce might get prizes for the teams that make
the biggest improvements to productivity.

NB Tactics refer to a short-term course of action for the day-to-day management of a business for trying to meet
part of an overall strategy

Business Decision making.

Objectives not only give a sense of direction to a business, they are essential for making decisions. Without
setting relevant objectives at the start of this process, effective decision making for the future of the business
becomes impossible.

Stages in the decision making process

 Set objectives: it is impossible to make decisions in the future if the objectives are not clear or if they are
non-existent.
 Identify and analyse the problem: managers make decisions to solve a problem. It is imperative that
you must understand the problem before finding a solution for it, otherwise, you might make a wrong
decision.
 Collect relevant information: gather data about the problem and possible solutions. It is always
important to analyse all possible solutions to find which one is the best
 Analyse/Evaluate all options : consider the advantages and disadvantages of each option or possible
solution
 Make the final decision : make a strategic decision. Select the best option with more advantages and
few disadvantages
 Implement a decision: this means that the manager must see to it that the decision is carried out and is
working according to plan
 Review and evaluation of the decision: review its success against the original objective. If the decision
didn’t work, then a corrective action must be done for the objectives to be achieved

How and why objectives might change over time

 Change in owners’ priority: the owners shift from one object to the next as time unfolds
 Change in market conditions: in a recession the business may aim for survival
 Change in size of the business: owners’ objective could be growth in early stages and then profit
maximisation as the business becomes well established
 Change in management: when new management comes in, they can introduce new changes which
could be new objectives
 Change in competitor behaviour: the business can change its objectives in responses to changes
made by the competitors
 Change in legislation: a change in government laws can force a business to come up with new
objectives in a new environment

Translation of objectives into targets and budgets

This statement simply means a process by which objectives are translated into targets and budgets. Thus
corporate objectives should be broken down into individual targets. Target or key performance indicators (KPIs)
refers to a detailed operational objective for a specific area of a business to be achieved by a specific date. Once

Mbiri 0771020282
targets have been set for individuals or groups they can be monitored and adjusted to increase the chances of
achieving overall objectives, and can be used as a motivational tool. Communication is very important to make
the employees aware of the business objectives. Targets can also be used in the budgeting process. A budget
refers to a plan expressed in financial terms for targets to be achieved, financial resources to be made available.
Employees must be involved in the setting of targets. Unrealistic targets will, however, lead to unobtainable and
misleading budgets.

Advantages of targets

 Employees will be motivated to work harder

 Productivity of employees and managers will improve
 Encourages team work which then reduces mistakes at the business
 Managers will always be in touch with employees and this helps employees to meet deadlines
 Help managers to identify problem areas
 An easy way to translate corporate objectives into individual and other subsidiary objectives

Disadvantages of targets

 Can be demotivation especially if they cannot be achieved or an employee fails to achieve them. There
can be many reasons for failing to reach a target.
 Can dehumanise a job. People are treated like machines rather than as humans
 Can lead to ‘blame culture’
 Difficult and expensive to monitor

Importance of Budgets

 Reviewing past activities

 Controlling current activities i.e helping the business to stick to the objectives
 Planning for the future

COMMUNICATION OF OBJECTIVES AND THEIR LIKELY IMPACT ON THE WORKFORCE

Targets in business have been a valuable management tool for a long time. In 1945, Peter Drucker developed
the idea of Management By Objectives (MBO). This is a method of managing staff by defining objectives for
individuals members derived from the overall objectives of the business.

How ethics may influence business objectives and activities

Business ethics refers to moral guidelines that govern business decisions and business behaviour.
These are rules and guidelines on staff behaviour that must be followed by all employees’. Employees
must behave in a morally acceptable manner. Some managers operate their business along strict ethics
rules, they want their employees to do the right thing. Business ethics apply to all aspects of business
conduct ad are relevant to the conduct of individuals as well as the entire organisation. Ethics involves
the choice that people make and sometimes ethical issues are covered by legislation. A code of ethics
should be drawn up

Differences between business ethics and code of conduct

Business ethics

Mbiri 0771020282
  Making the business gains in a proper manner
 Avoiding discrimination on staff and stakeholder groups
 Not linked to political parties
 Being fair to all who have business relationships with the company
 Protecting the environment

Code of Conduct

 Upholding the principal of honesty and fairness

 Protecting the properties and reputation of the business
 Conducting business in the best interest of the owners
 Behaving appropriately at all times towards others

Unethical business activities

 Buying supplies from businesses that use child labour

 Exploiting suppliers in poor countries by demanding and paying low prices
 Lending to people and businesses who will struggle to repay the loans
 Wilful selling of harmful products to the people
 Not paying a fair wage
 Avoiding paying tax
 Polluting the environment
 Newspapers prying into people’s private lives
 Getting business secrets from competitors
 Encouraging top employees to move from a competitor
 Paying bribes to get contracts
 Failure to give correct or accurate information
 Testing cosmetics products on animals
 Over charging tourists

Benefits of acting ethically

 The business will be offered with government contracts

 The business may attract qualified and experienced staff
 The business may get more customers
 Avoiding expensive court cases on ethical related crimes

Challenges of acting ethically

 Charging lower prices leads to lower profits

 Paying fair wages in harsh economic environments may raise wage costs and this reduces the firm’s
competitiveness
 Not taking bribes may lead to lower sales
 Disposing of waste material can be costly to the business

Business objectives in the private sector and public

sector
Private Sector
 To earn high profits
Mbiri 0771020282
  To maximise wealth of shareholders
 To fulfil needs and wants of the people
Public Sector
 To create employment
 To operate even if no profit is generated
 To provide certain products such as electricity, transport, defence etc
 To provide goods and services at affordable prices

Objectives of Non-profit organisations

 To provide services to members
 To provide employment
 Operating for the welfare of members e.g schools, hospitals
 To eliminate poverty in communities

Conflicting Objectives
Often time two or more objectives will clash and we call these conflicting objectives

Common conflicting objectives

1. Clash between key stakeholders: owners of a company’s objectives may clash with those of managers
or employees. Owners may want the business to minimise costs while employees may demand for a pay
rise. Another example is that of growth versus profit. Thus achieving higher sales in the short term,
probably by cutting prices, will lead to a reduction in short term profits

2. Clash between short term and long term objectives: a business may decide to accept lower cash
flows in the short term whilst it invests in new products, plants or equipment

3. Clash between environment and profit: for example if a company wants to reduce its pollution
contribution, it will need to spend a heavy proportion of its profits.

1.5 Stakeholders in a business

Refers to individuals or groups interested in the activities of the business. Stakeholders are interested in a
business for various reasons and will be directly affected by its decision or by its performance. Examples of
stakeholders include owners( shareholders); managers; employees; customers; suppliers; lenders; government;
local community and special interest groups( pressure groups). Stakeholders use a variety of information for
decision making purposes, and the information that is available to stakeholders will depend on whether the
stakeholder is an internal or external stakeholder.

Internal Stakeholders

Are individuals or groups who work within the business or own the business and they are affected by the
operations of the business. They are also known as primary stakeholders. They have a large influence on how
the company is run. For example the company’s owners will take part in important business decisions. Managers
and employees also influence the company’s day to day operations by various business decisions that they
make.

External Stakeholders

Are individuals or groups who are separate from the business nut are affected by the operations of the business.
These parties are not directly involved in decision making and other business affairs and, therefore, may or may

Mbiri 0771020282
not be affected by the company’s decision or operations. External stakeholders include the government entities,
the general public, competitors, customer, pressure groups politicians, analysts, stock brokers, potential
investors etc For example, government entities such as internal revenue will use business’s information for
assessing tax payments; potential investors will use the information to make investment choices, media will use
them for public awareness purposes, and analysts and stockbrokers will use them to advice clients or potential
investors.

Differences between stakeholders and shareholders

Shareholders: hold shares in the company. They own part of the business

Stakeholders: They have an interest in the company. They do not own part of the company unless they are
shareholders

Stakeholders Theory/ Stakeholders Concept

An idea that business should not only focus on shareholders’ interest but should consider interest of all
stakeholders e.g managers, suppliers, customers, employees, government and pressure groups (eg
environmental lobbyists)

Roles, Rights and Responsibilities of Stakeholders

Stakeholde Roles Rights Responsibilities

r
Suppliers -supply goods and services - -to receive payment in time -to supply the goods and
to allow the business to offer -to be treated fairly by those services in time and in good
its products to its own powerful customers condition.
customers
Customers -buy goods and services from -to receive goods and -to pay for the goods received
sellers services that are not harmful in time
-provide revenue to sellers to their health -avoiding false claims
-to be compensated when a -honesty i.e stealing
problem occurs
Employees -provide manual and mental -to be treated fairly -to be honest
effort to the business -to be paid a wage -have the necessary skills and
-produce goods and services described in their contract of experience required
employment -to perform any other duties
to be allowed to join a trade delegated
union -to observe the ethical code of
conduct
Lenders -to provide loans to the -to be repaid on the agreed - provide agreed amount of
business date money on the agreed date for
-to receive interests on the agreed time period
loans
Local -provide local services and -to be consulted about -to co-operate with the
infrastructure to the business major changes e.g business on expansion and
community
expansion plans other plans
-impose fines on businesses -to provide services such as
that operate illegally public transport
Government -pass laws to control -to take licences of -to treat businesses fairly
business activities businesses that operate -to prevent unfair competition
-promote economic stability outside the law -to establish trading links with
-ban the sell of illegal goods other countries
and services

Mbiri 0771020282
STAKEHOLDERS AND THEIR OBJECTIVES

Stakeholders Who they are objectives

Owners -invest capital in the business and get profits from -maximise profits
the business -growth of the business
Workers -employees of the business who give in their time -job security
and effort to make a business successful -job satisfaction
fair wages for their effort
managers -employees of the business who manages a -high salaries
business -job security
-they lead and control the workers to achieve -status
organisational goals -growth of business
customers -these are the people who buy the goods and -safe and reliable products
services of the business -value for money
-to receive after sale services
Government -manages the economy -successful businesses
-collect tax from businesses -employment to be created
-monitors the working of businesses in the -more tax revenue
economy -laws being followed
The community -community refers to all the people who are -they expect more jobs
directly or indirectly affected by the actions of the -environmental protection
business -social responsible products
-ethical business practices
Suppliers -people or organisations who provides the -to get a fair price for their goods
business with inputs and services
-long term contracts
-prompt payments
Banks /lenders people or organisations who provide the business -interest and principal to be paid
with funds -growth of credit industry

IMPACT OF BUSINESS ACTIVITIES ON STAKEHOLDERS

How and why a business needs to be accountable to its stakeholders

Mbiri 0771020282
Benefits to the business for being responsible to customers

 The business will benefit from customer loyalty

 The business will enjoy good publicity when customers give word of mouth recommendations to others
 Good customer feedback which helps to improve further goods and services

NB: customer focus: customers should be the business’s top priority. Paying a lip service to customers’ concerns
may lead to loss of good image and even legal action

Way in which a business can become responsible to customers

 Business must offer quality goods

 Businesses to offer well designed and durable goods
 To sell goods at reasonable prices
 Businesses not to take advantages of vulnerable customers e.g high-pressure selling tactics

Benefits to the business for being responsible to suppliers

 Benefits from supplier loyalty

 Suppliers may be willing to open credit lines
 Suppliers will be prepared to meet deadlines and requests for special orders

Way in which a business can become responsible to suppliers

 Prompt payments to suppliers

 Giving suppliers clear guidance on what is required
 Offering suppliers long-term contracts
 Buy stock regularly

Benefits to the business for being responsible to employees

 There is employee loyalty

 Low labour turnover
 The business can easily attract highly qualified staff’
 Employees will be motivated and their productivity will increase

Way in which a business can become responsible to employees

 Business to provide training opportunities

 To give employees fair wages
 Involve employees in decision making
 Give employees fringe benefits e.g company house, company car etc

Benefits to the business for being responsible to community

 Local communities are more likely to accept some of the negative effects caused by business operations
 Local councils often give contracts to business with a record of good behaviour towards the community
and its environment

Way in which a business can become responsible to community

Mbiri 0771020282
  Offer secure employment
 Avoid adverse environment effects such as pollution
 Employing local people

Benefits to the business for being responsible to the government

 Business may receive valuable government contracts

 Business may benefit from government subsidies
 Licences to set up new operations are more likely to be awarded to business that meet their
responsibilities

Way in which a business can become responsible to government

 Obeying government laws

 Paying taxes in time
 Declare all incomes to the government generated by exporting businesses.

QUESTION :Discuss the conflicts of objectives amongst the stakeholders of the business [20]

Introduction: Stakeholders are individuals or groups of people who have a direct or indirect interest in the
running of the business. They are owners, directors, workforce, customers, suppliers, government, banks and
the community as a whole. Each of the groups have different objectives, conflicts may arise among the
stakeholders

One type of conflict may be between owners and directors. The directors of a company are the actual managers.
They control and plan the resources and are the actual decision makers. Their main objective would be to retain
control and increase their status and power. This would be possible by increased growth of the organisation. So
in order to achieve their interests, they might overlook the interests of the owners or shareholders who are the
risk takers as they have invested into the company. So, the shareholders would want greater returns in the form
of dividend while the directors may decide that less dividends should be paid and greater percentage of profit be
re-invested into the business. This conflict is the major reason of the divorce between ownership and control in
the limited companies

Conflict also occur between the interests of the owners and the workforce. The workforce want higher wages.
They also want good working conditions like hygiene as well as moderate temperatures which would include
fans. They would want proper safety equipment and clothing if their jobs are dangerous as in nuclear power
plants. All these things would increase costs of the business and reduce profits. On the other hand, the owners
want higher profits and may even be thinking of reducing wages and salaries. This also cause a conflict of
workforce and directors. The directors would want to keep prices low while the costs of satisfying the objectives
of the workforce would force prices to increase and the sales would drop. The directors whereas want sales to
increase. The directors and owners may also want to increase the production which they may want to increase
working hours of the employees.

Conflicts may also arise between the suppliers and the owners or directors. The directors and owners want
increased working capital for the development of innovative products and upgrading of older products to increase
market demand. For this they want to buy goods on credit for longer periods of time. However the suppliers on
the other hand would want to receive payment on time especially if they are small business because this causes
severe hardships for the small suppliers as they have to pay their employees and return loans

Mbiri 0771020282
Customers and business may also disagree on several aspects. The major area of conflict is the price. The
owners and directors wish to maximise profits for which they may increase prices of products. The customers,
however want to have the best quality of products at lower prices. Sometimes customers may want to return the
goods and receive a refund. However, the owners and directors may not agree to accept the returned goods.

One other type of conflict is between the owners and community. The community wishes to live in a clean and
pollution-free environment. It would want the industries and factories located away from residential areas and
nature parks. However conflict occurs if the owners decide to start a factory close to the houses. This would
cause a lot of noise pollution, first because of construction and then because of running of the factory. Air
pollution is also possible from smoke-emitting factories that endanger the health of the community. The
community wants the business to operate in an environmentally friendly manner and this can increase costs to
the business.

Conclusively, a business activity would always lead to conflict due to diverse objectives of the stakeholders. A
good, strong and successful management is one which is able to deal with all the stakeholders and still run the
business efficiently by reaching agreements to minimise conflicts.

Mbiri 0771020282