COMMERCE

NOTES

FORM 4-5

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 INTRODUCTION TO COMMERCE

Commerce means trade and aids to trade. It is concerned with the distribution of goods and services in order to
satisfy human needs and wants. Commerce helps to transfer goods from the manufacturer to the final consumer.

THE STRUCTURE OF COMMERCE

COMMERCE

TRADE AIDS TO TRADE

Home Trade Foreign Trade - Warehousing

- Advertising
- Banking
- Transport
Wholesale Retail Import Export - Insurance
Trade Trade Trade Trade - Communication

TRADE
Trade is the buying and selling of goods and services with the view of making profit. There are two types of trade;
these are home trade and foreign trade.

Home trade: - It’s the buying and selling of goods and services within a country. It consists of retail and
wholesale trade. Retail trade is the selling of goods in small quantities while wholesale trade is the selling of
goods in large quantities.

Foreign trade: the buying and selling of goods and services between countries. It is divided into two i.e. import
trade and export trade. Import trade is the buying of goods from outside the country while export trade.
Export trade is the selling of goods and services outside the country.

IMPORTANCE OF COMMERCIAL SERVICES TO COMMERCE & INDUSTRY

commercial services are all those services that make buying and selling possible, they are the aids to trade. Often
abbreviated WABTIC

WAREHOUSING

• It protects goods from damage due to bad weather /against theft [1] therefore reduced chances of loss to the
business. [1]
• It helps to stabilize prices of goods [1] by preventing either shortage or excess inventory developing in the
market/ hence efficient budgeting [1]
• Ensure a regular supply of goods to customers [1] hence customer satisfaction. [1]
• Help the business to be able to buy goos in large quantities [1] thereby enjoys economies of scale.[1]
2
• It provides space necessary for the preparation of goods for sale [1] by repackaging, branding labelling. [1]
• It provides space for the display of goods [1] for customers to inspect the goods before buying. [1]

ADVERTISING
➢ Helps manufacturers to inform and remind customers about the availability of particular brands of goods/ services.
➢ Helps manufacturers in persuading customers to buy.
➢ Helps manufacturers to obtain information regarding raw materials supply sources and other inputs.

BANKING
➢ Helps by providing finance (loans & overdrafts) required to set up a factory and running the business.
➢ Provides safe custody for manufacturers’ money.
➢ Provides the use of current account to enable the manufacturer to receive payment from customers and also to make
payment by cheque to raw material suppliers.

TRANSPORT
Helps to move the equipments and raw-materials to the factory for processing. Helps move workers to and
from the factory.

INSURANCE
➢ Facilitates production and trade by absorbing some of the risks involved in businesses e.g. fire, motor accident,
theft, accidental damage.
➢ It creates an atmosphere of confidence to the producer so that s/he can freely invest her money, produce and sell
the goods.

COMMUNICATION
➢ Enable manufacturers to contact both the suppliers of raw materials and customers through telephone, letters, E-
mail and can place order through faxes.
➢ Helps manufacturer to widen his/her market by contacting foreign customers by phones and internet (email)

HUMAN NEEDS AND WANTS

Needs are goods and services that we require in order to survive, we cannot live without them, they are the basic
necessities of life. E.g. food, clothing, shelter water and health care.
Wants are goods and services that we desire to make our lives more enjoyable but we can survive without them.
E.g. cell phones, TV’s and radios.

The needs and wants are actually goods and services.

Goods are the physical or tangible things that we can see, touch, and measure e.g., cell phones, food, radios, clothes
etc.
Services are intangible things i.e. work done by other people which helps us but which is invisible e.g. transport,
advertising, education, security, health care etc.

These goods and services are provided by production of which there are two types.

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 PRODUCTION
• It is the making or creation of goods and services in order to satisfy human needs and wants.
• Production refers to all the activities which bring about goods and services or
• it is the creation of utility or usefulness for the satisfaction of human needs and wants.

It includes;
-the extraction of natural resources/ raw materials
-changing of raw materials into more useful goods
-transferring finished goods from factory to the consumer

TYPES OF PRODUCTION
1. Direct production; production of goods for one’s own use or family consumption. e.g. of direct production
➢ A man building his own house
➢ A farmer growing only enough crops for his family consumption.

2. Indirect production; production of goods for sale.

STAGES OF PRODUCTION
a) Primary production
b) Secondary production
c) Tertiary production

a. PRIMARY PRODUCTION/ EXTRACTIVE

This is the first stage of production concerned with the extraction of natural resources which are either above or
below the earth’s surface. The resources are extracted by either: mining, farming, fishing, quarrying, forestry.

b. SECONDARY PRODUCTION
This is the second stage of production where raw materials from primary production are transformed into finished
goods or semi-finished goods.
It consists of manufacturing and construction industries.

i) Manufacturing- is the transformation of raw materials into useable products. E.g. making of shoes, baking.
Some raw materials are turned into semi-finished goods in one firm and then sent to another factory to be finished
into a better product.

ii) Construction- includes the building of roads, bridges, houses and other construction works. This process
uses products from primary and manufacturing industries.
E.g. to build a house, a builder uses cement extracted by mining, roofing sheets and window glasses from
manufacturing industries.

c. TERTIARY PRODUCTION
This is the last stage of production which involves the provision of commercial services and direct services which
help in the transfer of the finished products from the factory to the consumer.
There are 2 services involved;
i) Commercial Services- services that help make trade possible.
It involves safe storing of goods, transporting them, and advertising, providing finance and selling.
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 ii) Direct Services- these are intangible services that people directly provide as a contribution to production
rather than to the actual making of an item
E.g. services of doctors, nurses and surgeons make people healthy, strong and ready to work. They directly help
them to work more productively.

Chain of production
It refers to how the various processes involved in the making of a product are linked up. Most goods pass through
various production stages before reaching the consumer.

Primary/extractive production secondary production tertiary production

Farming manufacturing construction Warehousing
Fishing processing Advertising
Forestry Banking
Mining Transport
Quarrying Insurance
Communication
Direct services
FACTORS OF PRODUCTION
These are the resources needed for the production of any goods or services.
These are: land
Labour
Capital
Enterprise

a) Land –refers to all the resources provided by nature such as soil, fields, vegetation, animals, minerals, rocks etc, it
includes the earth and oceans and everything that lives or grows in them.
Nothing can be produced without land.
➢ a fisherman needs the water from which to catch the fish
➢ a miner extracts minerals from below the surface of the land
➢ a manufacturing industry needs land to build the factory Reward for land is rent

b) Labour- is the human effort or energy used in the production of goods and services. It can be physical or
mental energy. It includes services provided by such people as domestic workers, doctors, teachers etc Reward for
labour is wages/salaries

c) Capital- consists of money and all the man made assets used in the production of goods and services. Money is
needed to pay workers, bills and buying machinery.
Reward for capital is interest

d) Entrepreneur – a person who makes the decision and bearing the risks of bringing resources together to produce
goods and services with an aim of making profit e.g. a fruit farmer will use his expertise to combine his land, capital
and labour to produce fruits he will be able to sell. Reward is profit

➢ To move products to the consumers for sale when ready.

➢ Leads to the extension of the market both local and foreign.

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CHAIN OF DISTRIBUTION
This is the process that shows the different routes which goods pass through before reaching the final consumer. In
the process the goods are handled by various people and organisations.

Route 1: PRODUCER—WHOLESALER—RETAILER—CONSUMER
Wholesalers buy goods in bulk from producers and sell them to retailers in small quantities and the retailers sell to
the consumers in suitable quantities.

Route 2: PRODUCER—CASH N CARRY WHOLESALER--CONSUMER

Large cash and carry wholesalers who have large warehouses buy good in bulk from producers and sell them directly
to the consumer e.g. Trade World

Route 3: PRODUCER—LARGE SCALE RETAILERS—CONSUMER

Large scale retailers such as Score supermarkets buy directly from the producer in bulk and sell directly to the final
consumer in small quantities.
This route is used mostly by manufactures of consumer durables such as furniture, cars, TV sets.

Route 4: PRODUCER—FACTORY SHOPS--CONSUMER

Producers sell their products straight to the consumers through their own retail outlets known as factory shops.
Perishable goods like vegetables, fruits and bread pass through this route.

Route 5: PRODUCER—MAIL ORDER FIRM--CONSUMER

This route is used for manufactured goods of high value and low volume such as golden products. Here part time
agents market the products directly to the consumer and or mail order companies advertise their products in
catalogues and call for orders by post or phone.

Route 6: PRODUCER—MARKETIG BOARDS—WHOLESALERS—RETAILERS--CONSUMER

Organisations owned and run by the government like BAMB buy the products of primary industries especially
agricultural products and sell them to the consumers through wholesalers, and retailers.

SPECIALISATION

DEF: Specialisation is a process whereby a company/person concentrates on producing only one product or doing
only one task.
The company is said to be belonging to a particular industry. An industry is a group of independent firms producing
related goods and services. E.g. within the liquor industry there are firms that specialise in the production of wines,
beer etc.

DIVISION OF LABOUR
It is the breaking down of work into individual tasks for individual workers to specialise. E.g. in a car assembly
plant, each worker performs a single task along the production line. One person may install the engine, one may fit
the wheels and one put on window glasses.
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 LEVELS OF SPECIALISATION

1.Specialisation by individual. -When individuals become professionals such as teachers, dentist, accountants.
Specialisation by product- When a company specialises in manufacturing a certain products e.g., Toyota
manufactures cars,
Specialisation by process- It is the division of labour whereby a group of people producing a certain product e.g.
a car, specialise on individual jobs which make up part of the work involved in making the final product.
Specialisation by region-Occurs when a particular region of a country devotes itself to produce a few major
products/ services. This would happen because of historical reasons or because of the richness of natural resources
in that region.
Specialisation by nation- Occurs when a certain country devotes itself mainly in producing certain products which
it exports to other countries. E.g. Botswana produces diamond and beef for export.

ADVANTAGES OF SPECIALISATION/ DIVISION OF LABOUR

• If workers specialise in particular tasks, repeating the same operations their skills and speed are increased, therefore
more is produced.
• Time is saved because workers do not have to move from one operation to another hence increased productivity.
• Specialisation allows the use of machinery which leads to further savings in efforts and time Training is much
quicker because jobs are easier to learn.
• Division of labour is done according to people’s abilities so people do what they do best and this improves
productivity.

DISADVANTAGES OF SPECIALISATION/ DIVISION OF LABOUR

• Doing the same work everyday becomes boring and it leads to low productivity.
• Use of machines leads to loss of individual crafts and skills and unemployment
• People become too independent upon each other therefore production may be disturbed if one worker falls sick or
if the other section is not working.
• Products are all the same so this means consumer’s choice of goods becomes limited.

RELATIONSHIP BETWEEN SPECIALISATION AND TRADE

• Specialisation leads to mass production/increase in output which brings surplus and hence the need to trade.
• Brings interdependence- people are not self sufficient: they cannot produce all the goods and services to satisfy
themselves hence they exchange what they are able to do for other goods and services. As such people are able to
have a variety of goods/services to consume from other people or businesses.

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 RETAIL TRADE

RETAIL TRADE: it is the selling of goods in smaller quantities.

RETAILER: A person of organisation who buys goods in bulk and sells them to consumers in small quantities.

FUNCTIONS OF RETAILERS
• Provide variety of goods to consumers
• Provides goods at convenient times
• Some offer credit to the consumers
• Offer delivery for some goods
• Offer after sales and pre sales service.

TYPES OF RETAILERS
1. Small scale retailers
2. large scale retailers

DIFFERENCE BETWEEN SMALL SCALE AND LARGE SCALE RETAILERS

SMALL SCALE RETAILERS LARGE SCALE RETAILERS

• offer limited range of goods • offer wide variety of goods
• most do not have fixed premises for operating • operate from fixed premises
• need small amount of capital to operate • need large amount of capital to operate
• offer personal service to customers • most offer self service
• have lower operational costs • higher operational costs

TYPES OF SMALL SCALE RETAILERS

• HAWKER: a licensed trader who sell goods by walking from one house to another.
• MOBILE SHOPS: traders who sell their goods by moving from door to door using a mode of transport, either a
van or a bicycle.
• STREET/ROADSIDE TRADERS: Unlicensed traders who sell their goods sitting under a tree along the road.
• ITINERANT TRADER: Unlicensed traders who walk from house to house carrying a handful of things for sale.
• MARKET STALL TRADERS: Traders who sell their goods from stall areas provided by town councils usually
in busy areas like bus ranks.
• INDEPENDENT RETAILERS: A licensed retailer who operates from a fixed shop on a small scale. They are
commonly known as general dealers.

PROBLEMS FACED BY SMALL SCALE RETAILERS -- [HAWKER/MOBILE SHOP/STREET

MARKET/ITENERANT TRADER]

• Affected by bad weather conditions like rain [1] which can disturb them from selling hence low sales[1]
• Can be attacked by thieves [1] who could take all their money and goods leading to loss [1]
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• Face competition from large retailers who offer variety of goods at cheaper prices [1] therefore lose customers [1]

HOW A SMALL RETAILER CAN MAKE HIS/HER BUSINESS SUCCESSFUL i.e. how to increase sales

offering quality goods [1] so as to attract more customers [1]

• Regular advertising [1] to persuade customers to buy [1]
• Lowering prices [1] so that more customers buy [1]
• Providing good customer service [1] so as to appeal to more customers [1]

WHY THE NUMBER OF SMALL SCALE RETAILERS HAS DECLINED

• Competition from large scale retailers who offer goods at lower prices [1] therefore lose customers [1]
• Offer limited range of goods and services [1] so customers rarely buy there [1]
• Lack of advertising [1] which lead to low sales [1]
• Poor management [1] as some traders take the business money for personal use.
• Poor locations [1] most are located on the outskirts of towns where there are few customers. [1]

WHY SOME SMALL SCALE RETAILERS ARE STILL SURVIVING/ CONTINUE TO TRADE
SUCCESFULLY

• They offer a wider range of goods and services [1] so this attracts customers to buy in large numbers [1]
• They offer delivery and credit services [1] which makes customers enjoy to buy from them [1]
• They open for long hours [1] which caters for late shoppers hence increase in sales [1]
• They offer good customer service [1] which appeals to more customers [1]
• They offer quality goods at competitive prices [1] which makes customers to be loyal [1]

LARGE SCALE RETAILERS

These are retailers that operate on a large scale offering a wide range of goods and services to the customers.

TYPES OF LARGE SCALE RETAILERS

1. Supermarkets
2. hypermarkets
3. multiple chain stores
4. department sores
5. mail order firms
6. retail cooperative societies

1. SUPERMARKET
These are large self service stores with about 200 -250 sq metres of selling space and have three or more cash tills
at the exit E.G. - Choppies supermarket
-Spar
- Pick n Pay

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 FEATURES OF SUPERMARKETS
• Sell mainly groceries and house hold items
• Use self service method of selling
• Have a trading space of about 200 sq metres. They sell branded and pre-packaged goods.

ADVANTAGES OF SUPERMARKETS TO THE RETAILER

• Fewer workers are hired because of self service method [1] hence low wage bill [1] however shoplifting is
common which reduces profits [1]
Buy in bulk and get trade discounts [1] therefore able to charge low prices which attract customers [1] however
lack of personal attention may chase away some customers especially those who ca not read and write. [1]
• Clever display of goods by trader leads to impulse buying [1] which increases sales and may be profits [1]
however they require a large trading space which can be expensive as they are usually located in city centres
where rent is expensive [1]

DISADVANTAGES TO THE RETAILER

• Shoplifting is common which lead to additional costs of hiring security guards.
• Large trading space is needed which can be expensive
• Shopping baskets and trolleys are sometimes stolen

ADVANTAGES OF SUPERMARKETS TO THE CUSTOMER

• Wide range of goods is offered [1] so customers enjoy one stop shopping [1] however impulse buying is likely
which may tempt customers to overspend and end up with financial difficulties [1]
• Saves customer time [1] as goods are easy to find so they can serve themselves quickly [1] however lack of
personal attention can be a problem to illiterate customers [1]
• Customers enjoy cheaper prices [1] so they can be able to buy more goods to satisfy their needs [1] however
delivery and credit are not provided. [1]

DISADVANTAGES TO THE CUSTOMER

Impulse buying is more likely which may lead to financial difficulties Most goods are pre-packaged so can
not be inspected before buying Credit and delivery are usually not provided.

2. HYPERMARKETS
This is a large self service store with a trading space of over 5000 sq meters, selling groceries, household items,
furniture and other items

FEATURES OF HYPERMARKETS
• Have a selling space of over 5000 square metres
• Use self service method of selling
• Usually charge lower prices
• Goods are sold on cash and carry basis except furniture which is sold on credit
• Offer wider range of goods than supermarkets

ADVANTAGES OF HYPERMARKETS TO THE RETAILER/OWNER

• Buy stock direct from producers at factory prices [1] therefore able to charge lower prices [1] which attract
customers hence increase in sales [1] however lack of personal attention may led to some customers not buying [1]

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• Self service is used[1]which lead to low wage bills as few shop assistants are needed hence more profits [1] however
shoplifting more likely which may reduce profits [1]

• Impulse buying is more likely [1] which increases sales and possibly profits [1] however they are to expensive to
set up and need much land which may lower profits [1]

DISADVANTAGES
Expensive to set up and need too much which may lower profits
Shoplifting is common

ADVATAGES OF HYPERMARKETS TO THE CONSUMER

• Wide range of goods offered at lower prices [1] consumer enjoy one stop shopping [1] however the shops are too
big with many goods which makes it difficult for customers to find some goods [1]

• Self service is provided [1] which makes customer to shop at their own paced without being rushed [1] however
impulse buying is more likely which may lead to financial difficulties [1]

• Usually provide long opening hours [1] enabling late shoppers to buy [1] however they are destroying small local
shops which are conveniently located closer to consumers. [1]

DISADVANTAGES
• Too big to find some items
• Too large and impersonal
• Destroying small local shops conveniently located near customers

3. MULTIPLE CHAIN STORES

These are a group of shops owned by same company with branches all over the country and in other countries
selling identical and usually limited range of goods under centralised ownership and control

TYPES OF CHAIN STORES

• VARIETY CHAIN STORE: stores that sell a variety of goods usually a combination of clothing and food. E.G
Woolworths
• SPECIALIST CHAIN STORE: Stores that specialise on selling a limited range of goods. E.G OK furniture and
furniture mart sell furniture,
CB stores and Jet sell clothing

FEATURES
• Consist of number of branches scattered all over the country and in other countries
• Stock can be moved between branches
• All branches sell the same line of goods, use the same name and have similar shop fronts
• Branches are controlled from the head office
• Each branch is headed by a branch manager

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 ADVATAGES OF MULTIPLE/CHAIN STORE TO THE RETAILER/SHOP OWNER

• The uniformity of the sores save on architectural costs [1] as the same building plan will be when a new branch is
being built [1] however large capital is needed to set up and run the business [1]
• Able to employ highly qualified workers[1] which brings greater efficiency and help reduce costs
[1]however the qualified workers may need to be paid high wages which increases wage bill [1]
• The advertising, accounting and purchasing are done from the head office [1] which saves overheads and lead to
low costs per branch [1] however centralised control from head office leaves the branch manager with no power to
change anything to suit the local needs of the area leading to low sales [1]

ADVANTAGES TO THE CONSUMER

• Goods bought at one branch may be returned at any nearest branch [1] this saves consumers time and transport
costs [1] however
Some offer credit [1] which gives many consumers the opportunity to buy more goods [1] however they sell limited
range of goods so no one stop shopping [1]
• Shops are identical [1] so can be easily recognised by customers [1]however they are controlled from the head
office which makes it difficult for the branch manager to cater for the needs of the local community. [1]

REASONS WHY MULTIPLE STORES OFTEN HAVE A LARGER SHARE OF THE MARKET

• Sell on credit and offer delivery [1] which attract many customers to buy [1]
• Have branches all over the country [1] so have easily accessible to many consumers [1]
• Carry out national advertising [1] which can persuade many customers to buy [1]
• Offer competitive prices [1] which attracts many customers to buy [1]

4. DEPARTMENT STORES

These are stores divided into a number of independent departments each stocking only one kind of good. e.g Game
Stores

FEATURES OF THE DEPARTMENT STORES

• offers credit//budget account
• They are usually located in towns or central shopping areas.
• Each department is controlled by a Department Manager who reports to the General Manager
• They offer a wide range of goods through their different departments
• offers amenities like banks and restaurants
• divided into a number of departments

ADVANTAGES OF DEPARTMENT STORES TO THE CUSTOMER

• They are located in central locations in towns [1] hence is convenient for customers[1] however consumers from
rural areas have to travel long distances [1]
• Credit and delivery services are provided [1] which makes more customer to afford to buy even if they don’t have
money [1] however they are often more expensive than other stores [1]
• Wide range of goods available [1] hence customers enjoy one stop shopping [1] however may lead to overspending
through impulse buying [1]

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 ADVANTAGES OF DEPARTMENT STORES TO THE RETAILER
• Each department advertises [1] the others since customers pass through other departments hence attracts more
customers [1] however costs of providing amenities reduce profits [1]
• Open for long hours [1] which attract more customers hence more sales [1] however workers have to be paid
overtime wages [1]
• Losses in one department can be absorbed [1] as long as other department make profits however it requires more
labour [1] leading to higher operation costs [1]
•

5. MAIL ORDER FIRMS

These are stores which sell their goods through the post office. It is suitable for selling high value, light and low
volume goods such as jewellery, household utensils and clothes.
E.G. Home Choice, Tupperware

FEATURES OF MAIL ORDER FIRM

• They advertise their goods mainly through catalogues, journals, magazines

They have no shops but only have warehouses and offices through which they process orders
• They rely on post office to deliver goods to the customers
• They also sell through part-time agents who work for commission

ADVANTAGES OF MAIL ORDER FIRMS TO THE CUSTOMER

• Customer enjoy shopping from home [1] since goods are delivered to customer’s door which is convenient [1]
however it is difficult to assess the quality of goods [1]
• Offer credit facilities [1] which help many who would not afford the goods to buy [1] however customers may
burden themselves with debts and suffer with installments for a long time. [1]
• Unsatisfactory goods are returnable [1] hence gives customers satisfaction of proper goods of their choice
[1] however goods are returned at the customer’s expense [1]

ADVANTAGES OF MAIL ORDER FIRMS TO THE RETAILER

• Does not need premises/shops [1] hence save on rental costs [1] however there is no personal contact with the
customers
• They need few shop assistants only for packaging [1] hence save on labour costs [1] however they need to pay
commissions to agents as well as post offices which increase operational costs [1]
• Enjoy economies of scale for buying in bulk [1] this reduces operational costs [1] however holding large stocks
increases insurance and storage costs [1]

6. RETAIL COOPERTIONS SOCIETY

These are stores formed and run by a group of consumers on the cooperative principle of ownership, cooperation
and distribution of profits.

FEATURES
• The members/owners are people who hold shares in the society and are also the main customers.
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• Profits are divided as dividends in relation to the amount of goods the member bought from the store.
• They offer special benefits such as scholarships, funeral benefits to the community
• They are run by a committee elected by the members

ADVANTAGES OF RETAIL COOPERATIVES TO THE CONSUMER

• Enjoy low prices [1] hence able to buy more goods [1] however their choice of shops is restricted in fear of losing
benefits of membership [1]
• Wide range of goods available [1] hence customers needs/choice are met [1] however may lead to overspending
through impulse buying [1]
• Enjoy amenities like scholarships, funeral benefits [1] hence improved standard of living [1] however there is poor
management which may lead [1]

ADVANTAGES OF RETAIL COOPERATIVES TO THE RETAILER

• Reap benefits of economies of scale [1] hence offer lower prices to consumers which in turn attracts many
customers [1] however societies are poorly managed leading to closure [1]
• Payment of dividends encourage members to buy more from the society[1] hence increase sales [1] however
issuing of stamps is a slow process hence become inefficient [1]
• They may have their own brand [1]which encourage customer loyalty [1] however packaging and branding is
expensive [1]

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 TRENDS IN RETAILING

TREND ADVANTAGES DISADVANTAGES

1. BRANDING: It gives the product identity, (1) so it however it is expensive to carry out(1)
can be easily seen by customers / hence increased costs to the business
This is the use of a mark or attracts customers, (1) [1]
name to differentiate one
producer’s product from It makes it easy display of the product however shoplifting is common [1] and
another to make it unique and on shelves and be sold by self service this may reduce business profits(1)
easy to identify. method (1) which is
labour saving hence reduced wage bill
E.G Addidas, Omo, Sta-soft (1) However imitations may appear in the
market (1) hence split of customers
It makes it easy to advertise the leading to low sales. [1]
product (1) by describing it so as to
attract customers to buy [1]
however it may be difficult to get a good
It helps create brand loyalty(1) so it is share of the market [1] due to increased
easier to push to customers hence competition[1]
wider market (1)
2.PRE-PACKAGING: It allows brand names to be shown on However it is expensive [1] hence
means putting goods in the packets [1] so that customers can increased costs to the business [1]
distinctive packets of standard easily identify the goods and buy[1]
sizes by manufacturers before Attractive/ colorful packaging attract However cost of packaging is added to
selling them for protection and customers to buy[1] hence increase in the price of the product which makes it
easy handling. sales [1] expensive [1] hence low sales [1]
however shoplifting is common [1] and
It enables the use of the self-service this may reduce business profits(1)
method [1] which is labour saving
hence reduced wage bill [1] However customers are not able to
It prolongs the shelf-life of goods.[1] inspect the goods before buying [1] this
hence ensuring customer satisfaction may lead to some customers not buying
[1] hence reduced sales [1]

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3. SELF SERVICE However shoplifting is more common
[1] which lead to additional expenses of
A method of selling where by It requires few sales assistants [1] hiring security guards and installing
goods are displayed on shelves therefore low wage bill to the surveillance cameras [1] hence reduced
[1] for customers to pick retailer [1] hence increased profit [1] profit [1]
whatever they need [1] and pay
at the check out tills [1] However it requires a large selling space
Impulse buying is likely [1] because of for layout (1); and this can be expensive
clever and attractive display of goods thus more money required (1) forcing the
on shelves [1] which may business to create debts
Features of self service
increase sales [1] by borrowing money (1)
Goods are well displayed on
shelves section by section. Enables the selling of wide variety of However only suitable for goods which
goods(1) leading to economies of are pre-packaged and branded (1)
Trolleys and shopping baskets scale(1) and possible high profits(1) difficult for customers to select (1)
are provided.
Goods sold are usually
packaged, branded and hence limited sales (1)
individually priced. Saves time for customers/retailer (1)
Large selling space is needed. since they don’t wait to be served (1) However lack of personal attention can
Few sales assistants are needed. hence creating customer loyalty(1) be a problem to illiterate customers [1]
may leave the shop without buying [1]
hence reduced sales [1]

16
4. VOLUNTARY CHAINS However the retailer has to always place
These are groups of an order through a wholesaler [1] so he
independent retailers who join Enjoys purchasing economies/trade can not buy elsewhere even if he can find
with wholesalers in order to discount for bulk buying [1] hence cheaper suppliers [1]
reap the benefits of bulk buying. able to charge competitive prices [1]
thereby attracting more customers to however retailers have to pay
E.G BIG 1 SUPA 7 buy [1] leading to increase in sales [1] subscription fee [1] which may reduce
profit [1]
features of voluntary chains National advertising is under taken [1]
They are mainly found in the which help attracts customer to the
grocery trade. retailer at reduced costs [1]
The chains are normally hence possibility of increase in However they have to pay interest on
organized via a wholesaler. profits [1] loans given [1] which may lead to
Individual retailers place their shortage of working capital. [1]
orders through a wholesaler. Finance in the form of loans for
Group undertakes national improvement of the premises may be
provided to members [1] which help
advertising and provides
make the shop look attractive an However there is less freedom as the
members with advertisement appealing to customers [1] retailer is restricted by the set rules and
leaflets regulations [1]
Advice on stock, pricing, display etc is
given to retailers [1] leading to
efficient management of the
business [1]
They are open 24 hours a day [1] so However it can only be used to sell
5.AUTOMATIC VENDING customers can buy at anytime [1] limited range of goods [1] hence
MACHINES hence increase in sales [1] limited sales [1]

No sales assistants needed [1] low However the retailer has to do regular
Machines used to sell certain maintenance to avoid total loss when
wage bill to the retailer [1] hence
goods such as drinks, snacks, machine breakdown [1] this can reduce
more profits [1]
cigarettes with a slot where profits.[1]
customers drop the money and
punch her order and the product They are located in convenient However the machines are vulnerable to
comes out from the other slot. spots/busy areas [1] where it attracts vandalism/ theft [1] which brings loss to
more customers [1] the retailer [1]

E-COMMERCE However not many people have

This is the buying and selling The net is 24hours around the globe computers nor access to the internet [1]
goods and services on line or on [1] so customers can buy at anytime so this limit the number of customers
the internet. [1] this help increase sales [1]
[1] leading to reduced sales [1]
Global reach [1] helps to find new
markets and compete globally for a However credit card fraud is likely [1]
which may make customers be in fear to
small fee [1] hence increase in
buy online [1] hence reducing the number
market share [1] of customers [1]
17
 However delivery cost makes it costly
It is economical [1] as one does not [1] as goods have to be packaged and
have to rent expensive street sent by post/couriers. [1]
premises [1] so this reduce costs [1]
However the business has to pay for
Customers orders come internet subscription [1] which
automatically to the business’s order increases costs. [1
database [1] so it is cheaper to
process them [1]

SHOPPING MALLS To retailers

These are designated areas 1.Retailers spend less on advertising However there is a lot of competition [1]
where a whole range of shops [1] as malls attracts lot of customers which may lower profits of the business.
are found offering variety of [1] hence reduced operational costs [1] [1]
goods.
2.Plenty of labour for retailers [1] as
However retailers pay high rent [1] as
many people prefer to work in such
shopping malls are usually in prime sites
prestige malls [1]
which are expensive [1] increasing
3.Security guards are usually provided
operational costs [1]
[1] this means less costs to the retailer
[1]

To customers
However customers are likely to buy
Wider variety of goods and services impulsively [1] leading to financial
for consumers to choose [1] difficulties [1]
therefore enjoy one stop shopping [1]
hence saving time and travelling costs
However customers valuables are likely
[1] to be stolen by thieves [1] as malls
attracts lots of people hence loss to the
Competitive prices are offered [1]
customer [1]
enabling customers to afford to buy
more goods and improve their living
standard [1]
However there is noise pollution [1] due
to traffic/vehicles hooting/ retailers
shouting to advertise their products [1]
Amenities such as resting places, which cause discomfort to some
music , parking spaces are provided customers [1]
[1] which makes shopping enjoyable
[1]

18
 It increases sales to the trader [1] as However increased management costs
AFTER SALES SERVICE customers make repeat purchases [1] and warranty repair work increase
costs to the retailer [1]
Service given in order to
maintain correspondence with a
customer after they have bought However warranty given is only for a
a product from the shop and limited period and adds to the cost of the
have taken it home. The customer enjoys technical product [1]
support, supply of spares and product
It includes:supply of warranty [1] which create customer
maintenance parts, repairs, loyalty [1]
warranty, installation

BAR CODING Helps enable automatic billing [1] However the retailer has to incur high
which saves on labour hence costs operational costs as skilled labour is
It is a series of black bars and [1] required and computers have to be
white spaces of varying provided [1]
widths printed on labels to
uniquely identify products and However software/scanner
help in stock control. Help reduce human errors at tills and malfunctioning brings business to a halt
provide quick billing [1] [1]

-To make room for new inventory by -May lead to losses if customers only
clearing old stock. buy loss leader items.
-improves cash flow to pay for other
items. -Goods may be perceived to be of lower
LOSS LEADER -Increase customer traffic to expose quality hence reduce customers
them to other products.
These are selected goods that a
-To increase sales as customers may
trader sells below cost price in
purchase other goods that are more
order to attract customers into
the shop and to promote sales profitable
for a short period of time To create brand awareness and build
customer loyalty

-allows the business to learn more -it is expensive to make the cards hence
about its customers by tracking reduced profit.
shopping habbits hence adjust loyalty
offers to match their needs

LOYALTY CARDS -Make customers loyal and happy- -there is market saturation hence
hence free advertising as they may increased competition and loss of
share with other people customers.

-Past customer profitability does not

guarantee future profitability.
19
 -Increased product awareness hence
new customers may try out the
products thus increasing market share

CAUSES OF THE CHANGES/TRENDS IN RETAIL TRADE

• Changes in the pattern of spending due to rising standards of living. For e.g. many people now own private cars so few
customers now require delivery services from retailers and so the retailer’s costs are lower.
• Quickening pace of modern life and the need for speedier shopping which resulted in the use of self service.
• The growing pressure of competition among retailers has caused them to think of more cost effective selling methods.
• Retailers try to cut costs by dealing direct with manufacturers instead of buying from wholesalers; this had led to the
growth of voluntary chain stores.
• Improvement in technology has brought about automatic cash registers and computers, which are now widely used in
selling.

WHOLESALE TRADE

What is wholesale trade: it is the selling of goods to another trader in large quantities.

What is a wholesaler: a trader who sells goods in large quantities more especially to small scale retailers.

FUNCTIONS OF THE WHOLESALER

20
 TYPES OF WHOLESALERS
• Cash and carry wholesalers
• General wholesalers
• Specialist wholesaler
1. CASH-AND-CARRY WHOLESALERS
These are wholesalers who sell their goods strictly on cash and do not provide credit and delivery services.
EG trade world, Trans Africa, welcome cash n carry etc.
Features of cash and carry wholesalers They sell mainly groceries.

FUNCTIONS OF WHOLESALERS TO THE FUNCTIONS OF WHOLESALERS TO THE

RETAILER PRODUCER

Warehousing [1] - The wholesaler stores goods and Warehousing [1] : buys goods in bulk as soon as they
keeps them safe until they are required by the retailers produced and stores them [1] so this relieves the
[1] so retailers will not run out of stock as there is read producer the costs of storage [1]
supply of goods [1]

Keeping prices stable [1] - Wholesalers keep prices The Financier: [1] Wholesalers may pay the
steady by holding goods in store in order to prevent manufacturer promptly by cash [1] so the producer
either shortage or excess developing in the market [1] so will have has sufficient working capital to buy raw
retailers are able to charge constant prices so as to keep materials for production. [1]
customers [1]
Transport: [1] wholesalers send their own trucks to
Providing a variety [1] - Wholesalers provide the collect goods from manufactures [1] so this saves
retailers with a wide variety of goods from which to transports costs [1]
choose [1] so this help save time and costs of going
from one producer to another [1] Marketing: [1] Wholesalers buy goods from the
manufacturers as soon as they are produced then
The Financier [1] - Wholesalers usually give credit to advertise and market them on behalf of the
retailers [1] thereby increasing their working capital manufacturers [1] so they are relieved of marketing
therefore able to pay for other expenses. [1] costs [1]
Breaking bulk [1] - wholesalers buy goods from the Risk bearing: [1] - by storing goods in large
producers in large quantities and sell them to retailers in quantities, the wholesalers bears the risk of loss in
relatively smaller quantities [1] case the anticipated demand does not materialize or
goods goes out of fashion or are damaged. [1]
Transport: [1] they usually deliver goods to the retailer
premises [1] so this relieves the retailer transport costs Information: [1] - The wholesaler informs the
and related problems [1] manufacturers whenever there is any change in the
demand for a product [1]
Information: [1] - the wholesaler informs the retailers
of any new changes in products or new products Prepare goods for sale [1] by
introduced in the market [1] branding/bottling/packaging [1] this help
reduce production costs [1]

21
 They do not offer credit and delivery facilities so they tend to be cheap.
They usually serve local markets.
2. GENERAL WHOLESALERS

These are wholesalers who sell a wide range of goods and are usually very large with branches in many regions of the
country.

Features of General Wholesalers

• They are run by large companies who have huge capital.

• They are usually very large and may operate on a regional or national basis.
• They often send their salesman around to obtain orders from retailers.
• They offer credit facilities
• They offer delivery services..
• They offer a much wider range of goods including household, hardware and building supplies.

3. SPECIALIST WHOLESALERS

These are wholesalers who specialize in selling a limited range of goods although they provide a wide variety of goods
within that range.

E.G. Builders Merchants Botswana (BMB), Builders world and cash build sell only building materials and equipment
but provide many different varieties of building materials and equipment.

Fruit and vegetable wholesalers sell only fruits and vegetables but offer a wider variety of fruits and vegetables.

MIDDLEMEN IN WHOLESALING

BROKERS: Agents whose work is to bring the buyer and the seller face to face so as to negotiate the deal, they do not
physically handle the goods for sale. They are paid brokerage.

FACTORS: agents whose work is to collect the goods from the seller and look for a buyer while having the goods with
them. They sell the goods in their own names and can even give credits. They then forward the money to the buyer less
their commission.

IMPORT MERCHANTS: they are actually traders who buy goods in large quantities from abroad in their own names
and sell them locally at a profit.

OTHER TYPES OF WHOLESALERS

COMMODITY MARKETS: A form of wholesaling dealing mainly in raw materials, agricultural produce and metals.
They are found in international trading centres and goods are sold by description, grade or sample and may be auctioned.

E.G: The Harare Tobacco Auction Floor

COOPERATIVE WHOLESALE SOCIETY: wholesales owned and controlled by retail cooperative societies run on
the cooperative principle of ownership, operation and distribution of profits.
22
 CIRCUMSTANCES UNDER WHICH A WHOLESALER MAY BE ELIMINATED
Wholesalers are very important in the chain of distribution. But the wholesalers may be eliminated under the following
circumstances:

Where the manufacturers appoint agents to sell their products.

Where the manufacturers decides to sell direct to consumers through mail order selling or through their factory shops.

If transport and communication are so efficient that retailers can restock quickly direct from producers.

where retailers place large orders directly from manufacturers such that there is no need for them to order from the
wholesalers

If there is need for speed in distribution and need to reduce handling of especially perishable and fragile goods.

IMPLICATIONS OF THE ELIMINATION OF THE WHOLESALER

Introduction of home shopping e.g. through e-commerce [1] will help cut transportation costs [1]
consumers can get goods while still fresh [1] since the supply chain is now short [1] hence satisfy their needs and wants
[1]
Retailers are able to buy from producers at factory prices [1] hence able to charge reasonable prices [1] which will
attract more customers hence increase in sales [1]

Small retailers would suffer as they don’t have the capital to hold large stock [1] hence fail to replenish their stock
adequately [1] resulting in loss of customers [1]
Producers will have to hire agents to market their products [1] this will increase their operational costs [1] hence reduced
working capital [1]

STRATEGIES ADOPTED BY WHOLESALER TO SURVIVE

• forming voluntary chains with small retailers hence be assured with orders from small scale retailers.
• develop into specialist wholesalers
• Offer discounts, credit, delivery services so as to encourage small scale retailers to buy from them.
• Launch intensive advertising campaigns so as to attract more customers.
• Operate on cash and carry basis to improve working capital
• Create good delivery system to enhance company image
• Using online promotions/web advertising to target large population and increase market share
• Join e commerce/online selling to expand market share

MARKETING BOARDS

These are trading organizations set up by the government to handle the sale of agricultural produce. They are created
by an Act of parliament.

E.G. BAMB - Botswana Agricultural Marketing Board handles the sale of sorghum, maize and pulses.
BMC- Botswana Meat Commission handles the sale of beef and beef by products

23
REASONS FOR THE ESTABLISHMENT OF A MARKETING BOARD ARE AS FOLLOWS
To arrange the orderly marketing of agricultural produce.
To minimize fluctuations in the price of agricultural produce.
To ensure a steady supply of produce throughout the year, especially those which are produce seasonally.
To determine prices before output reaches the market so as to encourage the farmers to grow more corps.
To maintain standards of quality produce through research and regular inspection.
To provide transport for collecting produce from the farmers. To provide storage facilities
THE FUNCTIONS OF MARKETING BOARDS
Buying produce from the farmers: [1] as soon as they are harvested, this guarantee ready market [1] for the farmers
produce thereby stimulating production [1] however prices are set by the board and may be too low[1]

Provides inputs to farmers at reasonable prices: [1] as a result farmers are able to buy expensive farm inputs such
as tractors for mass production [1] however farmers have to contribute part of the purchase price which can be
expensive to the farmer. [1].

Control of production [1] the board controls production in order to avoid either overproduction or under production
which may lead to price fluctuations so this helps even out supply [1] hence stable prices for consumers. [1] however
by discouraging over production allows prices to go up beyond the means of poor consumers [1]

Collection and storage of produce: [1] - They provide transport to collect produce from the farmers and stores them
in their depots so this relieves the farmers the problem of both storage and transport. [1]

Research:[1] they carry out research for the benefit of the farmers. Through researches conducted farmers can get
improved seeds or hybrid varieties that yield more per given acre of land [1] however the information may not be
beneficial to all farmers.

Selling of produce

Offering farm inputs on loan

BOTSWANA MEAT COMMISSION [BMC]

It handles the sale of beef and beef by products throughout the world.

INPUTS OF BMC
Cattle
Small livestock [goats/sheep]
OUTPUTS OF BMC
Corned beef
Boneless beef
Canned tongue and hides
Pet food
Carcass meal
BENEFITS OF BMC TO BOTSWANA ECONOMY
Source of employment [1] hence those employed earn income [1] to improve their standard of living [1]

24
Source of foreign exchange [1] through exportation of beef [1] which can be used to pay for imports [1]
Provides ready market for livestock [1] therefore help stimulate livestock farming in Botswana [1]
Produces beef of high quality [1] making the country self sufficient in beef [1]
PROBLEMS FACED BY BMC
Competition with local butcheries [1] lead to failure to meet the EU quota [1] hence loss of market [1] Drought [1]
lead to loss of cattle [1] hence decrease in sales [1]
Outbreak of foot and mouth disease [1] force closure of abattoirs and suspension of beef exports to EU markets [1]
hence loss [1]
Farmers failing to meet the set health and safety requirements to supply their cattle [1] thus reducing total output [1]
hence decrease in sales [1]

DISCUSS THE BENEFITS OF THE USE OF COMPUTERS IN BUSINESSES/TRADING

Through internet it can be used for e-commerce [1] which will help increase business’ s sales as it operate 24/7 [1]
however the business has to subscribe for internet [1]

Can be used for online banking [1] which saves time for going to the bank [1] however the business account may be
hacked [1]

Can be used for storing business data/ information [1] which can easily retrieved when needed [1] however the
information can be lost due to virus [1]

Can be used for research through internet [1] which can help the business to come up with better strategies on how to
improve [1] however it can not work if there is no electricity. [1]

Can be used to design advertisements [1] which will help attract more customers [1] however it need skilled personnel
to design the advert [1]

CREDIT TRADING

25
 FORMS OF DREDIT TRADING
1. Hire –purchase
2. Deferred payment/ credit sale
3. Monthly accounts
4. Budget account
5. Simple credit

1. HIRE-PURCHASE
DEF: It means hiring an item while paying to acquire it; the item legally belongs to the seller until the last instalment
has been paid.

FEATURES OF HIRE PURCHASE

A down payment called deposit is made followed by fixed instalments at regular intervals for a specific period of time
The goods acquired on hire purchase do not belong to the buyer until last instalment has been made The item
purchased may not be sold until payment is completed.
The seller can repossess the item if the buyer defaults.
It is usually used for goods with high resale value such as furniture,, fridges, office equipment and cars.

ADVANTAGES OF HIRE PURCHASE DISADVANTAGES OF HIRE PURCHASE

TO THE CONSUMER TO THE CUSTOMER

It enables low-income people to buy expensive However it is costly [1]compared to cash purchases as the
durables like furniture, cars [1] which improve their amount payable includes other charges such as insurance
standard of living. [1] and interest [1]

By spreading payments over a period of time [1] a However it tempts people into buying what they cannot
customer can save money for other needs. [1] afford [1] and they will suffer with the instalments for a
long time. [1]
The customer has full use of the item and practically However the buyer is not allowed to sell the goods until
treats it as his or her own [1] as soon as the deposit is he/she has finished paying for it. [1]
paid. [1]
ADVANTAGES TO THE SELLER However much of the traders’ capital is tied up in debts
[1] so it requires a large amount of capital to run the
It helps increase sales to the trader [1], as more people business and this may put the business in debts[1]
are able to buy the expensive goods [1] .
However it requires trained staff to keep a record of
The trader gets a high profit margin [1] because the customers and details of their transactions [1] usually this
goods sold on hire purchase carry higher interests or trained staff are paid high wages [1] which reduces the
financial charges. [1] profits [1]

However court action against defaulting customers may

It is a safe means of selling goods [1] as goods can be tarnish the image of the trader [1] hence scare away
repossessed if the customer fails to pay the instalments customers [1]
[1] .

26
2. DEFFERED PAYMENT/CREDIT SALES
A credit trading method in which the customer pays the deposit and becomes the legal owner of the item immediately
and the balance is paid in installments.

DIFFERENCES BETWEEN HIRE PURCHASE AND DEFFERD PAYMENT

HIRE PURCHASE DEFFERED PAYMENT
• Buyer only assumes ownership after last instalment • Buyer assumes ownership upon payment of deposit
has been paid • Seller cannot repossess the goods but may sue for the
• Seller can repossess the good if the buyer defaults balance outstanding.
• Buyer cannot sell the goods without completing • Buyer can sell the good any time
payment
• Suitable for goods with resale value such as furniture,
• Suitable for goods with little resale value such as
TV and cars clothing and carpets

3. MONTHLY ACCOUNTS
A form of credit trading in which the customer goes to the shop and opens an account i.e. negotiate a small credit that
he promises to pay at the end of the month. The customer then picks a number of items from the shop and signs against
each purchase, at the end of each month he comes to the shop to pay the account.
Advantages to the retailer
Increased sales as many customers can afford to buy the goods-there is a risk of bad debts
Customer loyalty increases which may encourage customers to make repeat sales- reduced cashflow when customers
do not pay on time/default
-competitive edge- may attract customers- requires more paperwork which is time consuming.

4. BUDGET ACCOUNT
A form of credit trading in which the customer picks the goods and pays a small deposit, a small amount is charged
above the cash price and the customer is then expected to pay a certain amount each month until full balance is cleared.
Advantages to the customer
-Customers can be able to buy goods they cannot afford for cash hence improve standard of living.
-Once account is opened, further purchases can be made without the need to pay deposit hence save money for other
needs Customers may benefit from special offers made by the shop eg discounts hence save money
-increase in credit limit due to regular payments therefore more access to goods.
-Increased credit worthiness hence access to credit in other retail stores.

5. SIMPLE CREDIT
It is a form of credit that the customer gets without much formality. For example if you receive visitors suddenly and
you do not have cash to buy visitors a few soft drinks, you can approach the retailer and ask for a few drinks on credit
and you will pay off the debt the day you get money.

IMPORTANCE OF BANKS AND FINANCE HOUSES IN HIRE PURCHASE TRANSACTIONS

They buy off the invoices from the traders (1) after they have sold the goods to the customer. So this helps the trader
to have working capital.
They provide standing order/stop orders to customers (1) hence reduced bad debts
27
 They stimulate demand (increase sales) with immediate capital (1) hence traders will have continuous flow of products.
They offer advice

CONSUMER PROTECTION AND CUSTOMER

RELATIONS

Consumer protection is about helping consumers to get a fair deal whenever they go to the shops to buy goods and
services.

WHY DO CONSUMERS NEED PROTECTION / REASONS FOR CONSUMER PROTECTION

o Overcharging- traders might fix prices at high levels in order to maximize their profits.
o Misleading price reduction might be offered to tempt customers to believe they have got a bargain.
o Underweight goods: consumers might not receive the correct weight, quantity or measure of goods.
o False advertisement: retailers may make false claims that their goods can perform certain functios while they
cannot
o Poor quality raw materials: may be used to produce goods and these goods might be harmful to the public.

HOW CAN CONSUMERS BE PROTECTED

1. CONSUMER LAW
A law can be passed by parliament, which makes it a crime for traders to mislead or cheat consumers and sets out
punishment for the crime.
2. SETING UP STATUTORY BODIES
Statutory bodies are watchdog organizations set up to provide consumers with awareness and protection.
It could be a government department charged with the responsibility to protect consumers e.g. consumer affairs unit
in the ministry of commerce and industry. There two statutory bodies for consumer protection:

28
 a. THE OMBUDSMAN {PUBLIC PROTECTOR}
The ombudsman is a high-level official who is independent of the government or any political. He is appointed by the
president in consultation with the opposition. The work of the ombudsman is to:
• Receive any kind of complaints from members of the public, private companies or any legal persons against government
department, parastatals or any other authorities in which government is a part.
• Investigate the complaints
• Recommend remedial action.

b. THE BOTSWANA BUREAU OF STANDARDS [BOBS]

BOBS was formed with the primary objective of improving the quality of life of the citizens of Botswana by:
Formulating Botswana standards
Coordinating quality assurance activities in Botswana.
FUNCTIONS OF THE BOTSWANA BUREAU OF STANDARDS [BOBS]

2. CONSUMER MOVEMENT [ASSOCIATION]

A consumer movement is a group of people who have got together in order to:
Benefit the community by addressing the issues affecting the interests of the consumer [Health, safety, or prosperity for
the community] and make the society more responsive to consumers’ needs and interests
Consumer association is a movement of people for the people. It will protect consumers against any one or
more of the following:

• Supply of poor services and shoddy goods

• Lack of proper representation at decision making levels
• Poor treatment of customers by the business community
• Lack of adequate measures of redress
• Lack of enough information on goods and services selling in the market.

29
 Functions of consumer‘s association

• They receive and investigate complaints from consumers and take appropriate action and if necessary refer such
complaints to government bodies concerned.
• They carry out surveys, testing and research programmes concerning matters of consumer interest. e.g. they examine
the extent to which consumers are affected by certain goods and services and carry out tests on the quality and safety
of such products, and determine the effect on consumers of such products.
• They publish reports through the mass media so that the public becomes more aware of the need for consumer
protection.
• They give advice to persons on protection available under the laws and regulations of the government and in certain
circumstances provide free legal aid to the consumer.

CONSUMER RIGHTS

The right to be informed: i.e. the right to be given facts and data needed to make an informed choice each time when
buying goods.
The right to choose: i.e. the right to have access to a variety of goods at competitive prices while being assured of
good quality.
The right to safety: i.e. the right to be protected against products, production processes which are hazardous to health
or life.
The right to a healthy environment: i.e. the right to a physical environment that will enhance the quality of life at
present as well as in future.
The right to representation: i.e. the right to have consumer interests represented in the making and execution of
government policy in the development of goods and services.
The right to be heard: i.e. the right to be heard when expressing their dissatisfaction or views.
The right to redress: i.e. the right to receive a fair settlement of just claims including compensation for
misrepresentation, shoddy goods or unsatisfactory services.
The right to consumer education: i.e. the right to acquire the knowledge and skills to be an informed consumer
throughout life.
CUSTOMER RELATIONS

FEATURES OF GOOD CUSTOMER SERVICE

Good customer relations depend upon the following factors:
30
• Staff- the staff should always be ready to take prompt actions to deal with customer needs whether it is complaints,
inquiry or orders. They should be able to talk about the product to the customers in the best possible way, should also
be friendly, look good and always stay positive even when the customers are unrealistic hence create customer loyalty
however training is required which may be tie consuming.
• Premises- the premises should be clean appealing with clear access road. The layout and display of goods inside the
shop should be neat and attractive hence motivate the customers to come back to the same shop another time/ sends a
positive image about the business however it requires large capital.
• Product – provide a high quality product which builds customer confidence and loyalty/ attracting more however high
quality products tend to be expensive for customers hence reduced sales.
• After sales service- such as follow-ups/ technical assistance may help get feedback from customers hence help improve
the products however it increases operational costs due to overtime and spares needed to service customer products.

THE IMPORTANCE OF GOOD CUSTOMER CARE

• It helps to build the reputation of your business and sustain a good relationship with the customers hence motivate
customers to buy.
• It encourages the customers to always buy from your shop, assuring you of regular customers
• It gives your business an edge over your competitors and increase market share by keeping in mind the requirements
of customers.
• It brings feedback that can be used to improve your products and services.

HOW TO HANDLE CUSTOMER COMPLAINTS

• Do not argue with your customers, listen and understand their complaints
• If there is a misunderstanding about the product or service, then wait until your customer has explained their point of
view. Calmly explain what was intended and where the misunderstanding occurred. Never ever tell the customers they
are wrong or criticize them, because this can chase customers away.
• Try to understand or at least sympathize with your customer’s complaint.
• Put yourself in your customers’ shoes.

NEEDS WHICH MAKE CUSTOMERS BUY FROM A PARTICULAR SELLER

1. information: for the customers to make informed choices they need the relevant facts and data, as a seller one
should try to provide all the information the customers need to know prior to buying.
2. Assistance: customers need attention when they come to the shop, as a seller one should ensure that the staff is
always available and ready to provide all sorts of help to the customers with a smile.
3. Care: always take care of the customers .e.g. deal with their orders, inquiry or query without any delay, also
give them discounts, delivery and credit facilities if necessary.
31
4. Refund or replacement: one should always promptly resolve any complaints from the customers. A customer
may buy a product and be dissatisfied with the product may be because the product is not the correct size o
expired or obsolete o damaged on transit o Not what they ordered so the customer has the right to return the
product and be refunded or the product is replaced.

PURCHASING AND SELLING PROCEDURES

CONTRACT OF SALE: a binding agreement of sale between the buyer and the seller which creates an obligation
for the seller to deliver the goods and for the buyer to pay for the goods. In this case the seller offers the goods and the
buyer accepts the goods.

OFFER: means to put forward something for sale to someone at a certain price.
Or a statement, by the seller, of the terms in which he/she is willing to part with a particular good.
Rules that govern offering:
An offer is usually made to a specific person unless otherwise stated. It can also be made to a group of people or the
general public.
An offer cannot be withdrawn after it has been accepted.
An offer that is conditional must specify the conditions attached to it.
An offer must be communicated to the prospective buyer.
An offer is usually made for a specific period of time.

ACCEPTANCE: means to agree to buy something at a certain price.

Rules governing acceptance
Acceptance must be made within a reasonable time.
An acceptance must be promptly communicated to the offerer so that he/she knows it Acceptance cannot be
withdrawn once it has been made.
Acceptance can be in any form written, verbal or by conduct.

TERMS OF A CONTRACT OF SALE

These are promises and undertakings contained in a contract of sale.

i) CONDITIONS IN A CONTRACT OF SALE

This is the pillar of the contract. A breach of a contract’s “condition” by a Seller could result in claims for damages and
a right to cancel the contract or delay settlement by the buyer.

32
 ii) WARRANTIES IN A CONTRACT OF SALE
It is not as essential as a condition but essential in the contract. A breach in a contract’s “warranty” only entitles a Buyer
to claim damages or compensation but does not allows the right to cancel or delay settlement.

Example:
You board a bus from Selibe Phikwe to Gaborone and you are told it will take 5 hours. If instead it takes 6 hours you
cannot refuse to pay because the bus arrived late. Here the condition is you should pay. The warranty is the time or
duration of the journey

AGREEMENT TO SELL AND ACTUAL SALE

Agreement to sell: This refers to a situation where the buyer and seller agree on how the transaction is going to be
concluded but no transfer of ownership takes place. E.g. lay bye and hire purchase.

Actual sale: This is where the ownership of goods changes hands, the buyer pays full purchase price required by the
seller and the seller delivers the goods. The buyer assumes full and legal ownership of the goods.

POINTS OF AGREEMENT IN A CONTRACT OF SALE/ ESSENTIALS OF A VALID CONTRACT OF

SALE

1. Price of the product –The buyer and the seller should agree on the price of the product, the agreement should
specify whether the price includes transportation, packaging materials etc.
2. Quantity required – the buyer must specify the quantity of the goods required and the units in which the goods
are measured, in his or her order as this is a condition of a contract. The seller must also state if he or she is able to
supply the quantity ordered.
3. Quality of the product –the buyer must satisfy himself that the goods are of the right quality he/she is looking
for. When goods are sold by the description they must correspond with the description.
4. Delivery – the buyer must specify the address or place, time and date of delivery in cases where the seller
delivers the goods.
5. Conditions of payment- The buyer need to be sure of when and how he/she is expected to pay for the goods.
E.g. cash, cheque, postal order etc.

PURCHASING PROCEDURES

Factors to consider when choosing a supplier

• Quality of the product -must be durable and last longer.
• Price must be reasonable and competitive prices
• Suppliers’ capability of providing quality required -to meet customer needs.
• Reliability of the supplier who delivers on time to avoid disappointing customers.
• Reputation of the supplier for prompt delivery, good service e.t.c.
• Ability of the supplier to offer technical support in the form of installation, repairs, maintenance and training.

33
 THE PROCESS OF CHOOSING SUPPLIERS

1. DEFINE THE NEED: the buyer must determine which goods he/she needs to buy and list them down.
2. RESEARCH THE MARKET for the goods required: The buyer must find information about the organizations
capable of supplying such goods.
3.SEND ENQUIRIES to all possible suppliers asking about the availability of goods, size, prices, packaging format,
delivery date, terms of payment etc.
4. EXAMINE the quotations sent by the suppliers and select the most suitable supplier.
5. PLACE the order with the selected supplier.

FOLLOW UP PROCEDURE AFTER THE RECEIPT OF AN ORDER

SUPPLIER
Package the goods
Send the advice note
Prepare the delivery note
Dispatch the goods together with the delivery note

CUSTOMER
Checks goods against the delivery note,
signs it and keep his copy
Records the stock on the stock record card or computer system
Stores the stock according to the rules of storing stock

DOCUMENTS USED IN BUYING AND SELLING

1.THE ENQUIRY- a letter sent to the seller by the buyer seeking information about the availability of goods and their
prices.
It is used by the buyer to know : It is used by the seller to know:
o What goods are available -- what the customers want
o Prices and conditions of sale o If -- any after sales services customers want
transport is provided

34
 E.G ENQUIRY

Habitat Natural
Leather Goods Specialists
P O Box 43
Gaborone
Tel : 234567

VAT Registration number: 66672

1 June 2010
The sales manager
All leather (pty)ltd
Box 3344
Lobatse

Supply of leather goods:

I should be pleased if you send me the prices of the following leather items, as well as the terms upon
which you will supply our company regularly.
Men’s leather jackets size M BLACK
Ladies leather jackets size M PINK

Yours Faithfully k. Chaponda

Purchasing Manager

2. QUOTATION-This is a reply to the inquiry usually sent by the supplier to the buyer containing a detailed
description of goods available, the price at which goods are offered, terms and conditions of sales, terms of payment
and delivery date.

Sometimes instead of sending a quotation the seller may send a catalogue or a price list. Catalogue- is pamphlet with
pictures of goods which a seller may send to customer who makes enquiries.it also contains their prices, colour, ans
size.

35
 E.G QUOTATION

QUOTATION

All leather (pty)ltd

P O Box 3344
Lobatse
Habitat Natural
Leather Goods specialists
P O Box 34
Gaborone

Dear Sir/Madam

Thank you for your enquiry of 10.10.13. We have the pleasure of sending you the folowing quotation for the leather
goods stated in your inquiry. If there is more information you need you can ask the sales manager.
Types Description Unit price
Men’s jackets MJ 116 size M BLAK P850.00
Ladies jackets LJ 226 size M PINK P850.00

The above is subject to 12% VAT

Orders are sent promptly. Prices are valid for 3 months

Yours Faithfully

Wapapha Masala
Sales Manager

3. AN ORDER –this is a document sent to the seller by the buyer, asking the seller to supply the goods which are
stated in it.

It contains:

Description of goods needed and the brand, quantity and price of goods
The quantity required
Price as given in the quotation or catalogue.
Expected delivery date
The terms of payment

36
 ORDER FORM
Habitat Natural
Leather Goods Specialits
P O Box 34
Gaborone
TEL: 2345671

20 March 2013

Order No: 001

The Sales Manager Your Quotation No 024
All leather (Pty)ltd
P O Box 3344
Lobatse

Please supply the following:

Unit price Total price P

Quantity Description
P
20 Black Men’s leather jackets, size M. 850 17 000
30 Pink ladies’ leather jackets , size M. 700 21 000
TOTAL 38 000

Terms: 5 % 7 days
2% 21 days
Delivery: Within 14 days
K Chaponda
Sales Manager

4. ADVICE NOTE: A document sent by the seller to the buyer to inform him/her that the goods have been
despatched. It is usually sent ahead of the goods to enable the buyer to prepare the necessary space for the goods before
they arrive.
It nforms the buyer of the quantity and type of goods, date and means of despatch.

5. DELIVERY NOTE- A document used when goods are delivered using the suppliers own vehicles sent along
with the goods containing a detailed description of the goods including the quantity and number of packages.
Uses of delivery note
To inform the buyer that the goods ordered have been delivered
help the buyer to check all the goods against the order
To inform the supplier that the goods have been received in good condition

37
6. CONSIGNMENT NOTE: This is a document used when sending goods using a hired transport. It is a request and
instruction to the carrier to accept and deliver a certain consignment to the consignee.

7. THE INVOICE: A bill sent by the seller to the buyer informing him/her about the amount which must be paid as a
result of a particular order.

Contents
A description of the goods
The quantity supplied
The unit price and the total amount due from the customer The terms of sales, e.g. cash and trade discount allowed.
The names and addresses of buyer and seller
The order number
Uses of the invoice

Shows the buyer cash discount allowed

It tells the buyer the amount he owes the supplier.
It is used by the supplier for accounting i.e. book-keeping purposes.
The buyer may also verify if everything ordered has been sent by checking the goods delivered against the invoice.
A foreign import invoice is used to calculate customs duties.
E.G INVOICE

38
 INVOICE

All leather (Pty)ltd

P O Box 3344
Lobatse

11 October 2013
The Managing Director
Habitat Natural
Leather Goods Specialists
P O Box 43
Gaborone
Order no: 0034
QUANTITY DESCRIPTION PRICE AMOUNT
[P] [P]

20 Men’s leather black leather jackets size M 850.00 17 000.00

30 Ladies leather pink leather jackets, size M 700.00 21 000.00

38 000.00
Less 2.5% trade discount 950.00

37 050.00
Plus VAT @ 12% 4 446.00

Total amount 41 496.00

Terms: 5 % 7 days, 2.5% 21 days

E &OE

TERMS: 5 % 7 days, 2.5% 21 days: means that if the buyer pays within 7 days he/she is offered a cash discount of
5%, if he/she pays after 7 days but within 21 days he is given 2.5 % as discount. If he pays after 21 days no cash
discount will be allowed.

E & OE: It stands for Errors and Omission Excepted meaning that seller has the right to correct any mistakes on the
invoice.

6 (b) Pro-forma invoice: skip 12lines

7. CREDIT NOTE – A document sent by seller to the buyer who has been overcharged correcting the mistake
that appears on the invoice. This reduces the amount on the invoice.

It is issued out when:

39
• Some goods were delivered in an unsatisfactory condition and had to be refunded Goods are supplied in
smaller quantities than shown on the invoice Packaging cases or empty cases have been returned.
• The goods which are wrongly supplied are sent back Goods which were not supplied have been charged for.

8. DEBIT NOTE: this is a document sent to the buyer who has been overcharge informing him/her of the
undercharge and to claim the extra amount outstanding. This increases the invoice amount.

It is issued out when;

Some delivered items were not shown in the invoice
Pricing errors were made on the invoice
Calculations went wrong on the invoice
The buyer has kept samples that were sent by the seller

9.STATEMENT OF ACCOUNT: it is a document which summarises all transactions made between the buyer and
seller during the month which is sent by the supplier to the buyer on monthly basis.
Contents:
The balance owing at the beginning of the month,
the amount of invoices issued during the month,
any payments made, credit or debit notes issued during the month, Net amount owing at the end of the month.
uses
It can be checked against invoices, credit and debit notes and the receipts received to date.
It serves as a reminder to the buyer to pay up his debt.
it enables the buyer to check his books of account and notify the seller if there is any error.

E.G. STATEMENT OF ACCOUNT

40
 All leather (Pty)ltd
P O Box 3344
Lobatse

30 October 2013

The Purchasing Manager

Habitat Natural
Leather Goods Specialits
P O Box 34
Gaborone

Date Details Debit Credit Balance

31.09.13 Balance 2 500

6.10.13 Goods supplied, invoice no.56 19530 22 030

10.10.13 Credit mote no: 43 375 21 655

15.10.13 Debit note 500 22 155

20.10.13 Cheque no 3300991 12 500 9 655

Amount due 9 655

9. Receipt: it is a proof of payment issued by the seller to the buyer when the buyer makes payment.

DIFFERENCES BETWEEN CASH DISCOUNT AND CASH DISCOUNT

CASH DISCOUNT TRADE DISCOUNT

Description A deduction off the invoice price of goods purchased A deduction off the price of goods
on credit given by the seller to the buyer to purchased given by a trader to
encourage prompt payment. another trader for bulk purchases.

Buyer forfeits the discount if he/she fails to pay Buyer is entitled to the discount
Condition within the given period. even if he fails to pay within the
given period.

41
 Importance -the seller is paid promptly so this improves working -it can increase sales if trade
to the seller capital. discount is attractive enough.

-the number of debtors will be reduced if most -Avoids the expense of reprint ting
customers take advantage of cash discount. cost of catalogues to reflect price changes
goods is reduced thus giving the buyer a larger profit as he can adjust the trade discount.
margin

Example: Mr A. Tan sold 1000 boxes of white printing paper at P10 each to Mr T. Jay. Mr Tan allowed 5% cash
discount and 10trade discount t Mr Jay if he paid within the agreed period. Mr Jay paid on the agreed period. Calculate
the net price he paid.

1000 boxes @ P10 each = P10000

Less 10% trade discount= 10/100= P 1000
Amount payable after TD= P 9000
Less 5% cash discount= 5/100= P 450
Amount paid P 5550

INTERNATIONAL TRADE/ FOREIGN TRADE

International trade is the buying and selling of goods and services that take place between countries.
It can be between two individuals or two organizations based in different countries or even between two governments.
It consists of import trade and export trade.

Import trade is the buying of goods from someone outside the country. Imports: Goods and services bought from
other countries.

Export trade is the selling of goods to someone outside the country. Exports: Goods and services sold outside the
country.

DIFFERENCIATE BETWEEN HOME TRADE AND FOREIGN TRADE

HOME TRADE FOREIGN TRADE

42
• Takes place within one country • Takes place between countries
• Consist of wholesale trade and retail trade • Consist of export trade and import trade
• Same language is used so there is easy • Different languages used so it is difficult to communicate
communication • Different units of measurement used
• Same units of measurement are used • There are trade barriers like customs duty, quota
• No trade barriers • Different currencies used
• Same currency used

THE IMPORTANCE OF FOREIGN TRADE TO BOTSWANA/ADVANTAGES OF FOREIGN TRADE

ADVANTAGES DISADVANTAGES
• •
No country is self-sufficient due to lack of resources [1] so local industries may not be able to compete with
it has to trade with other countries get the goods and imported goods [1] so they may end up closing down
services that they cannot produce themselves.[1] leading to increase in unemployment rate [1]

• • dumping of poor quality goods in developing countries

Exportation encourages more production to meet the
foreign market demand [1] so more people will be by developed countries [1] lead to loss of local
employed to increase production [1] industries [1]

• Consumers are given a wider range of goods from which •to may lead to unfavourable balance of payment [ 1] as a
choose from [1] hence improved standard of living [1]. country may import more than what it exports [1]
hence less finance for development projects [1]
• A country exports goods in order to earn foreign exchange
• cultural differences may lead to some countries losing
or income [1] which is used to finance development projects
such as roads/ schools/ hospitals or pay for imports[1] their culture [1] as young people desire foreign
goods/way of life [1]
• It leads to transfer of technology [1] which can be used to
improve local industries [1]
• It may bring good relations between countries.

CHARACTERISTICS OF BOTSWANA’S FOREIGN TRADE

Botswana’s main exports Botswana’s main imports

- Diamonds - Petroleum products
- Cooper Nickel - Vehicles and transport equipment
- Gold - machinery and medicines
- Beef - foods beverages and tobacco
- Soda Ash - textiles and footwear
- Tourism - metal and metal products

PROBLEMS FACING EXPORTERS AND IMPORTERS

43
 Difficulty of obtaining information on foreign markets[1]: about safety standards/ import regulations due to
differences in language.[1] exporter has to hire a foreign based agent/send a research market team abroad to collect
information [1] this can be costly as the agent has to be paid [1]
Difficulty of communication [1] caused by language differences: [1] which calls for trade documents such as
advertising materials/ leaflets/ invoices to be translated into foreign languages [1] usually at additional cost.
Longer distances [1] which lead to high transport costs [1]: as goods move over longer distances arranging for
transport is more expensive and time consuming.
The problem of payment [1] caused by different currencies which are used [1] the money has to be converted into
local currencies therefore exporters may lose if the exchange rate falls before payment [1]
The problem of trade barriers either in the form of customs duty/ quotas [1]: makes imported goods very expensive
and unable to compete with home made goods [1] and hence discourages people from importing [1] A ban or quota
makes it difficult for exporters to get access to lucrative markets. [1] hence low sales [1]
Differences in units of measurements [1] make it difficult for exporters to fix prices for their goods [1] and may result
in costly repackaging of goods. [1]
Increased insurance costs due to higher risks of damage/theft [1] makes Insurance companies to charge higher
premiums to exporters. [1] which increases operational costs of the trader [1]
Risk of foreign buyer defaulting/not paying due to political changes in the country[1] lead to loss [1] however
exporter can hire a del credere agent to guarantee payment for orders obtained [1]

HOW THE GOVERNMENT CAN ASSIST EXPORTERS AND IMPORTERS

• Subsidizing exports [1] so as to enable the exporters to charge lower prices [1] therefore win more markets abroad [1]
however they may not be enough.
• Devaluing the local currency[1] to make exports cheaper [1] therefore have a large market share abroad [1] however
it will make imports expensive limiting consumer choice.
• Provision of vital information on foreign markets through BEDIA[1] so that exporters are able to meet the taste
and preferences of foreign customers [1] however it may not be beneficial to all exporters.
• Financial assistance in the form of loans/grants [1] so as to be able to produce more goods for exportation [1]
however it increases debts.
• Setting up of export credit insurance- BECI [1] so as to stimulate export trade as this will protect exporters against
loss due to non payment by customers [1] however it increases operational costs.

a. BOTSWANA EXPORT CREDIT INSURANCE-BECI

A subsidiary of Botswana Development Corporation formed to promote export trade by offering insurance cover to
exporters who sell goods on credit against the risk of loss due to not non payment by foreign customers.

FUNTIONS /IMPORTANCE OF THE EXPORT CREDIT INSURANCE

It can help exporters to obtain information on their prospective foreign buyers. [1] which can them to meet the demand
of their customers hence increase in sales [1]
It can provide useful security for exporters to obtain export finance from their banks[1] therefore able to produce more
for exportation
It diversifies the export market [1] of the country as it enables exporters to take on more business and reach new markets
by offering competitive credit terms [1]
b. EXPORTERS’ ASSOCIATION OF BOTSWANA
This is an organization set up to increase the production of export related products by helping to identify foreign markets
for locally produced exportable goods and make representation to government on behalf of exporters.

44
c. BOTSWANA EXPORT DEVELOPMENT AND INVESTMENT AUTHORITY (BEDIA)
BEDIA was established in1998 with the mandate to promote investment and export trade.

ROLE of BEDIA
To provide advisory and consultancy services to local, national and international investors
Liaise with potential investors and relevant government agencies and business organizations
Organize trade and investment missions to other countries
Operate trade and information services
Organize annual trade fairs
Analyze and identify export markets as well as import substitution opportunities Create and produce
publicity and promotional materials about the country’s potential Disseminate trade and investment
information to the business community

BALANCE OF TRADE AND BALANCE OF PAYMENT

BALANCE OF TRADE: It is the difference between the amount a country earns from exporting goods and what it
spends on importing goods.

Balance of trade = visible exports – visible imports

Visible exports: Value of goods sold to other countries within a given period
e.g. beef diamond
Visible imports: total value of goods bought from other countries within a given period.
e.g. medicine machinery
NB:
If the value of goods imported/visible imports exceed the value of goods exported, a country is said to have an
unfavourable balance of trade/deficit
If the value of exported goods exceeds the value of imported goods, the country would have a favourable
balance of trade/in surplus.

THE BALANCE OF PAYMENT: it is the difference between total exports (visible, invisibles &capital items
exported) and total imports (visible, invisibles & capital items imported) over a year. It includes the
Visible items
Invisible items
Capital items

Balance of Payment = total visible and – total visible and + capital – capital
invisible items invisible items receipts payments
exported imported

The balance of payment is divided into two sections: current account Capital account.

45
 CURRENT ACCOUNT: This account records transactions that involve the export or import of goods and services. It
therefore shows the trade in visible exports and imports as well as invisible exports and imports.

Current balance = total visible & invisible exports – total visible & invisible imports

OR
Total exports of goods & services – total imports of goods &services

NB:
Visible items refer to trade in physical goods that can be touched, seen measured or weighed such as furniture, cars,
clothes, food, building materials, etc.
The invisible items refer to trade in services, that cannot be seen touched, measured, weighed etc.
EG. Invisible exports: tourists coming to Botswana
Foreign students studying in Botswana
Invisible imports: sending Batswana students abroad for study
Botswana using other countries ships when transporting beef to Europe

2. THE CAPITAL ACCOUNT: it shows the amount of money coming in from other countries (capital
inflow/receipts) and the amount of money going out of the country (capital outflow/payments) E.G
Loans received from abroad (from individuals, foreign governments and foreign companies) Lending made
abroad by Botswana and the Botswana government. Investments made abroad by Botswana and Botswana
government Investments made in Botswana by foreign companies and individuals.

Capital Account Balance = Total capital receipts - total capital payments

IMPLICATIONS OF FAVOURABLE AND UNFAVOURABLE BALANCE OF PAYMENT

FAVOURABLE BALANCE OF UNFAVOURABLE BALANCE OF PAYMENT

BALANCE

46
• The country can afford to implement • The country becomes a net borrower [1]
development projects such as building therefore have financial difficulties [1]
schools/ hospitals [1] hence improved
standard of living for its citizens [1] • Development projects will be delayed, postponed or
even cancelled [1] hence poor standard of living for
• The country makes savings in the form of the citizens [1]
foreign exchange reserves[1]that can help to
pay for imports/ help in time of • The country will spend and exhausts its
drought/floods/ war [1] savings/foreign exchange reserves [1] no money to
guard against difficulty times like
war/floods/drought [1]

• Loss of foreign exchange [1] therefore no money to

pay for imports [1]

•
Inflation [1] which may be a problem to citizens as
they may not afford to buy goods and services[1]
hence poor standard of living [1]
NB: favourable balance of payment occurs when the value of total exports is greater than total imports, this means
the country has earned more than it spent.
Unfavourable balance of payment occurs when the total value of imports is greater than total exports this means the
country spends more than what it earns.

WAYS OF SOLVING UNFAVOURABLE BALANCE OF PAYMENT PROBLEM

Devalue the local currency (the pula) [1]:this will make exports cheaper for other countries to buy / imports will be
expensive for us therefore this will reduce the number of imports [1] but this may lead to citizens to have less choice
when buying goods [1]
Impose import quotas: this will restrict the amount of goods to be imported and hence the country will spend less to
pay for imports. [1] but this may lead to shortage of essential imports.
Impose tariffs or customs duty: It will make imports more expensive to buy than local produced goods leading to a
decrease in imports. [1] but some countries may retaliate by imposing quotas too [1]
Increase interest rates: In order to cause a fall in spending and hence a fall in imports.
Stimulate exports by providing subsides [1] therefore exporters will be able to charge competitive prices leading to
attraction of large share of the foreign market [1]
Ban the importation of some goods which are not so important [1] this will help reduce imports [1] but may encourage
smuggling of goods into the country [1]
Borrow money from other countries/IMF/WORLD BANK

IMPORTANCE OF INTERNATIONAL MONETARY FUND—IMF

Promotion of exchange stability [1] to maintain orderly exchange arrangements among members to avoid competitive
exchange depreciation [1]

47
 Give confidence to members by making the general resources of fund temporarily available [1] so as to correct their
unfavourable balance of payment [1]
Promote international monetary cooperation [1] through institutions which provides machinery for consultation and
collaboration on international monetary problems. [1]
Facilitate the expansion and balanced growth of international trade [1] so as to create high levels of employment and
real income [1]

IMPORTANCE OF WORLD BANK

Capacity building
Infrastructure creation
Development of financial systems
Combating corruption

MIDDLEMEN IN INTERNATIONAL TRADE

a. BROKER: agent who help traders to buy or to sell their goods by bringing the buyer and the seller face to face so as
to carry out their transactions.
They do not physically handle goods but only bring the buyer and the seller face to face.
They help in buying and selling i.e. can help the exporter to sell the goods and also the importer to buy the goods

b. FACTOR: agents who help in selling of goods by collecting the goods from the exporter and physically sell them in
their own names.
o They may pledge goods and even give credit.
o They only help in selling.
o Collect and forward the payments less the commission

FORWARDING AGENTS: These are agents who help in making arrangements for the transfer of exported goods by:
Preparing exporting documents
o Booking transport
o obtaining insurance cover
o Packaging and storage of goods pending shipment
o Consolidating smaller shipments to save time and money
o Arranging and operating multimodal systems-use different modes of transport for a shipment

c. DEL CREDERE AGENT: These are agents who for additional commission, provides the extra services of
guaranteeing payment for any goods they sell on credit for the exporter.
They sell goods on credit to persons of good financial standing and guarantees that payment will be made.

DOCUMENTS IN INTERNATIONAL TRADE

1. BILL OF LADING: a document used when goods are sent by sea issued to the exporter by the shipper to enable the
importer to claim goods.

48
Contents
Details of the goods on board the ship
name of the ship carrying the goods
ports of loading and destination
Condition of the goods, captain's signature
NB: It can be a clean bill of goods are in good condition or a dirty bill if some goods are damaged

Importance of bill lading

It is a document of title: i.e. it can be used to claim possession of the goods by presenting it.
It is quasi negotiable: i.e. it is transferable by endorsement so the importer can look for market and dispose off the
goods even if they have not yet arrived.
it acts as a receipt for the goods shipped
it is a contract for the carriage of goods
It indicates the conditions of goods discharged. It is used for customs clearance

2. THE INDENT: it is a letter from an importer asking an agent to order goods from abroad on behalf of the importer.
Types of indent
Open indent: it does not specify the supplier and therefore the agent can order goods from any suitable supplier Closed
indent: is the one that the importer has specified the supplier from whom the agent should order the goods.

Contents
Description of goods and quantity to be ordered
Price at which goods are offered
delivery instructions
terms of payment

3. AIRWAY BILL: A document used when goods are sent by air.

Contents
Details of the goods on board the plane
name of the plane carrying the goods
Importance of airway bill
it is a contract for the carriage of goods
it acts as a freight bill
Has a tracking number that can be used to check the status of delivery and current position of shipment

4 .SHIPPING NOTE: a document prepared by consignor/transporter and given to port authorities who receives the
goods for shipping requesting them to load the quantity of goods described on board a named vessel.
Contents
gives details of the goods
handling instructions,
the name of the vessel to be used
port of destination

Importance of shipping note

It acts as dock receipt when signed by port authorities.

49
 5. THE CHARTER PARTY: It is a contract made between a ship owner and the trader/exporter when hiring a ship
for transporting goods.
Types of/ Ways of preparing a charter party
Voyage Charter: issued when hiring a ship for a particular trip, when the goods are delivered the ship goes back to the
owner. The duration of the trip is not considered. E.g. Durban to London

Time charter: issued when hiring a ship for a specific time period e .g. 6 months. The trader will have to use the ship
for the whole of that duration, make as many delivery trips as possible and only return it upon expiry of the period.

CERTIFICATE OF ORIGIN: A document prepared by the producer showing the country/origin where the goods
were made and certified by the Chamber of Commerce
Importance
This helps the customs authorities to know exactly where the imported goods have come from and where applicable
exempt them or charge less duty.

6. CONSULAR INVOICE: A normal ordinary invoice with the signature of the consulate or trade attaché
certifying that the prices on the invoice are correct so as to reduce chances of cheating by the importer reducing the
invoice amount.
Importance
• Certifies that the prices on the invoice are correct so that the right duty is paid
• Help prevents the importation of prohibited goods

8. CERTIFICATE OF INSURANCE: An insurance policy or cover note which shows that the goods have been
insured against risks of the trip. Importance
It is assurance for the transport company and other parties, that goods are covered by insurance

METHODS OF PAYMENT USED IN INTERNATIONAL TRADE

1. LETTER OF CREDIT/ DOCUMENTARY CREDIT: this is an order from a domestic/local bank to another bank
abroad, authorizing payment of a certain sum of money to a named exporter. It overcomes the problems that both the
importer and exporter face.
How it works
• The importer first banks the money for the exporter at a home bank, before the exporter sends the goods.
• The importers bank then issues a copy of a letter of credit to the exporter’s bank
• The exporter then ships the goods and sends all the export and customs documents to the importers bank.
• Upon receiving the documents the importers bank then send the money to the exporter’s bank for payment even
before the goods arrive.

Advantages
• It helps guard against default by the importer
• It gives the exporter guarantee of payment before handing over the documents to the importers banks
• Enables the exporter to obtain immediate cash
• Provides a written proof of a debt that can be used in a court of law.

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 Disadvantages
• Can be risky if the letter of credit is revocable as it can be cancelled by the importer
• Complications in paper work may cause delays
• Where the advising bank does not have immediate access to reimbursement by the issuing bank payment may be
delayed.

2. DIRECT PAYMENTS
A payment sent in the form of a banker’s draft/ cable transfer used when the exporter is selling to a well-known trusted
customer.
a. banker’s draft
A draft drawn by the bank on itself and bought by the customer in foreign currency, then sent to the exporter as
payment. This is an equivalent of a banker’s own cheque.
Advantage
• The exporter has more confidence in receiving payment by banker’s draft because it is guaranteed by the bank.
• Saves time in processing the transactions

Disadvantages
• The person making a payment may be responsible for additional fees.
• Each draft is a physical document that can be lost or stolen.
• The process of issuing a bank draft by the bank can be time-consuming.

b. cable transfers
This involves the transfer of funds electronically between banks. The importer pays money in his local bank and
instructs the bank to transfer the money direct in to the bank account of the exporter.
Advantage
• Quick method therefore suitable for urgent payments
• It avoids problem of handling cash
• Minimises the problem of handling cash

Disadvantages
• Require complete trust between banks
• Payments may be delayed and delay the transactions
• May only be operates by the same international banks

c. international money order

Documents that can be exchanged for cash in the supplier’s country via a post office/an issuer’s office
Advantage
• Convenience: Money orders are a fairly convenient payment method. You don’t need a bank account, and you can pay
for it using cash, debit card, or even traveller’s cheques.
• Safety: an international money order usually requires signature of both the payer and beneficiary, which adds a layer
of security.
• Guaranteed: Unlike a cheque, a money order cannot bounce as it is already paid for before being sent. So, the payment
is guaranteed when the beneficiary collects the funds.

Disadvantages

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• Expensive: The sender has to pay fees to purchase an international money order, and there are often recipient fees
associated as well. This makes international money orders a relatively expensive way of sending money overseas.
• Poor exchange rates: With money orders, you often end up getting poor exchange rates, which can impact the amount
of money you’re able to send.
• Slow: International money orders are often mailed to the recipient. This can take a while depending on the countries
involved, and is typically slower than online transfers.

5. BILLS OF EXCHANGE]
An unconditional order issued by a person which directs the recipient to pay a fixed sum of money to a third party at a
future date.
How it works5
• The exporter first agrees with the importer on the sale of goods.
• The seller then draws up & signs a bill of exchange, which he gives to the importer for acceptance.
• The importer signs across it and writes the word “accepted”.
• The exporter then presents it to the bank for payment as it falls due.
Advantage
• The exporter can endorse it and then use it to pay another company for goods bought from them.
• The exporter can gt3et ready cash by discounting it with a bank or discount house i.e. sell off the bill to the bank for
a cash amount slightly less than its face value.

Disadvantages
• The exporter loses the discounted amount

Process of discounting a bill of exchange

• Exporter sells the bill to bank/discount house before maturity
• The bank then pays the exporter money less a discount
• The bank then keeps the bill until it matures
• The bank claims the full value from the importer
6. DOCUMENTARY BILLS
It is a bill of exchange to which is attached other shipping documents like the bill of lading, insurance policy, certificate
of origin, export invoice to show that the goods have been sent.

How it works
• The exporter draws up a bill of exchange on his importer after shipping the goods
• He then gives it together with the shipping documents to his bank.
• He then instructs the bank to hand over the documents to the importer’s bank (usually after the importer has accepted
the bill).
• His bank will send them to the importer’s bank with the relevant instructions.
N:B This method is used when exporting to familiar and trustworthy customers.

7. TRAVELLERS CHEQUE
These are cheques for fixed amounts sold by a bank and can easily be cashed in a foreign country or used to pay for
goods and services by a traveller in foreign countries

Advantages
• Suitable for carrying money out of the country
• Can be used to purchase goods and services from any business
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• If lost and reported on time, a refund can be made

Disadvantages
• They are valueless until counter signed
•

HOW COMMERCIAL BANKS FACILITATE FOREIGN TRADE

• Provide finance (loan) to importer and exporters.
• Facilitate payment for imports through documentary credits, bankers’ drafts etc.
• Help to transfer funds to other countries. This helps importers to pay for their imports.
• Giving business advice to exporters and importers.
• Discount bills of exchange to help exporters with working capital

THE CUSTOMS AND EXCISE AUTHORITY/BURS

In Botswana, the Department of Customs and Excise is under the Ministry of Finance and Development Planning with
the primary mandate to implement customs legislation dealing with the movement of goods into and out of the country.

FUNCTIONS OF CUSTOMS AND EXCISE AUTHORITY

1. KEEPING STATISTICAL RECORDS ON IMPORTS AND EXPORTS

The statistical records help
To calculate balance of trade and balance of payment
The government to determine the needs of the people at home.
The government to design and assess the effects of its trade policies.
The government to evaluate the effectiveness the tax collection mechanism

2. COLLECTING REVENUE in the form of customs duty, excise duty and VAT which help the government to
implement its developmental projects.
Excise duties are taxes levied/charged on home made goods to discourage home consumption of dutiable goods that
can be exported
Custom duties are taxes levied / charged on imports to discourage consumption of foreign goods. VAT or
Value Added Tax is a form of tax levied on goods as their values increase.

Advantages of customs duty Disadvantages of customs duty

• Raise revenue or income for the government which can be• may cause other countries to retaliate by imposing
used for finance development projects. similar duties on our exports therefore less goods
• Protect home industries from competition as imports will exported
be expensive and thus discourage people from importing • They restrict trade making people to have less choice
as a result buy home made goods. • Duties break agreements with neighbouring countries
• Restrict imports so as to improve the balance of payment as well as with the World Trade
position of the country. Organisation it is not in line with globalization

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 Ways of calculating duties
i. Ad valorem duty: This duty is expressed as a percentage of the value of the goods imported. E.g. 10% of the value
of the cars imported ii. Specific duty: This duty is charged per unit of import. E.g. for 10 cars imported, P2000 is
charged per car as duty.

3. CONTROLLING BONDED WAREHOUSES

Custom authorities control the bonded warehouses in order to enforce the payment of duties. Bonded warehouses are
warehouses used for the storage of dutiable goods on which duty has not yet been paid.

4. KEEPING AN EYE ON THE MOVEMENT OF GOODS ACROSS THE NATIONAL BOUNDARIES so this
helps to prevent the smuggling of prohibited goods that are either a threat to national security like arms and ammunition
or a danger to public health, e.g. drugs such as cocaine and dagga.

5. ENFORCING QUOTAS i.e. A limit on amount of goods allowed to be imported in a given year.

Reasons why quotas are imposed:

To restrict the importation of a particular commodity in order to correct a poor balance of payment position.
To protect local industries against unfair competition from foreign goods.
To reduce home consumption of imports.
To prevent dumping of cheap and possibly low quality of goods into the country by foreign companies.

6. SAFEGUARDING PUBLIC HEALTH by ensuring that goods that enter the country are safe for consumption, have
not been manufactured using inferior or dangerous ingredients, and that all imported animals are accompanied by the
correct documents of vaccination.

BONDED WAREHOUSES

These are warehouses under the control of custom and excise authority used for the storage of dutiable goods on which
duty has not yet been paid.
NB: Dutiable goods are goods on which duties have to be paid e.g.
Non dutiable/duty free goods are those which can be imported without the payment of duties e.g. agricultural
machinery/fuel
Bonded warehouses are different from other types of warehouse in that:
They are under the control of the customs and excise authorities
They are only for the storage of dutiable goods on which duty has not been paid.
Goods will only be released f upon payment of duty.
Goods may not be manufactured while in bond but they may be prepared for sale by labelling, blending, bottling,
packaging etc.

Bonded warehouses might be preferred to other types of warehouses when:

The imported goods are dutiable and the trader does not have sufficient capital to pay the duties immediately.
The goods imported are not required immediately and they, therefore, need to be stored under the control of customs
authorities without payment of duties until they are needed.
The goods need to be prepared for sale by bottling/packaging and the like. The goods are to be re-exported and
no duty will then be due.

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 INTERNATIONAL TRADE AGREEMENTS
The following organisations were designed to reduce trade restriction:

1. General Agreement on Trade and Tariffs (GATT): was formed to

–Reduce trade barriers to make exports cheaper in foreign markets
-Eliminate discrimination in international trade- for different countries to be able to penetrate foreign markets
- prevent unilateral actions by nations to impose new trade barriers

2. World Trade Organisation – formed to replace GATT

Functions
For transparency- in order to provide clear information about policies rules and regulations in foreign trade
To increase the certainty of trading conditions by making lowering of trade barriers and increase in access to other
countries’ markets legally binding.
Simplification and standardisation of customs procedure – for ease of movement of goods amongst countries.
Non- discrimination in international trade- to allow different countries to to sell in other countries in order to improve
their balance of payments.

3. United Nations Conference on Trade and Development (UNCTAD) Formed to promote international trade
and commerce.
Functions
-it is a forum for inter governmental deliberations and discussions with experts and exchanges of experience aimed at
building agreements on trade regulations amongst countries
- It undertakes research and data collection for the debates of government representatives and experts in order to
improve international trade
-it provides technical assistance specifically for the needs of certain developing countries

Trading blocs

Southern Africa Customs Union (SACU)

Maintain a free interchange of the goods between member countries (1) such that goods can move without any custom
duty (1)
Provides for common external tariffs as all member countries have to collect common excise tariff to the custom area
(1) and equitable sharing of revenue (1)
To promote the integration of the members into the regional economy (1) strengthen good relations
To promote fair competition (1) to increase investment and facilitate economic development b(1)
To prevent smuggling of prohibited goods (1) so as to reduce crime (1)
Goods coming from non -member countries are charged customs duty and the amount is put into a central fund which
is later shared by members. This is done to protect goods manufactured from member countries from competition
against goods manufactured in non member countries.

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2. Southern Africa Development Community (SADC)

Functions
SADC aims to:
Promote free trade between its member states- to encourage countries to export more goods to improve their balance
of payments and cut their people’s cost of living.
Promote self -sustaining development/ self reliance/ interdependence-
Achieve sustainable use of natural resources
Promote and maximise productive employment- because trade stimulates economic growth
Promote and defend peace and security / political stability- since smooth trade make both customers and sellers enjoy
a healthy commercial relationship hence political conflict is less likely.

INTERNATIONAL MONETARY FUND

Formed to:
Contribute to the promotion of high levels of employment and real income
Promote exchange stability amongst members to avoid depreciation of exchange rates due to competition
Assist in establishing international payment system- in order to eliminate foreign exchange restrictions which lowers
world trade.

BUSINESS UNITS

In a mixed economic system business units are divided into two broad categories being the public sector and the private
sector.

PUBLIC SECTOR

Def: It is the section of the economy that consists of business organizations that are owned and controlled by the
government.

In Botswana the Public Sector businesses can be divided into two broad categories.

Those entirely owned by the government can be subdivided into:

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 a. CENTRAL GOVERNMENT runs enterprises like National Defence Force, the Police, Universities, Secondary
schools.e.t.c

b. LOCAL GOVERNMENT runs enterprises such as primary schools, social services, roads, libraries, reading rooms
and parks

Those run as partnership between government and the private sector are called PARASTATALS or PUBLIC
CORPORATIONS.

PUBLIC CORPORATIONS/PARASTATALS

Public corporations are enterprises owned by the government and form the public sector of the economy. Such
enterprises are either wholly owned by the government or the government is the largest shareholder or the government
is in partnership with the private companies. Examples of public corporations in Botswana are BMC, BPC, BHC, WUC,
BTC, BRC etc.

Features of a Public Corporation

i. It is managed, and controlled by the government through board of directors
ii. It is created by an act of parliament
It is funded by government
iii. It has a legal identity separate from that of the government
Profit motive is not its primary aim

Advantages of Public Corporations

• They provide secure employment to many citizens which help improve their standard of living.
• They are a source of income for the government which is used to develop the country
• They take care of the public by providing goods and services at cheap prices so that majority of citizens can afford
them.
• They provide comprehensive services by making services available throughout the country.
• they help to implement the government policies
• Through them the government is able to control the provision of essential goods like minerals, electricity, water, etc.
o They are usually big in size so they enjoy economics of scale.

Disadvantages of Public Corporations

They are too expensive to run since they do not 'make much profit, therefore taxpayer's money has to be used to run
them.
Workers are not initiative because they do not identify with the enterprise, this results in inefficiency.
They tend to produce poor quality goods and services because of monopoly iv. Workers are less flexible i.e. they
have to do exactly what they have been assigned to do nothing else.

WHY GOVERNMENT TAKES PART IN ECONOMIC ACTIVITIES

To raise revenue which is used for national development eg building schools dams etc - To create secure
employment hence citizens earn income to improve their standard of living - To decentralize development by
providing comprehensive service throughout the country.

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 To implement government policies by providing essential goods and services that the private sector is unable to
provide.

PRIVATISATION
The selling off of government owned corporations to private individuals or private operators.

ADVANTAGES
• It improves efficiency because of competition and profit motive hence cheaper goods are provided
• It removes political interference in business operations hence provide good quality goods
• It helps empower citizens where such sales are restricted to citizens hence improve their standard of living.
• It increases government revenue because the business will tax to the government which is used for developments.
- DISADVANTAGES
• It leads to loss of jobs as workers would be retrenched which lead to loss if income and poor standard of living.
• It can be abused by corrupt politicians who will sell the company to themselves resulting in the rich getting richer and
the poor getting poorer.
• Some government policies may become difficult to implement.
• Foreigners may end up controlling the economy where majority of local people lack the finance to buy the privatized
business leading to a decline in the economy.
• Government loses a source of revenue resulting in reduced developments

ATIONALISATION
The purchasing of privately owned businesses by the state or government.

• -Implement government policies by providing essential goods and services not provided by private sector eg health,
education hence decentralizing development hence improve the welfare of the citizens.
• -to raise revenue for national development eg building schools so that all members of the society have access to them -
To create secure employment hence citizens earn income to improve their standard of living.

DISADVANTAGES

-Nationalised businesses are generally inefficient and run at a loss due to lack of profit motive hence the burden is
shifted to the tax payers.
-Nationalised businesses tend to exploit people with their monopoly since there is no competition in the market hence
tend to be unresponsive to customer needs
-there is too much political interference which derails their objectives hence there will be more wastage of resources.

COMMERCIALISATION
The turning of a public enterprise into a profit making business. E.g. BMC has been commercialized.

ADVANTAGES
-Pays tax-which is used for development hence improve citizens
-Possibility of foreign exchange- which can be used for economic development through paying for imports -Job
creation-where workers get income and use to improve their standard of living.
-brings efficiency leading to cheaper services hence people save money.
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 -quality services may be provided due to lack of political interference hence a prosperous nation.

DISADVANTAGES
Possibility of exploitation since it may become a national monopoly hence increased prices of goods.
May prevent transfer of technology since it may employ foreign skilled workers which results in unemployment for the
locals
Government policies may be hindered since the service may not be available to some citizens hence loss of income to
the government.
Competition may lead to shutting down of small businesses resulting in unemployment of the citizens.

PRIVATE SECTOR

This is a section of the economy that consists of business organizations owned and controlled privately by individuals.
The main objectives of a firm in the private sector are maximizing profits for the owners.

There are two broad categories of privately owned business organizations, namely:

a. NON – INCORPORATED ORGANISATIONS

An organization which according to the law has no separate legal entity from its owners. This means that the owner and
the business are one under the law. It also means that the organization cannot enter into a contract on its own and it
cannot sue or be sued as a firm. e.g. sole trader and partnership.

B. INCORPORATED ORGANISATIONS
An organization that the law recognizes as an artificial person, or as legal entities in their own right and not the
employees of them. An incorporated organization as a legal entity has certain rights – to enter into contracts.
• To own property and employ people.
• To sue and be sued for breach of contract.

NON – INCORPORATED ORGANISATIONS

1. SOLE TRADER/ SOLE PROPRIETOR

A business owned and controlled/ operated by just one person who provides all of the capital needed to form, operate
or expand the business. Eg farmers, Hairdressers

FEATURES OF SOLE PROPRIETORSHIP

• Owned and controlled by one person.
• No continuity.
• Easy and simple to form.
• Owners face unlimited liability.
• All profits belong to the sole trader who bears all the risks and losses.

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 ADVANTAGES DISADVANTAGES
Requires small amount of capital to set up which -ishowever there is lack of capital for expansion or modernizing
easy to raise the business since he/she contributes the capital alone.

Easy to set up, run and manage because there are no - however there is Division of labour may be difficult to
complex procedures required organize because of the small size of the business; as a
result the sole trader is always overworked.
- All the profits made belong to the owner since he - however Difficulty to borrow money from financial
is alone institutions because sole traders are considered high risk
customers
The owner is his own boss therefore makes - however there are limited skills and abilities from which the
independent and quick decisions on how to run the business can benefit.
business and has the freedom to choose his own -
holidays, hours of work
Business affairs can be kept private since there is no - No assured continuity/ limited life
requirement to submit financial documents except
for the tax office.

2. PARTNERSHIP
A relationship that exists between two to 20 people who have come together to do a common business with the view of
making profit. Eg accountants, builders, doctors, lawyers

There are two types of partneships:

a) Limited liability partnership (LLP)
A partnership in which at least one partner has unlimited liability and other partner’s liability is restricted to the amount
of capital invested in the business.
b) General/ordinary partnership
A partnership in which all partners have unlimited liability, and are usually very active in the operations of the business.

Differences between general partnership

General partnership Limited partnership

all partners have unlimited liability [1] one partner has unlimited liability[1]

comprises of general partners only[1] comprises of general and limited partners [1]
operations handled by general
operation handled by general partners only,
limited partners do not take part.[1]
partners equally [1]

FORMING PARTNERSHIP
In forming a partnership 2 – 20 people come together to form a partnership. They have to draw up legal document
called partnership deed or partnership agreement. The document gives details of the way in which the partnership
is organized and run.
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 Note: The partnership deed which is a legal document does not in any way mean that the business is now incorporated,
it is just drawn and made legal to help in running of affairs of the company and to help in cases of disputes between
partners.

CONTENTS OF PARTNERSHIP DEED

• Name of the business and the names of partners.
• Amount of capital contributed by each partner.
• How profits and losses will be divided or shared among partners.
• Duties and rights of each partner.
• The duration of partnership and the conditions under which it may be brought to an end.
• Amount of salary to be paid to each worker.

FEATURES OF PARTNERSHIPS

• Formed by 2 -20 people.

• Each partner contributes to raise capital.
• Has no legal entity – ownership and control is not separate. -
• Has unlimited liability
• No assured continuity.
-
ADVANTAGES DISADVANTAGES
More capital is raised than in the case of the sole Membership of partnership is limited to 20; this
trader as more people are involved. restricts the firms’ ability to raise more capital

Expenses and management of the business are Conflicts may arise among partners.
shared.

There is a breadth of skills and abilities from Decision making may be delayed by consultation and
which the business can benefit because several disagreements among partners
people may be involved this may lead to
management of the business.

Each partner may specialize in one aspect of the Partners have unlimited liability and are therefore
business and this promotes efficient personally liable for the debts of the business – their
management personal assets are at risk.

SIMILARITIES BETWEEN SOLE PROPRIETORS AND PARTNERSHIPS

Both
are easy to set up
have unlimited liability
have no assured continuity/ have limited life -
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 Are managed and controlled directly by owners.
Have no separate legal entity

DIFFERENCES BETWEEN SOLE TRADERS AND PARTNERSHIP

SOLE TRADERS PARTNERSHIP

- owned by one person - owned by 2 – 20 people

- capital is provided by one person - Capital is contributed by partners.
- decision making is fast - decision making is slow due to consultation
- limited skills and abilities - breadth of skills and abilities
- profits/ losses belongs to the owner - Profit / losses shared by all partners.
- everything is done by the owner alone - work and expenses are shared

CONTRIBUTIONS OF THE SOLE TRADER AND PARTNERSHIP ON BOTSWANA’S ECONOMY

-Provide jobs- which helps improve the people’s standard of living

-Pay tax-which is a source of income for developments in Botswana.
-Export goods – which brings in foreign exchange
-Donations- hence improve the lives of the community
-Improve rural development- by building factories and roads to their factories

LIMITED LIABILITY COMPANIES

• A limited company is one where the law primarily recognizes the organization as an artificial person; it has a separate
legal entity from its owner. This means;

• The company exists separately from owners and continues to exist if one of the owners should die. - It can make
contracts/ legal agreements.
• Can sue or be sued.
• Can own property.
• Companies are jointly owned by people who have invested in the business called shareholders, who appoints directors
to run the business.

NB: In Botswana according to the Company Act, two documents, the Memorandum of Association and articles of
association have to be prepared before a limited Company can be created.
They are drawn up and presented to the Registrar of Companies by promoters i.e. the people who wish to form a
company.

LIMITED LIABILITY

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 The liability of the owners (shareholders) is limited to the investment they made by buying the shares in the company
i.e., they will only pay up to the amount they invested in the business.

IMPORTANCE OF LIMITED LIABILITY TO THIRD PARTIES AND THE COMPANY

-In case of a law suit, the assets of the owner cannot be used to pay the debts of the business unless they were pledged
as collateral.
It attracts capital since it encourages the public to invest in the company without fear to lose personal assets
-It encourages the company to borrow money and invest witohout fear which increases the chances of growth and
progress.

PRIVATE LIMITED COMPANY

It is formed by two to fifty people. It is registered under the companies act with the word ltd as part of its name.

FEATURES OF A PRIVATE LIMITED COMPANY

• The number of shareholders is subject to a minimum of two and a maximum of fifty.
• Exist as separate legal entity.
• Not allowed to sell shares to the generally public at the stock exchange.
• Shares are not freely transferable
• The company is controlled by shareholders who are also directors.
• Not required by the law to publish its accounts annually.
• Start trading as soon s it obtains a certificate of incorporation

ADVANTAGES DISADVANTAGES
Has limited liability which protects the There are too many legal formalities so this makes forming
shareholders’ assets from being used to pay a limited company difficult and costly.
the company’s debts
The shareholders have direct control over the Shares cannot be freely transferred to a new investor
company’s affairs. Their view is heard at the without the approval of the other shareholders so this limit
annual general meeting. the shareholders ability to sell his/her shares.

Can easily raise more capital by selling its The growth of a private limited company can be limited by
shares privately to friends and relatives.. lack of capital since its shares cannot be sold openly to the
general public.

It is a separate legal entity, meaning it has

certain rights recognized by courts. For
example it can buy and sell assets; make
contracts; sue other companies and
individuals and it can be sued.

The liability of shareholders are limited

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 meaning their personal assets are not at risk
that is, in case the company closes down, the
share holders only lose the amount they have
invested.

The company has sure continuity unlike the

sole proprietorship.

PUBLIC LIMITED COMPANY.

A public limited company is a corporate association of at least 2 persons which is registered with the Registrar of
Companies and owned by shareholders who have limited liabilities.

FEATURES OF PUBLIC LIMITED COMPANIES.

• It is a company formed by 2 to infinity shareholders.
• It owned by shareholders and controlled by a board of directors who are elected by the shareholders of the company.
• Shares are freely transferable
• It is required to publish its accounts annual.
• It starts trading after obtaining the certificate of incorporation and the certificate of trading.

ADVANTAGES DISADVANTAGES
Shares are freely transferable on the stock exchange which can It is difficult and expensive to form. The
be an incentive for new investors formalities involved are complex, costly and time
consuming.

Can raise large sums of capital because they sell their shares to Raising of more capital may be expensive
the general public on the stock exchange and can also borrow because it involves the commissions of
money by issuing debentures. stockbrokers and merchants banks.

Enjoy maximum continuity It is controlled by hired experts so the original

owners may lose control over the company as it
grows big.

Large size enables them to enjoy economies of scale. The annual accounts of the company are open to
public inspection which reduces confidentiality of
the firm.

DIFFERENCES AND SIMILLARITIES BETWEEN PRIVATE AND PUBLIC LTD CO.

The term public in public limited company means that the general public is invited to buy shares from the company
while the term Private in private limited companies means that the shares are sold privately to individuals .

PRIVATE LTD CO. PUBLIC LTD CO.

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 -Formed by 2-50 people -Formed by 2 to infinity shareholders
-Shares are not freely transferable ie shares -Shares are freely transferable. shares can be sold
cannot be sold or given away without the consent or given away without the consent of the other
of the other shareholders. shareholders.
-Shares are sold privately to individuals or -Shares are sold to the general public through
relatives and friends. -Controlled by stock exchange
shareholders -Controlled by a board of directors
-May not publish its accounts -Must publish its accounts annually
Name ends with the word proprietary limited i.e. -Name end with abbreviations (Ltd) or Plc -Has
(Pty) ltd wider access to raising capital.
-Has limitations to raising capital -Starts business upon receiving certificate of
-Starts business upon receiving certificate of incorporation and certificate of commencement
incorporation or trading certificate.
-Not required to issue prospectus. -Required to issue prospectus.

Formation of limited company

According to companies act, two documents have to be prepared before a limited company can be created. These
documents are;
Memorandum of association,
Articles of association.

These documents are drawn by the promoters that is, people wishing to form a company. Once the documents are drawn
by the promoters, they are then presented to the registrar of companies.

The registrar approves them and if satisfied that they conform to the companies act, she/he issues a certificate of
incorporation as proof of registration.

Memorandum of association
This is a document that lays down and defines powers and limitations of the company. Its main purpose is to govern
the relationship of the company with the outside world (external relationship). It gives information about the company
which includes:

• The name of the company with the word limited at the end.
• The location of the company’s registered office.
• A statement clarifying whether it is a private or limited company.
• The objectives of the company [that is whether it is going to be producing something, buying and selling something or
providing a certain service]
• The statement of limited liability of its shareholders.
• The authorized capital that is, the amount of capital to be raised by selling shares.
• The number of shares to be taken by each of the directors.

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 Articles of association
This document lays down the rules governing the internal management of the company. It includes:

• The rights, obligations and powers of directors,

• The procedure of calling annual general meetings,
• The rights and powers of each type of shareholders,
• The procedure of electing directors,
• The borrowing power of the company,
• The issue, transfer and forfeiture of shares
• The procedure of dealing with any alterations in the amount of capital,
• The procedure of distributing profits and carrying out auditing.

CERTIFICATE OF INCORPORATION
This is issued by the registrar of companies after ensuring that both the memorandum and articles of association are in
accordance with the provisions in the companies act.
-It certifies that the company has been registered and incorporated as a separate legal entity. With this certificate the
private limited company can start trading.

THE PROSPECTUS
A document prepared by public limited companies inviting the public to subscribe to the shares of the company.
• It gives details of the company’s history Details on shares to be issued
• Opening and closing dates of subscription
• Name of the bankers to whom cash and application forms are to be sent

TRADING LICENCE
A certificate issued to the public limited company to commence business. Private limited companies can operate without
it
BOARD OF DIRECTORS
Limited company is controlled and governed by board of directors which is elected by the shareholders during an AGM.
Membership varies from two – six in private ltd company and six – thirteen in a public ltd CO.
• Board of directors draw up the policy of the company
• control and govern the day to day operations of the company
• implement the companies aim and objectives

Usually, the day to day running of the business is in the hands of a general manager whose main role is to implement
the policies of the company. The BOD is more of an advisory body while the management are incharge of the day to
day and frontline work

SHAREHOLDERS
-They are the owners of the company.
-They inject capital into the business for use in the day to day operations.
- They take part in decision making of the company through the annual general meeting.
-They share the dividends at the end of the year

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 ANNUAL GENERAL MEETING
The Companies Act requires a limited company to hold annual general meeting once a year. An AGM is a meeting of
all the shareholders.

The purpose of AGM is to:

• Directors report to the shareholders about the company’s performance for the past year.
• Any major activities for the coming year or any policy changes are announced.
• Directors’ reports & financial reports are adopted.
• Dividends are announced.
• Shareholders vote to elect new directors.
• Deal with any issues that could not be settled by the board of directors It is compulsory by law.
• Matters important to the company are discussed.
• Shareholders are allowed to vote on any decisions taken at this meeting.

ROLE OF PROMOTERS AND REGISTRAR OF COMPANIES IN THE FORMATION OF A LIMITED

COMPANY

PROMOTERS
• These are people who wish to start a company
• The y come up with the company name and register it with the registrar of companies.
• They draw up the memorandum and articles of association in accordance with the companies act and submit to registrar
of companies for approval.
• After receiving the certificate of incorporation, they sell shares to raise capital and commence the business.

REGISTRAR OF COMPANIES
• Approves the company name after ensuring that there is no other similar name existing.
• Receives memorandum and articles of association and checks if they are in accordance with the companies act Issue
certificate of incorporation if they are satisfied with the articles and memorandum of account.
• It ensures that the company does not raise more capital than the authorized capital.

CAPITAL OF LIMITED COMPANIES

The main source of capital for limited companies is selling of shares and issuing of debentures.

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 Capital of a limited company

Shares Debentures

Naked Mortgaged

Ordinary Preference
Redeemable Irredeemable

Authorised capital is the total amount of money that a limited company is allowed to raise through the issuing of
shares.

1. SHARES
A unit of a limited company’s capital or a portion into which the capital of a limited company is divided.

TYPES OF SHARES
a. Ordinary shares
b. Preference shares

ORDINARY SHARES
These are shares which receive variable rates of dividend depending on the profits made.
Shareholders get dividends after preference shares have already received theirs.
Shareholders have voting rights because the shares are more risky form of investment.
Shareholders will only be paid after all the debts of the company have been paid if the company fails.

PREFERENCE SHARES
These are shares which receive dividend on a fixed rate e.g. 10 %. They are classified as: Cumulative PS, Non –
cumulative PS, Redeemable PS and Participating PS.
-They receive dividend before the ordinary shares.
-Shareholders have no voting rights at AGM’s

TYPES OF PREFERENCE SHARES

A. Cumulative preference shares: The cumulative P.S. gets a fixed dividend every year. If in one year no profits
are made, they are paid in arrears in the next year when profits are made.

B. Non – cumulative preference shares: They do not have any right to arrears of dividend, i.e. If the company
makes no profit this year, they get nothing and the next year the company makes good profit they only get their amounts.

C. Redeemable preference shares: These are shares which will be bought back by the company at a later date
either out of accumulated profits or from money received from a fresh sale of shares.
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 d. Participating preference shares: The shareholders here are entitled to a bonus if a very big profit is made in a
particular year. The shareholders participate in decision making in the company.

DIFFERENCES BETWEEN ORDINARY & PREFERENCE SHARES

ORDINARY PREFERENCE

▪ Receive dividend after preference shares ▪ Receive dividend before ordinary shares.
▪ Shareholders have voting rights. ▪ Shareholders have no voting rights.
▪ More risky form of investment ▪ Less risky than ordinary shares.
▪ Receive a variable rate of dividend ▪ Receive dividend on a fixed rate and shares
depending on the amount of profits made. may be cumulative, participating or non
cumulative.

2. DEBENTURES
A loan given to a company by outsiders on which a fixed rate of interest must be paid whether the company makes
profit or not.
➢ Debentures are long term loans to the company.
➢ Debenture holders are not owners of the company; they are creditors of the company.
➢ Debentures holders are paid a fixed rate of interest every year. Debentures may be redeemable as they are loans.

TYPES OF DEBENTURES

A. Naked debentures- these are debentures which are issued without any property or security pledged against them i.e
they are not secure.
B. Mortgage debentures- have some property pledged against them. They are more secure
C. Redeemable debentures- are issued for a fixed period of time and can be bought back by the company
D. Irredeemable debentures- can never be bought back. The money borrowed against them remains outstanding until
the company is liquidated. The holders get interest against their debentures

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 MULTINATIONAL CORPORATIONS

These are companies that operate in more than one country or have branches in more than one country and a head office
located in the mother country. Eg BP,Coca cola co, shell, standard chartered, Barclays bank

IMPORTANCE/ BENEFITS OF MULTINATIONAL COMPANIES TO THE HOST COUNTRY

Creation of employment therefore people will get However the jobs created are often unskilled assembly
income to spend/may have wages and salaries line task. Skilled jobs such as those in research and
design are not usually created in the countries receiving
the multinational.
Brings skills and technology that can be used by However They often use up scarce and non – renewable
local companies to improve efficiency in their primary resources in the host country.
businesses

SHARES DEBENTURES

-It is a unit of limited company’s capital - -It is a loan borrowed from members of public
A Shareholder is part-owner of the -Debenture –holder is a creditor and has no voting
company and may vote. rights
-Shares are paid dividend when profits are
made. -Debentures are paid interest whether or not the
-Shares are usually irredeemable. - company makes profits. -Debentures are redeemable.
Shareholders may get more than the face -Debentures holders are paid only the face value of
value when company is liquidated. - the debentures held when the company is liquidated.
Shareholders especially ordinary shares -Debenture holders are paid fixed interest.
receive variable dividend.

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 Bring capital; that can be used to develop local However Some do not respect the host country’s
resources regulations on employment, working hours, production
and trade due to their large size.

Improves country’s foreign trade ; by selling abroad

Pay tax to Mauritius ; which can be used for national Profits are often sent back to the multinational’s home
development country and not kept in the country where they are
earned so the country loses foreign exchange as the
profits are sent abroad in foreign currency
Locals get variety of services at reduced prices However They may force local firms out of business
hence access to more goods and services/ given a because multinationals are often more efficient and have
choice lower costs than local businesses.
Have worldwide contacts ; that Mauritius can use to However As the businesses are very large they could
boost its export sales have a lot of influence on both the government and the
economy of the country. They might ask the government
for large grants to keep them operating in the country.

ADVANTAGES AND DISADVANTAGES OF COMPANY BECOMING A MULTINATIONAL

ADVANTAGES DISADVANTAGES
Enjoys economies of scale ; therefore low However Increased operational costs/large capital
operational costs required due to many branches/forced to borrow money

Wider market which increases sales However The company may grow too big for managers
to supervise leading to inefficiency and low productivity

Can acquire cheap labour / skills / technology from a However Conflicts with policies in the host country as
host country ; that can be used to improve the it has to abide by the rules and regulations [operation
business hence improved efficiency hours/minimum wage/transport Act]
Increased sources of raw materials hence improved but it requires large capital to operate
service delivery
Increased company image ; that can help attract more However It may not be accepted in the host
customers/ increase sales country/xenophobia so this reduces sales

STOCK EXCHANGE
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 Stock exchange: is a market/ place where stocks or shares are bought and sold especially for public limited Companies.
E.g. Botswana Stock Exchange (BSE).

Functions of the stock exchange

-Provides a market where stocks and shares can be sold and bought thus giving an incentive to investors to buy shares.
-Establishes prices for shares (based on supply and demand) and makes prices known to the public at large by publishing
it in the mass communication media.
- Better allocation of capital as people with savings can invest and lend to those companies who need to raise finance
through the stock exchange.
- Ensures safety of transaction by establishes a code of conduct which members of the stock exchange must follow.
-Improves listed companies’ image since stock exchange approval gives some indication to the investors that a company
quoted is reputable.

STRUCTURE OF THE STOCK EXCHANGE

Stock Exchange
Council

Board Of Directors

Stock Brokers/ Agents and Listed companies/Market markers

speculators (buyers and sellers)

ACTIVITIES OF THE STOCK EXCHANGE MEMBERS

• Stock brokers: are licensed agents who act on behalf of investors to buy and sell shares.
• Listed companies: these are companies approved to sell their shares to the general public through the stock exchange.
• Jobbers: an individual who makes a profit from the buying and selling of shares but does not deal directly with the
public but sells only to brokers.
• Speculators: are people who try to make quick profits by anticipating how prices of shares are going to change. These
are
• Bulls-people who buy shares now with the expectation that their prices will rise in a week or so and they would
sell them for a profit.
• Bears: expect that prices of the shares they are holding would fall over the next week and they sell them off
now, with the hope that they would then buy them back and save some money.
• Stags: these are people who specialize on new shares which they buy with the hope that prices would rise and they
would make a profit.

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 ROLE OF THE STOCK EXCHANGE
• Provides access to the country’s equity and debt market- by allowing foreign investors to use its market as an entry
point hence diversify the economy.
• Allows companies to raise capital at a low cost in order to increase their productivity hence providing more goods and
services to the people.
• Provides an investment opportunity for individuals to save and earn interests and dividends to meet their financial goals.
• Help in creating more jobs as companies raise capital to improve their growth which improves their standard of living.

CAUSES AND CONSEQUENCES OF STOCK MARKET TURBULENCE

• Popularity of the company’s products results in more customers and this will attract investors to buy its shares
pushing up its share prices.
• Industrial disputes: leads to fewer investors being interested in the company and his would drive down share prices.
• Good performance of the company: lead to investors gaining confidence in the company and being buy more shares
pushing up the share prices.
• Company being taken over by a bigger and popular company would attract investors to the company hence pushing
up the share prices.

HOW TO ESTABLISH A COMMERCIAL

ACTIVITY

STARTING A NEW COMMERCIAL ACTIVITY WAYS OF FINDING COMMERCIAL IDEAS

• Noting a gap in the market: this is noticing that something is lacking then you can try to provide it. E.g. providing a
salon in an area where most women travel to town to get their hair done.
• Solving a problem: you can look at a problem troubling your community then try to set up a business to solve it. E.g.
finding the cure for HIV/AIDS and getting paid for the patent rights.
• Raising customers’ standard of living: looking beyond customers’ basic needs and coming up with a business idea
that caters for people’s free time such as a gym room.

73
• Brainstorming: this involves team work where a list of various ideas is written down then screened and the bad ones
dropped until you finally have a best possible idea.
• Redesigning an existing product: so as to iron out the problems in its use and make it user friendly or improve its
quality.

TECHNIQUES OF FINDING COMMERCIAL IDEAS

• Observation: look at the changes taking place around you. These can be political economic, social or technological
then come up with a business idea. E.g. an increase in salaries of civil servants may mean an increased expenditure on
leisure services hence the need for guest houses.
• Creativity: you can use your own imagination to come up with a new product, Such as aircrafts and guns.
• Modifying ideas: look at the products or services people are buying at the moment and try to improve them by making
them bigger, smaller or presented in a new packaging etc. this is how car manufacturers keep on bringing new models.
• Experience: A business idea could be based on your experience such as having worked in a retail shop for a long time
then using the experience to set up your own.
• Consultation: intensive consultation with consumers and business people can lead to a viable business idea.

WHY SOME BUSINESSES FAIL

• Poor/ inadequate planning/management/ lack of business expertise which lead to managers failing to understand
their customer needs and being able to provide what they need/ failing to predict costs and profits of the business
effectively resulting in the business making losses.
• Lack of working capital for the business to take available opportunities such as cash discounts resulting in the
business spending more on operational costs.
• Cash flow problems due to borrowing too much in order to grow quickly resulting in crippling interest
repayment charges.
• Poor treatment of workers such not paying them on time may result in workers leaving the business.
• External factors such as prices of inputs which may go up resulting in the business making less profit.
• Too much competition from well-established business which are able to offer their products at cheaper prices
resulting in loss of customers to them.
• Poor location which appeals to a small number of people but expensive or inaccessible.
• Poor/inadequate marketing resulting in customers not knowing about the products and also the business not
knowing customers’ needs and preferences.
• Poor quality products
• Lack of networking

2. BUYING AN EXISTING BUSINESS (GOING CONCERN)

Advantages disadvantages

74
• Use of a name that is already well established therefore there is no However there may be resentment from
need for extensive advertising which saves the business’ money. customers because of change in management
and customers may stop buying
However honour/negotiate any outstanding
• one enjoy the goodwill of the business such as existing clientele, contracts the previous owner leaves in place
useful network of contacts etc. which saves the business time to
look for clients and suppliers However if the business has been neglected one
• One do not have to look for a new premise, this saves money and may have to refurbish it which can be costly
time instead you concentrate on improving the premises. However there may be resentment from
• Inheriting of experienced employees which saves money and time employees which may lower productivity
on training them since they are already familiar with the business.

STEPS TO FOLLOW WHEN BUYING AN EXISTING BUSINESS

Find out the true reason why the business is being sold in order to avoid buying problems
Obtain a credible valuation of net assets and goodwill of the business so as to know the value of the business you are
buying
Carry out assessment of the final accounts of the business so as to know how the business has been performing
Consider the impact of the impeding change of ownership on workers as well as the customers.
3. FRANCHISING
It is an agreement which allows a trader to trade in another business’s name and pays royalty for using the name.
Franchiser: is the retailer who operates in another business’s name and pays royalty for using the name. Franchisee:
The mother company allowing its name to be used by other businesses in trading. Examples of franchisees
KFC
CHOPPIES supermarket
Barclays bank
Nandos

Advantages disadvantages

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 TO THE FRANCHISE
• Use of a well-known and widely advertised name [1] so However the franchisee has to pay royalties which
does not have to spend much on promotions which reduces profits.
reduce operational costs [1] hence increased profit [1]
However owner has less independence as freedom of
• Advice on how to manage the business is provides like
management is limited by
on display of goods [1] this helps minimize mistakes [1] the terms of the contract
hence a
greater chance of success. [1] However there is no automatic renewal of the contract
• Free training of staff is provided [1] help bring
efficiency therefore quality service can be provided [1] However the franchisee is restricted to buy supplies
which attracts more customers [1] from the franchisers suppliers even if they could get
• Cheaper supplies can be obtained from the franchisers them cheaper elsewhere.
supplier [1] which saves on money and time spent on
however there may be imitations/copying of the
looking for suppliers [1]
business model [1] reduce market share [1]
TO THE FRANCHISEE leading to less sales [1] however bad practice by one
• wider market [1] increased sales [1] however fake
hair salon tarnish the image of the franchiser [1] lead to
brands/copy of the salon’s model which reduce market
loss of customers [1] possibility of failure of business
[1]
[1]

• increased image [1] due to compliance of however buying of stock in large quantities need
set standards [1] warehouse [1] increases costs [1]

however has to train the employees of the franchisee

• Able to buy stock in bulk [1] enjoy trade discounts [1] [1] increases operational costs which reduce profits
able to offer competitive prices which attracts customers
[1]

• guaranteed income due to royalties [1] which increases

profit [1]

MARKET RESEARCH

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It is the gathering of information to find out what potential customers want and how best to provide it so as to satisfy
their needs and wants.

IMPORTANCE OF MARKET RESARCH

It helps to:
Know the target market/size of the market so as to produce and sell the right product and supply right quantity to meet
customer needs.
Know about the competitors , what prices they are charging and what customer services They are offering so as to
come up with better strategies to beat them.
Know the product/taste and preferences, in what form, shape color and package the customers want the product or
service.
Know the prices the customers are willing to pay so as to charge reasonable prices in order to attract more customers.
Know the location with more customers to locate the business. It helps you to keep up to date with trends in the
market.

METHODS OF MARKET RESEARCH

Primary (field) research

Secondary (Desk/library) research.

1. SECONDARY RESEARCH
This is the collection of second hand information i.e. information which is already available.
This information could be from internal or external sources.
Internal sources- include records that have been kept by the business over time.
E.G; accounting records, Records of customer complaints, reports from sales representatives

External sources – include records that have been published by someone else and are obtained from outside the
organization.
EG: newspapers, Magazines, textbooks, journals

2. PRIMARY/ FIELD RESEARCH

This involves collecting raw or information which no one has yet collected.

METHODS OF PRIMARY RESEARCH

Method advantages disadvantages

77
 • it is suitable for literate and illiterate However it is time consuming
1. Oral interview This is when
researcher prepares a set of people so information can be
questions and sits down with gathered from a
the respondent face to face and representative sample However respondents may withhold
asks questions to get sensitive information
information. • detailed information can be obtained
due to follow up questions However there is interviewer bias

there is clarity of questions

leading to more accurate
data gathered

2. Questionnaire Many questions can be However questionnaires can be lost, so the

A research instrument sent out at once hence researcher has to redistribute which can be
consisting of preset questions saving time for the costly.
which are distributed to researcher
respondents to answer at their However there is low response rate
own time.
Respondents answer at
their own time with the
absence of the researcher,
so they are free to give
However it is suitable for literate people
sensitive information
only
Respondents have enough
time to think about the
questions therefore more
accurate data can be
obtained

Observation It is cheap to conduct However it is not suitable for collecting

It is the gathering of therefore less costs to the qualitative data because there is no way to
information by looking at and researcher know the reasons behind consumer
recording how respondents behavior
react/behave towards a
particular product. however may be difficult to observe a
Possibility of collecting representative population
accurate data as
respondents will not be
aware that they are being
observed.

78
 Experiment/test marketing It is easy to set up and However Consumers may hide their true
In this research, samples of the carry out feelings
product are given to consumers Suitable for However The sample size may not be the
to taste or use and thereafter testing public true representation of the total population
give their opinions. opinion or trying out a However It may be expensive to carry out
new product

Consumer Panels detailed information can However It is time consuming

Getting information from a be obtained
group of potential customers However biased if members of the panel
who meet together to enable to Relatively inexpensive are influenced by the decision of others
enable the researcher to see
how they react to a
particular product

SAMPLE OF A QUESTIONNAIRE

1. How often do you T-shirts

Everyday twice a week weekend only never

2. How many T shirts would you be willing to buy per year?

1-2 3-4 5-6 7-8

3. Which type of t-shirts would you be willing to buy?

Unisex design male design female design

4. What material would you prefer your T-shirt to be made of?

Cotton Nylon Wool others [specify] __________________

5. What color of a T-shirt would you prefer? ______________________________________

6. How much would you be willing to pay for a T-shirt?

P25 P30 P35 P40

7. Where do you normally buy your buy your T-shirt? _________________________________

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8. How much do you currently pay for one T-shirt? ______________________________

9. Which newspaper do you normally read?

Mmegi Dailynews The Voice The midweek sun

BUSINESS PLAN

DEFN: a document designed to provide information about a new or existing business giving details on how one plan
to organise and run the business and also to convince investors to invest in the business.

IMPORTANCE OF A BUSINESS PLAN

It is used to test the feasibility[1] of the idea through customer and competitor analysis [1]which help to charge
competitive or reasonable prices.[1]
Helps to evaluate performance [1] through cash flow forecasts/set goals and objectives [1]
Helps to control of purchases [1] to determine economic order quantity [1] so as not to overstock or under stock[1]
Give direction on operations [1]through planning which help to see whether the set objective has been achieved.[1]
Helps to secure finance [1] through cash flow forecasts/ projected income statement [1] which help financers to see if
the business will be able to repay the loan. [1]

CONTENTS OF A BUSINESS PLAN

1. EXECUTIVE SUMMARY
Provides a summary of the company, explaining who you are, what you do and why.
2. COMPANY DESCRIPTION
Mission, vision
Goals and objectives
Legal structure of the business(sole proprietorship, partnership, private or public limited company Brief History of
the company
Future potential of the company
3. PRODUCT/SERVICE
Description of product or service including features and benefits of the product or service
4. MANAGEMENT PLAN
Organizational structure
A brief bio description of key managers and their salaries
Job description
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Retention strategies to be used
5. OPERATIONAL PLAN
Production Process
Raw materials needed and their costs
Suppliers of raw materials
Monthly production plan
6. MARKETING AND SALES PLAN
Market research analysis
Target market,
Competitor analysis
Pricing strategy
Sales strategy
Monthly sales plan
Promotional strategy
SWOT analysis
7. FINANCIAL PLAN
Start Up capital
Break even analysis
Cash flow forecast
Income statement forecast
Statement of financial position forecast

CASH FLOW PLANNING

CASHFLOW: Money coming in and going out of the business.
CASH FLOW STATEMENT: a statement that shows the amount of money coming in and going out of a business at
any one time.
HOW CASH FLOWS IN TO THE BUSINESS
By the sale of goods for cash
through payments made by debtors
By borrowing money from an external source e.g. bank Through the sale of unwanted business assets.
HOW CASH FLOWS OUT OF THE BUSINESS
By purchasing goods or materials for cash
By purchasing fixed assets
By repaying loans
By paying creditors of a business
By payment of wages, salaries and other expenses.
By paying dividend
EVENTS THAT CAN LEAD TO CASHFLOW PROBLEMS
A fall in sales due to low demand
A new competitor suddenly taking away a number of customers and reduces sales.
An increase in the price of an important material which increases expenditure.
Interest rates paid on loans going up which increases the level of payment

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HOW THE BUSINESS CAN REDUCE CASHFLOW PROBLEMS
Introducing sales promotion [1] in order to increase sales by attracting customers.[1] Encouraging prompt payment
from customers [1] to improve working capital [1] Reducing prices [1] to increase sales [1] and compete better
against other businesses.
Arranging trade credit [1] with suppliers so that payment is delayed until goods are sold.
Investing more capital either by obtaining a bank loan or an overdraft.
Attempt to reduce expenditure [1] through finding cheaper suppliers [1] or reduce any other expense like electricity

EXERCISE

CASH FLOW FORECAST FOR PRESTIGE PRINTING COMPANY.

JAN FEB MAR APR
Cash inflow /Receipts

Cash sales 15 000 15 000 20 000 25 000

Payment from debtors 5 000 5 000 7 000 8 000

Total cash inflow 20 000 A 27 000 33 000

Cash out flow /Payments

Materials and wages 3 000 3 000 5 000 7 000

Rent and other expenses 15 000 15 000 25 000 15 000

Total cash out flow 18 000 18 000 B 22 000

Net cash in C 2 000 D 11 000

Opening bank balance 3000 F 7 000 4 000

Closing bank balance 5 000 E 4 000 G

1. Using the cash flow forecast above calculate A-G

[Leave space for the exercise]

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NETCASH IN = total cash inflows – total cash

Closing bank balance = opening bank balance + net cash in

Opening bank balance = closing bank balance of the previous month

PROFIT FORECAST
This is the prediction of incomes and expenses of the business in a given period.
Gross Profit = Sales- Cost of sales
Net profit= Gross profit – Operating expenses.

SWOT ANALYSIS
These are the strengths, weaknesses, opportunities and strengths of a business which should be carried out before the
idea can be adopted. It helps to determine a strategy for the future to improve the company’s performance.

STRENGTHS
These are characteristics of the business that gives it an advantage over other businesses. E.G.
The company is using its own premises [1] so no renting costs incurred [1] thus saving money for other business needs.
Skilled workers available [1] so little training is required [1] thus saving the business some money and time.
Excellent transport links [1] so customers can easily reach the business to buy [1]
WEAKNESSES
These are internal characteristics that place the business at a disadvantage relative to other businesses.
E.G
Poor financial position as it has large debts [1] which makes it difficult for the business to take available business
opportunities such as discounts or special offers [1]
Lack of an established reputation [1] which requires the business to extensively advertise [1] itself thus an increase in
the costs. [1]
poor Stock control [1] as the business hold too small stock leading to customers not getting their orders on time [1]
hence switching to other businesses [1]
Inexperienced workers [1] needs more training [1] increases operational costs [1]

OPPORTUNITIES
These are external factors that a business can exploit to its advantage.
E.G
Increased spending power in the local /national economy [1] resulting in increased demand [1] market thus more sales
for the business. [1]
New technology [1] that allows the business to improve the quality of its product at lower costs. [1]
Financial assistance from the government in the form of a grant (1) thus few debts for the business (1)
83
New residential areas [1] means more customers for the business [1]
Few competitors (1) thus large domestic market (1)
THREATS
These are external factors that can put a business at a disadvantage.
E.G
increasing competition in the area [1] resulting in customers leaving the business [1] thus decrease in sales [1]
Increase in interest rates [1] which means higher cost of borrowing and repayment on existing loans [1] leading to the
business spending more. [1]
High crime rate in the area [1] leading to loss [1]
Recession [1] leading to low demand [1] thus possibility of loss to the business [1]

BUSINESS CAPITAL

START UP CAPITAL: the money and material resources used to start the business.
IMPORTANCE OF START UP CAPITAL/ USES OF START UP CAPITAL
Used to buy fixed assets such as buildings, land, motor vehicles, machinery [1] that will help in the production of goods.
[1]
Used as working capital in the business to pay for salaries, electricity/water/telephone bills, insurance, buying stock.
[1] for production to go on smoothly. [1]
Act as a financial reserve [1] for any unexpected costs that may arise, such as sudden break down of machinery [1]
Used to pay for any new projects once the business is underway

WORKING CAPITAL: this is part of start -up capital which has been allocated to cover the day to day expenses of
running the business such as
Payment for purchases of stock
Payment to creditors
Payment of wages, bills, insurance, advertising, rent e.t.c.

IMPORTANCE/USES OF WORKING CAPITAL

It is used to:
Buy raw materials/components [1] for production to continue [1] to ensure constant supply of goods to meet customer
needs [1]
Pay for advertising / sales promotion [1] in order to increase sales [1] by attracting customers. [1]
Payment of creditors/suppliers on time [1] so as to build trust from suppliers [1]
can take advantage of discounts offered by suppliers (1) therefore sell products at competitive prices (1) leading to more
customers [1]
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money in reserve, (1) ability to care for emergencies, (1)no interruption of business operation(1)

To buy stock [1] so as to meet customer needs [1] hence customer satisfaction [1]
Paying wages and salaries to workers on time [1] so as to motivate them [1] hence increased productivity [1]

IMPLICATIONS OF LACK OF WORKING CAPITAL

Creditors will not be paid on time [1] this means loss of valuable cash discounts [1] offered by suppliers for prompt
payment, if legal action is taken the business’s assets may be auctioned.
Some providers of certain services such as telephone, water, and power may decide to terminate them [1] if not paid
on time [1] hence disrupting the smooth running of the business. [1]
The business may not be able to replenish its stock adequately [1] hence customers get disappointed if they cannot get
their orders on time [1] hence loss of customers. [1]
The business may be forced to borrow working capital [1] from the bank which will cost the business high rates of
interest [1] hence little profit [1]

WAYS OF IMPROVING WORKING CAPITAL

Introducing sales promotion [1] in order to increase sales by attracting customers [1]
Encouraging prompt payment from customers [1] by offering cash discounts [1]
Reducing prices [1] to increase sales and compete better against other businesses [1] Arranging trade credit with
suppliers [1] so that payment is delayed until goods are sold. [1] Investing more capital either by obtaining a bank
loan or an overdraft.
Attempt to reduce expenditure through finding cheaper suppliers or any other expense like electricity

CAUSES OF LACK OF WORKING CAPITAL

Overcapitalization: whereby the firm buys too many fixed assets leaving the firm with no or little working capital.
Overtrading: whereby the firm buys more goods on credit than it can sell.
Excessive personal drawing of cash or stock.
A fall in sales due to low demand
A new competitor suddenly taking away a number of customer and reduces sales. An increase in the price of an
important material which increases expenditure.

CALCULATION OF WORKING CAPITAL

Working Capital = current assets – current liabilities

Current assets: assets whose form or nature keeps on changing during the cause of the business trading activities. E.G.
Inventory/stock, debtors, cash at bank, prepayments.
Current liabilities: resources or money the business owes other people/ organizations which have to be repaid within
a year. E.G Creditors, bank overdraft, accruals,
NB: Working capital should always be positive; meaning that the firm is solvent i.e. the business is able to pay its short
term debts when they fall due.
A negative cash flow means the business is insolvent, i.e. unable to pay its debts when due.

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POSSIBLE CAUSES OF A DECREASE/DECLINE IN SALES FOR A BUSINESS
Poor customer service (1) lead to fewer customers buying (1) hence less income. (1)
Inadequate/poor advertising (1) customers not knowing about products (1) hence less customers buying
(1).
New competitors (1) offering better quality products (1) thus attracting the business’s customers (1).
Poor treatment of workers (1) low productivity (1) unable to meet customers’ orders (1) market share lost to
competitors(1)
inferior raw materials used (1) leading to poor quality products made [1] customers buying from competitors(1)
High prices (1) due to increase in the price of raw materials (1) hence customers not buying [1]

BUSINESS FINANCE

1. SHORT TERM FINANCE

Capital that the business has borrowed and has to be repaid over a short period of time, usually within 2 years. In most
cases it is used to buy stock, small equipment.

SOURCES OF SHORT TERM FINANCE

ADVANTAGES DISADVANTAGES
1. BANK OVERDRAFT
• Interest is paid only for the funds used [1] which makes it less
• However Variable interest rates are charged [1]
costly which can be expensive if the rates goes up [1]
• However It has to be arranged regularly [1] and
• It is quick to arrange [1] so the business can have quick access an arrangement fee is charged each time[1]
to money [1]
• Only available to current account holders
• No security required which reduce the risk of losing the • Has to be repaid
business • May not be enough

• Flexible because it can be taken anytime

2. TRADE CREDIT
• No Interest charged [1] less costly [1] However Supplier may refuse to give cash
discount or even to supply any more goods if
• Help increase working capital of the business [1] as the payment is not made quickly.
money is paid after selling stock [1] -Stock may not be bought leading to failure to pay

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 3. BORROW FROM FRIENDS AND
RELATIVES • However it has to be repaid [1]
• No/ little interest charged [1] helps in efficient budgeting [1]

• One can negotiate terms of payment[1] hence able to cater for

• However May damage the relationship if one
other business needs [1] cannot afford to repay the loan
• No security needed [1] therefore business assets are safe from
repossession [1]

4. HIRE-PURCHASE [refer to the topic on

credit trading

5. FACTORING
• Cash is quickly available [1]
• The responsibility of collecting the debt remains with the However The business does not receive 100 % of
debt factor [1] less chances of bad debts [1] the value of the debt.

2. LONG TERM CAPITAL

This is the capital a business has borrowed and which has to be repaid over a long period of time, normally over a
period of 2 years.
to - purchase long term fixed assets, -to expand the business or - to finance a takeover.

SOURCES OF LONG TERM FINANCE

ADVANTAGES DISADVANTAGES
1. BANK LOAN
• Large amount can be obtained [1] therefore business able• to However security is needed [1] which may put the
buy almost all the business assets at risk of being taken [1]
machinery/resources needed [1]
• However failure to repay may lead to repossession of
• Repayable over a long period of time [1] business has business assets [1]
money to pay for other expenses [1]

• • However payment of Interests rates decreases profits

Interest is fixed for the period [1] which helps for efficient
budgeting [1] [1]

• • However may not be relevant/applicable due to

Financial advice is given [1] which lead to good
utilization/efficient management of money [1] changes in the business environment/

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 2. ISSUE OF SHARES[ available to limited companies
only]

• Permanent source of capital that need not to be repaid •[1] It is expensive to organize and advertise [1] as brokers
hence reduced debts [1] are to be paid commission [1]

• Dividends do not have to be repaid if the company makes

• However dividends will be expected by shareholders
loss [1] [1] which puts the business under pressure as some
investors may disinvest if no dividend paid [1]

• Shareholders have voting rights [1] so they can have• an However ownership of the company can change hands
input in the efficient running of the business because of [1] because of large share issue.
shared ideas [1]

2. DEBENTURES
• Debenture holders are creditors of the company [1] so have • However have to be paid interest whether the
no voting rights [1] company makes profit or not [1] so this reduces profit/
can lead to cash flow problem [1]
• However it has to be repaid [1] which may reduce the
• Holders are paid fixed rate of interest [1] leading to efficient business profit [1]
budgeting [1]
• However for some debentures, security is needed [1]
• Large amount can be obtained (1) will help to buy which may put the business’ assets at risk [1]
machinery and equipment to increase production. [1]

3. RETAINED PROFITS
• Does not have to be repaid [1] hence improved workingHowever the profit may be too low to finance the
capital/cash flow [1] project [1]hence need for
additional capital [1]
• No interest charges [1] hence chances of more
profit [1]

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 4. CEDA/NDB LOANS
• Low interest is charged [1] hence reduced expenses [1]
However interest is fixed [1] which makes it
impossible for the business to take advantage
of decreasing interest rates [1] however is
• Can obtain large amounts of capital (1) therefore be able to security is needed (1) which may put the
buy equipment and machinery needed (1) business assets at risk of repossession
• Repaid over a long period of time (1) therefore able to pay However interest payment reduces profits
for other expenses e.g. wages (1) (1).
• Training and financial advice is given [1] hence efficient
management of the business money (1) However the advice may not be
relevant/applicable due to changes in the
business environment/ may give advice using
• Close monitoring of the business [1] may lead to greater outdated information (1).
chance of success [1]
However this leads to less independence [1]
therefore less control over the business [1]
5. GOVERNMENT GRANT/ YOUTH GRANT However grants normally cover a certain
Not to be repaid [1] therefore reduced debts/ less debts to percentage of the costs [1] therefore has to
worry about [1] look for other sources of finance [1]
Application procedure can be complex / one
Expert business advice and training given [1] leading to has to meet the scheme’s criteria such as
efficient management of the business [1] hence greater business location.
chances of success [1]
Close monitoring [1] can lead to better management of the However close monitoring can lead to less
business [1] hence greater chances of success independence in making decisions [1]

6. OWN SAVINGS/ SALE OF PERSONAL ASSETS However it Increases the risk taken by the
• Quickly available [1] hence able to buy owner[1] as the project may not be a success
machinery/equipment/finance the project on time [1] [1]
• No interest paid [1] hence reduced expenses [1] However it may be too low to finance the
project.
• Payable at own pace/ not a must to be repaid hence
reduced pressure on the business -No opportunity for mentorship and
networking opportunities from investors
• No danger of losing business assets to creditors due to -Owner may be left with too low to cover
failure to repay living costs.

FACTORS TO CONSIDER BEFORE CHOOSING A SOURCE OF FINANCE

• Interests rates: [1] choose a source which offers low rates [1] so as to reduce expenses [1]
• Amount of finance required [1] see whether the source will be able to provide the amount needed so as to avoid
looking for additional funding [1] which may strain the business financial [1]
• Period of repayment/ duration of the loan [1] choose a source which offers long repayment period [1] to avoid cash
flow problems [1]
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• Security available [1] asses the assets that can be offered as security [1] and see whether they will not affect the
production process/smooth running of the business [1]
• Purpose of the loan [1] if the money is needed to finance long term assets then long term sources of finance should be
chosen [1] as large amount can be obtained [1]/ if one need small amount of money then short term sources will be the
best [1]
• Method of repayment [1]

BUSINESS RECORDS

A firm needs to keep different types of records like

• Value of assets
• Value of liabilities
• Changes in assets and liabilities
• Value of sales and other income
• Amounts of drawings
• How much profit is being made
• A list of the business expenditure
IMPORTANCE OF BUSINESS RECORDS/FINANCIAL STATEMENTS
• Used to compare performance [1] over years through the balance sheet so as to identify weaknesses and
strengths [1] and come up with strategies on how to deal with the weaknesses. [1]
• Used by tax inspectors [1] to calculate tax payable by looking at the income statement [1] thus help to avoid
the risk of penalties for late tax payment/overcharging [1] .
• Calculation of profit to know performance [1] through profit forecast or income statement this will reflect if
the business is making profit or loss [1] thus help in making an informed decision. [1]
• Helps if the owner wants to sell the business [1] as it will help in assessing the value [1] of the business though
the balance. Hence able to charge a fair value [1]
• Helps when borrowing money from financial institutions [1] as managers would like to assess the business’s
ability to repay the loan [1] by looking at the business plan and decide whether to borrow it or not so as to avoid losses
[1]
• Used by prospective investors to know the performance of the business [1] by looking at the balance
sheet/ income statement and see whether it’s worth investing in it [1] to avoid costly mistakes [1]

BUSINESS INCOME AND EXPENDITURE

1. BUSINESS INCOME: The money received by the business during its course of business activities
E.G money received for sale of goods or unwanted fixed assets, Commission received, donation, money received for
sale unwanted fixed assets.
a. CAPITAL INCOME: Money invested in the business by the owner s or members of the business.
e.g. capital brought in by partners, Share capital brought in by shareholders.
b. REVENUE INCOME: Money received as a result of the normal trading activities of a business.
e.g. discount received, Sale of unwanted business assets

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 2. BUSINESS EXPENDITURE: money spent or paid out of the business for various purposes such as purchase of
goods for sale, motor vehicles, payment of salaries, bills.
a. CAPITAL EXPENDITURE: Money spent on the purchase or improvement of fixed assets e.g. purchase of motor
vehicle, furniture, fixtures and fittings, machinery.
b. REVENUE EXPENDITURE: Money spent in the business to pay for services and to purchase current assets
e.g. purchase of goods for sale, payment of services such a telephone, electricity, water bills, salaries, rent, repairs e.t.c.
PREPARING INCOME AND EXPENDITURE ACCOUNT [normally prepared by non-profit making
organizations]
List the revenue items and add up
List all the expenditure items and add them up
Find the difference between the two [either a surplus or deficit]

E.G. INCOME AND EXPENDITURE ACCOUNT FOR SUPER STAR SPORTS CLUB INCOME
Subscriptions 4000
Football gate fees 2000
Tennis gate fees 500
Hire of club properties sale of dance tickets 1000
Miscellaneous 400
Total income 7900
Less expenditure
Salaries and wages 1500
Printing and stationery 500
Tennis expenses 200
Depreciation of furniture and equipment 300
Total expenditure 2500
Surplus 5400
EXERCISE
The following balances were found in the books of accounts of Sure Film Club for the year ended 31 December 2012.
Members subscription 2000
Salaries and wages 3500
Rent 1000
Stationery 500
Fees received 8000
Transport 500
Discount received 500

Prepare the income and expenditure account for Sure Film Club.
NB: DO THE EXERCISE ON THE EXERCISE BOOK PLEASE.

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 FINAL ACCOUNTS FOR A PROFIT MAKING ORGANISATION
1. TRADING ACCOUNT
2. PROFIT AND LOSS ACCOUNT
3. BALACE SHEET/STATEMENT OF FINANCIAL POSITION
1. TRADING ACCOUNT: a financial statement prepared in order to calculate gross profit /loss. It also shows the net
sales, cost of goods sold and net purchases.
ITEMS WHICH APPEAR ON THE TRDING ACCOUNT
a. Opening stock:
b. closing stock: amount of stock remaining unsold at the end of the trading period.
c. i. sales/turnover- amount received from the sale goods.
ii. Sales returns/returns inwards: amount of goods returned by the customers due to unsatisfactory condition.
Net sales = sales – sales returns

di. Purchases- cost of goods bought for resale.

ii. Purchase returns/ returns outwards: amount of goods returned by the business to the suppliers due to some faults
on the goods

Net purchases = purchases – purchase returns

e. carriage inwards- cost of transporting bought goods from the supplier to the business for resale.
f. import /customs duty- money paid for goods bought outside the country.

Cost of purchases = net purchases + carriage inwards + customs duty

Cost of goods sold= opening stock + cost of purchases – closing

stock

Gross profit = net sales – cost of goods sold

2. PROFIT AND LOSS ACCOUNT: A financial statement that shows the net profit / loss made by the business during
a specific period.
ITEMS WHICH APPEAR ON THE PROFIT AND LOSS ACCOUNT
a. Gross profit from the trading account
b. Other income/gains: any items which brought revenue into the business during the year in addition to sales.
Commission received
Discount received
Rent received
Interest received
Bad debts recovered
NB: other incomes are added to gross profit.

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c. Expenses: cost of operating the business. E.G.
Advertising
insurance
carriage outwards
rent
interest paid
bills i.e. telephone, water, electricity

Net profit = gross profit + other income- expenses

Exercise
The following figures were obtained from a firm’s records at the end of the trading period.
Purchases 76 000
Sales 101 500
Purchase returns 500
Sales returns 1500
Opening stock 6 000
Closing stock 65 000
Wages 450
Carriage outwards 360
Rent 450
Discount received 300
Calculate a. net sales
b. cost of purchases
c. cost of goods sold
d. Gross profit
e. net profit

NB: DO THE EXERCISE IN YOUR EXERCISE BOOKs please

3. BALANCE SHEET: A financial statement that shows the financial position of a business at a specific date. It lists
what the business owns [assets], what the business owes [liabilities] and how much the business owner has invested in
the business [capital invested]
Items that appear on the balance sheet
1. ASSETS: properties of the business
a. Fixed assets/Non-current assets: properties that the business owns and uses for more than a year. E.G.
Land and buildings
Machinery
Motor vehicles
Furniture
Fixtures and fittings e.t.c.
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b. Current assets: assets whose form or nature keeps on changing during the course of the trading activity. E.G.
Stock/inventory
Debtors
Cash in hand
Cash at bank

2. LIABILITIES: debts of the business or borrowed resources.

a. Current liabilities: debts of the business that need to be repaid within one year. E.G. Bank overdraft
Creditors
b. Long term liabilities: debts of the business or items of the business that have to be repaid over a long period of time
usually over a year. E.G
Long term bank loan
Mortgage loan
Debentures
3. CAPITAL INVESTED: money/resources that the owner of the business has invested in the business.

EXERCISE
The following is a list of items for DGD’s trading business.
Motor vehicles 20 000
Premises 7 000
Creditors 3000
Stock at 01.01. 2012 10 000
Stock at 31.12.2012 7 000
Debtors 5 000
Bank overdraft 4 000
Cash in hand 1000
Loan from D. Jones 35 000
Machinery 13200
Capital ?

1. Classify the following into: a) Fixed assets

b) Current assets
c) Current liabilities
d) Long term liabilities
2. Calculate the working capital. Comment on the working capital.

NB: DO THE EXERCISE IN YOUR EXERCISE BOOKS

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 SIMPLE RATIOS

1. Profitability ratios:
a) Gross Profit as a Percentage of Sales / Gross profit margin – it indicates how profitable sales were.
The higher the rate, the more profitable the business is

Formula ; Gross Profit X 100

Sales 1
Answer is expressed in Percentage

Gross Profit margin may be improved by/reasons for increase

o Looking for cheaper suppliers
o Increasing selling price
o Increasing advertising and sales promotions
o Changing the proportion of the different types of goods sold

Reasons for decrease:

o Buying from an expensive supplier
o Lack of advertising and sales promotions
o Demand for products might have reduced

b) Gross profit as a percentage of cost of sales (Mark Up): It shows the percentage by which the price of
an item is fixed above its cost price to make profit.

Formula ; Gross Profit X 100

Cost of Sales 1
Answer is expressed in Percentage

2. Liquidity ratios:
a) Current / Working Capital Ratio – it measures the ability of a business to meet its short term
liabilities when they fall due

Formula; Current Assets : Current Liabilities

Answer is expressed in Ratio

The Working Capital of a business must be adequate to finance the day-to-day trading activities. A business which
lacks working capital may encounter the following problems;
• Inability to meet liabilities when they fall due

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 • Inability to take advantage of cash discounts
• Difficulties in obtaining further supplies on credit
• Cannot take advantage of business opportunities when they arise

Ways of Improving Working Capital Position

• Introduction of further/additional capital
• Obtaining long-terms loans
• Reducing owner’s drawings/dividends
• Selling surplus non-current assets
• Increase in the proportion of cash sales

Reasons for reduction in working capital

- Excessive drawings
- Payment of cash dividends
- Customers moving to other suppliers

b) Quick / Acid-Test Ratio – it compares assets which are in money form/which converts into money
quicky, with the liabilities due for payment in the near future

Formula ; Current Assets – Inventory : Current Liabilities

Answer is expressed in Ratio

Reasons for reduction in quick ratio

- Fewer liquid assets than liabilities
- Increase in expenses
- Reduced assets tied up in the form of trade receivables, cash and bank\
- Increase in overdraft/trade payables/liabilities
- Increase in inventory
- Increase in cash and bank
- Increase in drawings

3. Efficiency ratios:
a) Rate of Inventory Turn / Stock Turn – it measures the number of times a business sells and replaces
its inventory in a given period of time.

Formula; Cost of sales (C.O.G.S)

Average inventory
Where average inventory = (opening inventory +closing inventory)/2
Answer is expressed in times

The quicker the inventory is sold indicates less funds are tied up in inventory hence efficiency. It indicates
• High sales
• Low selling price
• Increase in demand of goods/service
• Business activity has gone up

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The slower the inventory is sold indicates more funds are tied up in inventory hence in-efficiency. It indicates
• Lower sales
• High selling price
• Fall in demand for goods/service
• Business activity has gone down
• Increase in inventory
• Higher cost of inventory

PROTECTING THE ENVIRONMENT

WAYS OF PROTECTING THE ENVIRONMENT

• Use of environmentally friendly production methods [1] which will reduce air pollution [1]
• Afforestation; planting of trees
• Use of environmentally friendly products
• Proper disposal of waste e.g. in dumping sites
• Recycling/re using of waste
• Organize litter picking campaigns
• Public education on resource utilization

LEGISLATION AVAILABLE TO PROTECT THE ENVIRONMENT

• The Fauna Conservation Act: controls the number and type of hunting licenses issued and spell out the terms
and conditions applicable to such licenses and penalties for their infringement.

• Wildlife conservation and National Parks Act: Provides provisions for the conservation and management of
wildlife in Botswana and also provides for the establishment, control and management of national parks and game
reserves.

• Government Paper No.1 of 1986-Wildlife conservation Policy: The policy aims to obtain better yield or
economic return from land allocated for wildlife and ensure continuity of wildlife resources to ensure development of
commercial wildlife industry and increase in supply of game meat to people.

• Waste management Act: Aims to prevent improper waste dumping through the adoption of national waste
management policy.
• Coordinates monitors and formulate policies on waste management in Botswana through waste management
department.
• Implements training programmes and public education campaign to educate people on ways of protecting the
environment.

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• Council by Laws: Aimed at reducing bad business practices such as
• dumping of rubbish on streets
• pouring toxic chemicals down the drain
• pouring oil onto the floor/roads

PRESSURE GROUPS

THE ROLE OF PRESSURE GROUPS ON PROTECTING THE ENVIRONMENT

1. The Kalahari conservation society

This is a national wildlife and environmental NGO set up with the aim:
To conserve Botswana’s rich wildlife and its environment through education and publicity.
To encourage and in some instances finance research issues affecting these resources and their conservation.

It is also involved in the

• support of vital conservation and anti-poaching programmes
• promotion of sustainable utilization of natural resources
• collection and interpretation of data on natural resources

2. Wildlife Clubs
Students participate in wildlife and environmental activities which are educational to them for future environmental
issues.

3. GREEN PEACE. An organization of environmental activists, i.e. people concerned about the environment. It has
become a global symbol for people who seek to challenge those who seek to pollute and damage the planet.

SUSTAINABLE WAYS OF UTILISING THE RESOURCES IN THE ENVIRONMENT

The following are some suggestions of sustainable ways of utilizing the environment:
• Strengthen anti-pollution, anti-poaching, and conservation legislation.
• Encourage waste recycling/Re using/reduce
• Strict licensing of land use types
• Encourage the use of coal for domestic cooking fuel
• Improve land use zoning
• Public education on all matters of resource utilization and conservation should be increased.
• Establish institutional framework e.g. bodies responsible for specific aspects of the problem. -Allocation of
the necessary resources to enable the policies to be effectively implemented.
• Eco- tourism: Tourists are able to enjoy areas of natural beauty without requiring over-development that might
harm the environment.

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 WAREHOUSING

The protection given to goods from the time they are produced until when they are needed by consumers.

IMPORTANCE OF WAREHOUSING

• Protect clothes against damage due to bad weather (1) so clothes will be sold in a good condition (1) leading
to customer satisfaction (1)
• It protects the clothes from risk of theft (1) which reduces the chances of loss (1) hence possibility of profit (1)
• Steady supply of clothes (1) making the business to always meet customers’ needs on time (1) leading to
customer loyalty (1)
• Provides space necessary for Smart Clothing to prepare the clothes for sale (1) by packaging/branding the
clothes and pricing them (1) making it easy to handle clothes/distribute clothes (1)
• Allows clothes which are seasonal such as jerseys to be stored (1) and will be sold during the season they are
in demand (1) hence increase in sales (1)
• It helps to stabilise prices (1) as it ensures there is sufficient supply of clothes (1) avoiding price fluctuations
from time to time (1)
• it helps it to buy clothes in large quantities[1] enjoy trade dicsount [1] therefore able to charge competitive
prices [1]

TYPES OF WAREHOUSES AND THEIR USES

1. COLD STORAGE WAREHOUSE: A form of specialist warehouse used mainly for the storage of
perishables like fruits and vegetables, fresh milk, meat etc. they enable perishables to be exported throughout
the world without the fear that they would go bad on transit.

2. MANUFACTURE’S WAREHOUSE/DEPOTS: These are warehouses used by manufactures to store raw

materials, components, tools and machinery necessary for production to take place and also for storing
finished products before selling them.

3. CASH AND CARRY WAREHOUSE: Cash and carry is a type of wholesale purchasing that allows
customers to buy goods in bulk at discounted prices. They specifically require customers to purchase goods on
a self-service basis and take them away immediately, rather than having to wait for delivery.

4. WHOLESALE WAREHOUSE: Warehouses used by wholesalers to store their goods, break the bulk and
prepare the goods for sale.

5. LARGE SCALE RETAILER’S WAREHOUSE: Warehouses used by large scale retailers to store their
goods in order to supply to the branches after buying them in bulk through their central purchasing
department.

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 6. BONDED WAREHOUSES: Warehouses used for storage of dutiable goods on which duty has not yet been
paid. They are under the control of BURS department
• They are important as they help economize the working capital of traders as those who do not have
enough working capital may sell their goods while still in bond in order to avoid the payment of
duties.
• Goods may also be prepared for sale while on bond.
Bonded warehouses may be preferred to other types of warehouses when:
• The imported goods are dutiable and the trader does not have sufficient capital to pay the duties immediately.
• The goods imported are not required immediately and they therefore need to be stored under the control of the
customs authorities without payment of duties until they are removed.
• The goods are to be re-exported on which in which case the importer would not have to pay duty.
• The goods need to be prepared for sale bottling/packaging/blending/labeling.
• The trader does not have the correct license in place for the imported goods and needs time to obtain them.

Differences between a bonded warehouse and a cold storage warehouse

Bonded warehouse Cold storage warehouse

• It stores dutiable goods • It stores highly perishable goods

• They are supervised by Customs and Excise • they are supervised by their owners
authority

• Mostly located near port of entry into a country • may be located anywhere in the country EG
Bucharest supermarket etc
• goods imported are stored in bonded
warehouses • goods imported or exported or locally available
as stored

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 ADVERTISING

It is the spreading of information or awareness about a product or an event.

PURPOSE OF ADVERTISING
• To inform customers about the availability of products in order to generate awareness.
• To persuade consumers to buy a particular product/ brand so as to increase sales.
• To remind customers that a particular product still exist so as to come and buy.
• To inform job seekers on available vacancies.
• To create brand image

TYPES OF ADVERTISING
1. Informative advertising: type of advertising mainly designed to inform consumers in a clear and straight
forward manner without persuading them to buy the product.

2. Competitive advertising: a type of advertising used to increase sales by persuading consumers to believe that
the advertised product is the best, thereby influencing them to buy the business’s product.

3. Collective advertising: an advertising placed jointly by a group of producers in order to promote the use of
that product. It does not mention any brand or make by name. E.G A group of farmers can advertise ‘eat more
fruits and keep the doctor away’

FACTORS TO CONSIDER WHEN DESIGNING THE ADVERTISEMENT

• Medium to use and its availability: one should choose a medium which reach out the largest possible target
group.
• Good timing: ensure that the advert is placed at the best time when the target audience is most likely to by
the product.
• Budget available: consider how much the advert and medium will cost and see whether the budgeted money
will be enough to cover the costs
• The message to be taken by the targeted market; the message should make the target market to want to
know more about the product and make them to but at the end.
• What the business wants to achieve: such as increasing sales or increase brand awareness.
• Skills the company has;

METHODS OF ADVERTISING APPEAL

• Sex appeal: designing an advert portraying a beautiful young woman/man using the product in order to grab
customers attention
• Famous personality: designing an advert showing a celebrity using the product e.g a football star
• Hero worshipping: using cartoons or film characters such as Spiderman and Dora the Explorer in advertising
• Image appeal: by making a certain impression about the product such as the product being of a high class,
expensive or for the best.

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 • Gender appeal: using gender messages to sell the products such as perfumes and hair products.

ADVANTAGES OF ADVERTISING TO THE CONSUMER

• Better quality goods due to greater competition among producers hence improved standards of living
however it raises the prices of the product which makes it expensive for the consumer to buy.
• It informs consumers on what goods are available and provide them with information to make informed
choice by comparing prices and quality of different brands however this may lead to irrational choice of
goods.
• Lower prices: due to increased sales which results in lower production costs hence more consumers are able
to afford more goods and services however it may influence people to buy goods they do not need hence
waste money.
• Helps keep down costs of newspapers/ radio and TV licenses thereby increasing consumers access to
information and news however

DISADVANTAGES
• Makes goods expensive as advertising costs are added to the price of the product.
• May influence consumers to buy what they do not need/impulse buying
• Irrational choice of goods
• Mislead consumers through false claims.

ADVANTAGES OF ADVERTISING TO THE PRODUCER/BUSINESS

• Inform and persuade customers to buy hence increased sales/ market share and possibly profits however it
is costly to advertise.
• It help create a distinctive brand image which helps the business to stand out from competitors hence
attract more customers to buy however experts are need to design the advert which can increase business
costs.
• Help the business to find workers and fill job vacancies.
• Help maintain sales by keeping the business products before the consumers eyes.
• Help launch new products and help them penetrate the market quickly

DISADVANTAGES OF ADVERTISING TO THE PRODUCER

• It is expensive since/increases operational costs since the advert has to be designed by skilled personnel
hence low profit.
• It increases the cost of goods which may make them unaffordable to some customers hence reduced sales.
• It increases competition from other business hence customers may start buying from a rival company.

ADVERTISING MEDIA

FACTORS TO CONSIDER WHEN CHOOSING THE ADVERTISING MEDIUM

• Target group: should choose a medium which reaches the targeted market most effectively to ensure best
coverage.
• Area to be covered: should determine whether the area to be covered is local or national so as to choose the
best medium. If coverage is local then posters are the best and if it is national, radio/TV should be chosen for
wider coverage.

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 • Nature of the product: medium chosen should suit the product, expensive products should be advertised on
expensive medium and cheaper ones on cheaper medium so as for the business to be able to cover the costs.
• Cost of the medium: the cost should be considered in relation to the budget available, but the business should
weigh the relative benefits with the relative costs.
• Duration of advertising compaign:
• Availability of the medium

DISCUSS THE ADVANTAGES AND DISADVANTAGES OF DIFFERENT ADVERTISING MEDIA.

ADVANTAGES DISADVANTAGES

TELEVISION

Combines visual with audio impact [1] so it is effective However the adverts are short lived [1] so many
as it is appealing to different senses hence growing people may not see the advert/forget quickly [1]
peoples desire to buy the products [1] leading to
increased sales [1]
However the adverts are not always well received by
Wider coverage [1]so can be seen many viewers at peak viewers as some take it as entertainment/interruption
hours hence leading to a larger market share [1] [1] so may not get the message [1] hence not buy [1]

However TV adverts are expensive so this may

Adverts are attractive as they are shown in colour [1] so increase operational costs of the business [1] leading
can create impulse buying [1] leading to increased sales to reduced profits [1]
and possibly profits[1]

RADIO
Wide coverage [1] leading to more customers buying [1] However most FM stations do not cover the whole
hence increase in sales [1] country [1] so this may limit the number of
customers [1] leading to reduced sales [1]

However there is complete absence of visual impact

A popular song can be played along with the advert to [1] so it may not be effective
grab the attention of the listeners [1] so will get the
message and go and buy [1]
However some listeners may not get the message as
Provide opportunity to target particular segment of the they may not pay attention to the advert [1] hence
market through special interest programmes [1[ limiting the number of
therefore customers will be able to receive the message customers [1]
[1]
short lived
Cheaper than TV advertising

NEWSPAPERS

Wide national coverage especially the daily news [1] so

many customers will see the advert hence come and buy
in large numbers [1] leading to increased sales [1]
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 However the message can reach only the literate
Relatively cheap [1] hence reduces advertising costs [1] people [1[ hence limiting the number of customers
leading to increased profits [1] [1]

Information can be stored and referred to later/has long

life span [1] hence help maintain awareness [1] However there is no audio visual impact [1] leading
to less people buying [1]

Offer targeted marketing through certain pages [1] this

help grab the attention of the viewers and may end up However poor quality print may reduce the
buying the advertised product [1] effectiveness of the advert [1] hence less customers
buying as the advert may be unattractive [1]

However newspapers are general and do not appeal

to a particular group [1]
MAGAZINES/CATALOGUE
Adverts are shown in colour and in good quality paper However there is absence of audio visual impact [1]
[1] so can create inspiration and persuade customers to leading to less people buying [1]
buy [1]

Have long life span [1] so it can help maintain awareness However they have limited readership/appeal to
as it can be kept and referred to later [1] certain class of people [1] so this reduces the number
of customers [1]
Offer targeted advertising [1] so the message get to the
right people who will end up buying [1] However it is suitable for literate people only/ it is
infrequent [1]
BILLBOARDS

Low cost of production/cheap to advertise [1] therefore However they are open to vandalism/damaged by
reduced expenses for the business [1] hence increased harsh weather conditions [1]
profits [1]
However there is no audio kinetic impact [1]
Long life span/High repeat exposure [1] which helps
maintain awareness [1]
However there is creative limitations as messages
Can be shown in colour and in large size[1] so it may be are limited to simple short and clear statements [1]
effective as it can attract consumers to buy [1] so customers may not get the full message [1]

LEAFLETS [for local advertising only]

Cheaper and easier to design [1] hence low costs to the However the leaflets have to be handed from person
business [1] leading to increased profits [1] to person [1] so this may lead to high distribution
costs [1] reducing profits [1]
Advice and explanation can be given when necessary [1]
hence able to persuade the customers to buy [1] However leaflets are quickly destroyed [1] so may
not be effective [1]

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ADVERTISING AGENCIES

These are firms that specialise in the production, planning and placing of advertisements on behalf of their clients.

FUNCTIONS OF ADVERTISING AGENCIES

• media planning and booking: they give advice and assistance on the choice of medium to be used that
would be most effective, they also reserve space and time on media
• Design and production of adverts: they have fully staffed and computerized creative studio where they
design creative adverts to promote client’s products.
• Client servicing: they have agency account executives who communicate clients’ requirements to studio and
media departments to ensure that the adverts that are produced and placed fit the clients’ requirements.
• Market research: they carry out research to clarify public opinion about a particular product and gain
understanding on competitive product penetration, quality wanted by target market for strategic planning.

WHY BUSINESSES MAY CHOOSE TO USE ADVERTISING AGENCIES

• To cut costs as it may not be economical for the business to have its full time advertising staff/department
• To make use of highly equipped and specialized staff of advertising agencies so as to produce effective
adverts.
• They may not have the staff with the necessary expertise and experience in large scale advertising.

CODE OF ADVERTISING PRACTICE

These are rules which businesses voluntarily agree to keep but which have no legal status in order to avoid abuse of
advertising by placing misleading, exploitative and harmful adverts.

HOW ADVERTISING CAN BE CONTROLLED

• Legislation: raising of law by government that makes it illegal to make false advertisement and setting out to
penalties to offenders.
• Media: can refuse to accept unsuitable adverts in their media
• Self regulation: advertisers can come up with set standards to be followed by members when advertising.
• Consumer vigilance: consumers can protect themselves from unscrupulous advertisers by acting rationally
and voluntarily

RELATIONSHIP BETWEEN ADVERTISING PACKAGING AND BRANDING

• Branding is giving a unique name to a product to differentiate it from other similar products produced by
competitors. Advertising brings the brand name to the attention of prospective customers and create a demand
for that product by persuading consumers to buy.
• Pre-packaging is the physical packing or wrapping of a product into a container and labelling the container
with the brand name for easy identification. Similarly, advertising brings the brand name to the attention of
prospective customers and create a demand, though pre-packaging is on its own advertising.

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 TRANSPORT

It is the movement of people, goods, raw materials and equipment from one place to another.

EXPLAIN THE IMPORTANCE OF TRANSPORT

• It enables workers to efficiently move to and from work so as to start production on time[1] hence increased
productivity.[1]
• It levels out supply by transferring goods from where they are produced to where they are needed[1] thereby
preventing scarcity which can push the prices of goods.[1]
• Enables goods to reach the right place at the right time and in the right condition [1]so as to satisfy human
needs and wants.[1]
• It provides opportunities for mass production and foreign trade[1] leading to cheaper goods for consumers
hence high standard of living.[1]
• Reduce the amount of capital and storage of space required by producers[1] by delivering goods regularly and
quickly.[1]

IDENTIFY THE MODE OF TRANSPORT SYTEMS USED IN HOME AND FOREIGN TRADE

a. land- comprises of road transport and rail transport

b. pipelines
c. air transport
d. water transport-made up of sea and inland waterways

EXPLAIN THE FACTORS AFFECTING THE CHOICE OF TRANSPORT

• Cost-Expensive transport is suitable for valuable goods like diamonds, medicine and jewellery while
cheaper transport is suitable for cheap and bulky goods such as grains, coal, timber and brick to reduce
the increase in the price of goods..
• Urgency/speed- if goods are urgently needed the quickest means like air is used but if goods are not
urgently needed then slower modes of transport like rail and sea can be used in order to cut costs.
• Distance- for short distance road transport is preferable as it offers door to door service, for longer
distances rail and sea transport are more economical.

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 • Nature of goods- some goods such as pottery and glass products are fragile while others such as meat,
bread and fresh milk or fish are perishable and need quick delivery; therefore specially constructed
trucks are used for the goods.
• Size and weight of the goods- bulky goods such as coal, iron ore, timber are transported by rail and
canals in home trade and by sea in foreign trade. In some cases road transport can be used where big
trucks specially designed for carrying heavy abnormal goods are used.
• Safety- the chances of theft and damage of goods are more in some other modes of transport. As for
fragile goods rail transport cannot be used. This kind of risk can be reduced by using containers.
• Terminal-it means where the journey begins and ends, such as railway station, sea port or airport.
Terminals may not be an important consideration in road transport as it offers door to door service, but
in others they will be a need of other forms of transport to complete the journey, which will increase
the overall cost of transport.
• The reputation of the carrier: The carrier should be known for delivering goods safely and on time
to avoid customer disappointment.

1. ROAD TRANSPORT

ADVANTAGES OF ROAD TRANSPORT

• It offers door to door service[1] which help reduce chances of damage and theft[1] however crossing
national borders can be slow and inefficient.[1]
• It is flexible[1] as different shapes and sizes of vans and trucks can be used to all kinds of needs[1]
however the capacity of haulage is always limited to few tones.[1]
• It does not follow a fixed time[1] schedule so goods can be moved as and when ready and on any route
to meet customer needs on time[1] however it is more easily disrupted by bad weather.[1]
• It is relatively cheap for smaller loads and over short distance[1] so less money is spent[1] however the
direct vehicle operating costs are high such as licensing, fuel and maintenance[1]
• It can reach places which are isolated, not easy to reach
• Fewer documentation needed

DISADVANTAGES OF ROAD TRANSPORT

• It is slower than rail over long distances because of delays caused by traffic congestion
• The social costs of road transport is very high as costs arising from accidents, and air pollution from
exhaust pipes
• Road journeys may be slowed down due to poor weather conditions
• Restrictions of driving hours, tonnage of trucks, speed makes to unsuitable in certain cases
• The direct vehicles operating costs are high such as drivers’ wages, motor vehicle licensing

IDENTIFY NEW DEVELOPMENTS IN ROAD TRANSPORT

i)The development of logistics: Logistics is a process in which goods are delivered to the customer including
preparation, handling, storage and other planning.

-Enhanced distribution network- which helps optimize the times and distribution chain however it is expensive since
it requires large capital to operate/ small business may not afford it.
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-Reduces costs-due to the use of automated facilities however it involves costly distances.
-Delivery fulfillment- hence reduce delays to customers .

ii) The importance of freight forwarders: Freight forwarders manage international logistics from door-to-door taking
care of the export and import documents.

• enhanced shipment visibility and management through reliable tracking systems

• they have established relationships with carriers so they can negotiate better rates and secure
faster transit times
• consolidation of loads hence reduced shipment costs
• preparation of accurate documentation like permits/customs invoices which can help speed up
freight forwarding process
• help with shipment scheduling thereby getting products well on time
• offers convenience of one point of contact regarding transportation/warehousing etc which help
saves time and costs

iii) courier companies:

-It is fast: which ensures customer satisfaction however it is expensive.

-Door-to-door delivery: which reduces risk of damage or theft however there is stict limitation on packaging materials
and weight of goods.
-Cost effective: since the responsibility of insurance claims, damaged goods replacement and large loads remains with
the courier company however it has rods limits.

iii) Toll roads: These are kinds of roads which have occasional stops whereby individuals have to pay money to use
the roads.

-Saves time: It ensures free flow of traffic as drivers choose alternative roads hence fast delivery of goods however it
increases operational costs hence reduced profit.

-Better road conditions- since the roads are well taken care of hence reduced vehicle/goods damage however toll roads
are limited to specific areas.

EFFECTS OF ROAD DEVELOPMENT ON THE ECONOMY OF BOTSWANA.

Positive effects:
- More areas are now accessible or easy to reach,
- It is easier and faster to travel to neighbouring countries
- Domestic and international tourism has improved.
- Roads in urban areas are less congested.
- There is improved local and international trade.
- Reduced costs on vehicle maintenance.
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- Increased job opportunities in the road construction industry.
- People have gained skills in road construction.
- Good roads have assisted in supporting the growth of the mining industry

Negative effects:
- Improved roads have encouraged rural to urban migration of people.
- Lives and property are being lost due to increase in road accidents.
- Noise and other environmental pollution have resulted due to increased traffic.
- Destruction of natural habitat for animals due to road construction

2. RAIL TRANSPORT

ADVANTAGES OF RAIL TRANSPORT

• It is faster and more effective than road over long distance[1] hence timely delivery of goods[1] however it has
limited coverage of the country as there are few railway lines across the country.[1]
• It can carry a larger quantity of goods in one trip[1] hence reduced costs[1] however it cannot carry /long and
extra wide goods.[1]
• It is less likely to be disrupted by bad weather conditions[1] hence faster deliveries[1] however it follows a
fixed timetable.[1]
• Special containers are available for specialized items like oil and livestock[1] however costs tend to be
high for short distances.[1]

DISADVANTAGES OF RAIL TRANSPORT

• It cannot deliver goods door-to -door
• It is not flexible as it follows a fixed time table and a definite route
• It is not suitable for emergency situations that require urgent delivery of goods
• Trans-shipment is necessary at the beginning and end of the rail journey hence increased costs as well as
higher risks of damage of goods
• Limited coverage of the country
• It is slower than road transport due to single way tracks

NEW DEVELOPMENTS IN RAIL TRANSPORT

• Freight liners[1]- these are container carrying trains which link up with special road and sea terminals, and
can be loaded and unloaded quickly by cranes.[1]
• Introduction of more comfortable passenger coaches[1] has increased passenger traffic.[1]
• Use of computers to monitor the operation of trains[1] has reduced costs and also improved efficiency and
volume of rail traffic.[1]

3.AIR TRANSPORT

ADVANTAGES OF AIR TRANSPORT

• air is the fastest form of transport for sending goods over long distances (1) suitable for goods which are
urgently needed (1) however it is sensitive to bad weather
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 • insurance and packaging costs are lower (1) as transit time is short and there is lower risk of damage and
theft of goods (1) however it is an expensive means of transport
• saves a lot of time and money (1) because both land and sea can be crossed in one journey without the
need to transfer goods from one mode of transport to another (1) however cannot deliver door to door

Disadvantages of Air Transport

• a very expensive means of transport
• aircraft has got a limited carrying capacity both in weight, size and volume
• sensitive to bad weather
• causes pollution, especially noise
• not flexible, follows a fixed time-table

New Trends in Air Transport

• the building of larger and faster aircraft (1) hence increased loading capacity
• improved loading through large doors at the nose and tail (1) hence reduced loading time
• improvement of storage and cargo handling facilities (1) hence high levels of security
• improved landing and navigation systems such as ‘autopilot’ (1) which improves safety
• introduction of special light weight containers for air cargoes (1) which are used to speed up cargo loading
and unloading at airports
• improved design of the fuselage and engine (1) hence increased fuel economy

Effects of New Developments in Air Transport on Commercial Activities:

- Reduction in air fares resulting from economies of scale enjoyed by airlines for carrying many passengers.
- Many business people, ordinary passengers and tourists can now afford to visit different continents and countries.
- The Hotel and Tourism Industry has created more jobs.
- Hotels, Game parks and the country at large earn the much-needed forex to help in the balance of payments.
- The wider variety of goods made available for sale enable consumers to have a wider choice, hence, improved standard
of living.

4. WATER TRANSPORT

a) Sea transport

ADVANTAGES OF SEA TRANSPORT

• it is a cheaper means of transport over long distances (1) which saves operation costs (1) however bad weather
can cause serious delays and losses at sea
• very large quantities of goods can be carries in one shipload (1) hence cost per unit of goods transported
comes down (1) however prone to sea pirates
• the use of container ships increase safety of goods (1) since it minimizes handling of goods on transit (1)
however trans-shipment is inevitable
• tramp ships provide a very flexible service (1) as they are not bound to a fixed time table and route (1)
however does not offer door to door service

DISADVANTAGES OF SEA TRANSPORT

• it is very slow, hence it is not suitable for urgently required goods such as medical supplies.
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 • it does not offer door to door service
• bad weather can cause serious delays and losses at sea
• packaging of goods will be expensive as the goods have to be well packaged to protect them against damage
on transit
• goods can be easily lost or damaged because of large tonnage carried
• restricted to areas with access to sea hence land locked countries do not get the full benefits of sea transport
• it requires other forms of transport to take the goods to and from sea ports (trans-shipment) this increases the
cost of shipment as well as the risk of loss and damage of goods on transit.

New Trends in Sea Transport

• Introduction of merchandised cargo handling equipment hence efficient loading and unloading of cargo
• The building of more sea ports worldwide hence increased international transportation of goods by sea
• The development of Freeport and removal of custom barriers hence reduced costs of sea transport

b) INLAND WATERWAYS

This is transport by lake, rivers, canals and dams using boats. Mainly goods such as timber, sand, drinking water, coal
are transported from one place to another through inland water ways. e.g in East Africa, a lot of trade is carried out over
lake Victoria which is shared by three countries (Uganda, Kenya and Tanzania)

Advantages of inland waterways

• It is cheaper than other modes of transport (1) because of low energy/fuel cost which reduce costs
however labour cost is high in relation to short distances
• It is suitable for fragile goods like glass ware, chinaware and pottery (1) because it provides
smooth carriage (1) however it is very slow because of restricted speed of barges
• Barges can efficiently carry large loads of bulky goods such as coal, cement etc. (1) which reduces
costs (1) however canals can be very narrow and cannot take wide barges

Disadvantages of inland waterways

• it reaches only a limited number of locations

• it is very slow because of the restricted speed of barges
• many canals are very narrow and cannot take wide barges
• labour cost is high in relation to short distances
• in winter the waterways can freeze and stop transport completely
• canals are very expensive to maintain

5. PIPELINES
Pipelines are used for transporting water, gas and oil without using vehicles. In Botswana it is used by the Water
Utilities Corporation to supply water to their customers.

Advantages of Pipelines

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 • reduce the risk of pollution especially for oil (1) hence create a toxin free environment however are
expensive to install
• increase the safety in the transportation of flammable liquids (1) which is attractive and safe (1)
however they are often attacked in cases of conflict
• pipelines can be erected on land or laid under water (1) there by saving space (1) however are
vulnerable to sabotage
• economize in the use of trucks (1) hence reduce the traffic congestion on roads (1) however are highly
specialized [only transport a limited range of goods]

Disadvantages of Pipelines
• pipelines are vulnerable to sabotage during conflict
• pipelines are expensive to install
• pipelines are highly specialized

6. CONTAINERASATION
It means the use of containers to carry goods. Containers are standardized strong metal boxes used to pack goods ready
for transport and can be carried by trucks, rails or ships. Goods are packed into containers at the factory and delivered
direct to the destinations. Containers have provided firms with a fast, cheap and reliable method of transporting large
quantities of goods.

Advantages of containerisation

• containers can be safely stored outside [1] hence reducing the storage costs [1] but needs to hire the containers
[1]
• they are made in standard sizes and can be used in rail, road, sea and air transport [1] making transportation of
goods easy [1] but there is need to hire standardized trucks and ships to carry containers because not all ships
and vehicles are standardized [1]
• It simplifies loading and unloading of goods at terminals [1] as cranes are used so this reduces turnaround
time at ports [1] but not all terminals [ports] have mechanized container handling facilities [1]
• packaging and insurance costs are reduced [1] as containers improves the safety of goods by protecting them
against risks of theft, damage and bad weather [1] but is not suitable for abnormal loads [1]
• an arrangement called ‘groupage’ is used [1] goods going to the same town are put in one container hence
help reduce transport costs as they would contribute [1] but it is not economical for carrying very small loads.
[1]
• containers have unique verification number/container number [1] which makes it easy to track and trace it
during transportation [1] but standardised containers may limit the amount of goods that can be carried [1]

Disadvantages

• There is need to hire standardized trucks and ships to carry containers [1] because not all ships and vehicles
are standardized [1] but an arrangement called groupage can be used which help cut costs [1]
• Not all terminals [ports] have mechanized container handling facilities [1] this would require expensive
upgrading of ports.[1] but containers have unique verification number/container number which makes it easy
to track and trace it during voyage [1]
• not economical for carrying very small loads [1] as this can be expensive [1] but containers can be safely
stored outside hence reducing the storage costs [1]
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 Uses of Mechanical Cargo Handling:
- Sophisticated mechanical cargo handling cranes are used in major ports around the world to reducing the risk of
damage and losses in transit of goods.
-To handle cargo efficiently hence provide fast, cheap and reliable methods of transporting large quantities of goods
throughout the world.

PORTS AND AIRPORTS

Types of Ports.
• Sea ports: An artificially enclosed space of water for the loading, unloading and repair of ships. (dock) – A harbour
for sea-going ship.
• Air ports: Complexes of runways and buildings for the take-off, landing and maintenance of civil aircrafts with
passenger facilities.
• Dry ports: Arrival and departure area or building for maintenance and repair of containers.

• Main Functions of Ports:

- Provision of place and facilities where goods in transit can temporarily be stored.
- Provision of place and facilities for maintenance and repair of transport and containers.
- Provision of loading and unloading facilities for cargo.

Services offered at seaports for both passengers and freight

i) good transport connection inland- they link the port to the inland and rail way networks by a system.
ii) mechanized handling facilities like gantry and wharf chains are used for speedy discharge and loading of vessels.
iii) warehouse and office buildings for shipping companies, banks, restaurants, customs and immigration authorities.
iv) ship repair yards
v) sheltered docking and deep water access.
vi) specialized facilities for handling certain cargos such as timber, loose grains, coal etc

The importance of the department of Civil Aviation

• to provide the safety, security, efficiency and regularity of air transport services
• to develop, design, construct, install and manage all civil aviation infrastructure and air ports facilities
• to develop and implement national civil aviation laws, policies and regulations

INSURANCE

Insurance is the protection given against a risk that we are not sure would occur but which if it occurs would cause a
financial loss.

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Nature & Insurance Pool
Insurance works on the principle of “pooling of risks” This means that the premiums of many people pay for the loss
of a few people. Every business or person is faced with risks, pays a small amount of annual In this way a fund
(collection of premium or pool) is created at the insurance company out of this pool, compensation can be paid to those
who suffer financial losses. Thus the premium of many compensates the loss of a few.

Dividends to
insurance company
shareholders
Premium paid Surplus funds
(owners)

The Invest
Insura ment
insured nce
public in
Pool busine
and (Premi
busine ss
ums,
sses or Claims Intere Interest activiti
(policy Paid out st and and profits es or
holders lent
Profits out
) )
Running costs and expenses
(Salaries, rent, tax, stationery,
transport etc.

Importance of insurance

1. Insurance enables the business to be compensated in case of financial loss that resulted from the occurrence of
a risk.
2. It provides businessmen with confidence to continue trading knowing they will be covered in case they face a
risk.
3. Insurance provides a saving plan and benefits the dependents of the assured in times of loss of loved ones
hence as they cannot remain suffering.
4. Insurance companies work as investors as they also lend money to businesses which generates interest for the
company to be used in different activities of the company.
5. Insurance helps individuals to overcome misfortunes like theft, damage of property as they get compensated
upon suffering a risk.
6. It is an invisible export and it brings income to the country as well as improves the balance of payment
position.

Business Risks:
A risk is an event that causes financial loss. It could be fire, accident, burglary theft, death etc. There are two types of
risks:

114
1. Insurable risks: are those whose likelihood to occur can be predicted with accuracy. The prediction on occurrence
can be easily calculated on the basis of past experiences and statistics. A fair premium can be fixed. For e.g. the
incidence of robbery in a given region can be calculated on the basis of past statistics. It is therefore possible for
insurance companies to fix a fair premium, which will cover most claims.

2. Non-insurable risks: are those which cannot be assessed due to lack of records as their likelihood of occurring is
not known, hence cannot be calculated on the basis of past experiences and statistics. A fair premium cannot be fixed
so; the insurance companies do not provide cover for such risk. For e.g. Risk of losses due to low sales cannot be
accepted by insurance companies as they cannot be calculated on the basis of past statistics. The loss of profit due to
bad or poor management.

The importance of statistics and other information on in calculating risks and premiums
Statistics and other information are required to enable the insurance company to estimate the number of people to be
insured against a particular risk. It is therefore possible for insurance companies to fix a fair premium which will cover
most claims and even earn profit.

THE PRINCIPLES OF INSURANCE:

The operations of insurance are governed by a set of principles failure to comply with the principles may make the
policy null and void, in which case the insurance company would not pay any claim. The main principles are:

1. The principle of indemnity:

Indemnity means that the insured must be restored to the same position as before the risk occurred. Indemnity does
not allow the insured to make profit out of insurance by over insuring or under insuring as it is limited to the sum
insured. It does not apply to life and personal accident.

i. Over insurance occurs when the insured insures his property for an amount more than the actual worth of the
property. E.g. A man insures his property which is worth only P10, 000 for P12, 000. Even if his property is totally
destroyed, the maximum compensation given will be only P10, 000 and not 12,000 as insurance is a contract of
indemnity.
ii. Under Insurance: is when the insured insures his property for an amount less than the actual worth of the property.
E.g. A man insures his property worth P10, 000 for P8000.00 if his properly is totally destroyed, the maximum he could
get is only P8000.00 and not P10, 000.

Indemnity works through three rules: namely, subrogation, contribution and average clause.
a. Subrogation: this means to take over the remains or scrap of the damaged property by the insurance company so
that the insured does not benefit from it as well. After paying the compensation by buying Mr. Ben another car of
similar value, model and the insurance company will subrogate the scrap because Mr. Ben is not to make profit by
selling the remains of the old car. This principle confers the rights of an owner onto the insurer once the insurer makes
payment of a claim.
Eg.2. if Mpho has insured his car against fire and in case of fire then Mpho gets compensated for the loss by the
insurance company. The damaged car remains can now be taken away by the insurer who can sell it to the scrap
yard for a price.

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b. Contribution: Contribution applies when the same property is insured under two different companies. In case of
loss, each company would contribute half the value of the damaged or lost property to prevent the insured from making
profit out of insurance.
E.g. Mr. Ben insures his goods worth P1000 against fire with 2 insurance companies (P1000 with each insurance
company) In case of fire, Mr. Ben would receive a maximum of P1000, from both the insurance companies jointly
and P1000 from each insurance company because he cannot make profit from insurance.

c. Average clause: A rule that prevents the insured from making a profit out of insurance by under insuring their
property. If the property is partly damaged, the company will only pay a fraction of the repair costs since the property
was partly insured and the insured will have to pay the balance.
E.g. if one insures a car worth P18, 000 for only 15000 and if it is later on partly damaged in an accident such
that it needs P6000 for repair, the insurance company would pay only P6000
Calculation: insured value x cost of repairs
Actual value
P15000 X P6000
P18000
= P5000 since the property was partly insured

2. Utmost good Faith; The principle compels both the insurer and the insured to be truthful or honest to each other.
The proposer must disclose fully all material facts known, in answering all questions in the proposal form. Failure to
disclose the whole truth will make the policy void and the insurance company will refuse to pay compensation should
a loss occur. The insurer must also show utmost good faith by explaining in detail the nature of insurance contract and
terms of the contract i.e. when the insured may or may not be compensated.

Utmost good faith should be observed since the answers or information on the proposal form enables the
insurance company to:
- Assess the risk
- Decide whether to cover the risk or not
- Fix a fair premium
- Come up with an insurance contract which is fair to the insurer and the insured.

3. Insurable Interest:
It prevents the people from making profit out of insurance by insuring property that they do not own i.e. property they
have no direct interest and legal right to. The principle allows people to insure a property for which they would
personally suffer a financial loss if it is stolen or damaged.
Example: If you buy a car and later it is stolen, you will certainly suffer a financial loss [lost the money you spent
on the car]. This means you have insurable interest in your car, your sister or friend cannot suffer any loss if the
car is lost because she has no insurable interest in it.

4. Proximate Cause:
The insurance company will pay compensation if the loss suffered was caused by the risk that was covered by the
policy and the cause of the risk is within the precise terms of the policy.
E.g.1 If the goods stored in a warehouse are insured against fire and flood then the goods are lost or damaged due
to an earthquake, then no claim can be made.
E.g.2. If your house is insured against accidental fire then you deliberately decide to burn it down yourself in order
to get compensated, the insurance company will not pay any compensation because you deliberately caused the fire,
yet the house was insured against accidental fire.

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 CLASS EXERCISE
Q1. Mr. Jones insured a house worth P12000 with 3 insurance companies against the risk of fire. Unfortunately
the house caught fire and was totally destroyed.
a. How much would he be paid as compensation?
b. Calculate how much compensation would be paid by each insurer.
c. Give reasons why each insurer would not compensate him fully.

Q2. A house worth P12000 is insured for P10000. Later the house is partly damaged and the repairs cost P9000.
a. Calculate how much compensation the insured would get from the insurer.
b. Give reasons to support your answer.

Q3. Mr. Pule rents a house in Gaborone. Explain why he can insure his property inside the house against risks
and not the house.

TYPES OF INSURANCE COVER

General insurance
1. fire,
2. Accident/special causality insurance
3. marine,
4. aviation,

1. FIRE INSURANCE
It covers private and business property against the risk of fire i.e buildings and contents.

2. ACCIDENT/ SPECIAL CASUALITY INSURANCE

It covers risks of accidental damage to property, personal accident and burglary. These include te following types of
liability insurance:

a. Public Liability Insurance

It covers a business against claims made by members of the general public who have suffered losses caused by the
business owner or the business including any related legal fees, costs and expenses as well as costs of hospital treatment.

b.Employer’s liability insurance (workmen’s compensation)

It covers employees who are injured or made ill in the course of their employment.
This policy is a must for businesses to have it, and the policy certificate must be displayed where employees can easily
read it.

c. Fidelity bond
It covers the business against losses resulting from the dishonesty of its employees.

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The insurance company can compensate losses arising from employee theft provided it can obtain satisfactory reference
about the employee’s character.

d.Proffessional indemnity insurance

it protects businesses that sell knowledge and skill against claims sought by a client if they have made mistakes or are
found to have been negligent in some or all of the services that they provide for them.
E.G. law firms, advertising agencies.

e) Insurance of property,
i. Contents Insurance
It covers all the moveable items in the insured’s home e.g. furniture, carpets, jewellery etc. it covers losses resulting
from theft, fire, flooding, lightning, accidental damage and the like.
The insurance company pays money equal to the value of the goods at the time the risk occurred considering wear and
tear.
E.G if your 5 year TV is stolen the insurance company will pay compensation enough to buy a 5year old TV. i.e. second
hand of a similar model.

ii. Building Insurance

It covers one against any risk occurring to his/her house e.g. fire, damage by vehicles or aircrafts, flood, lightning,
explosion. etc.
It also covers claims for personal accidents and liability if the building collapses and injures a person

f. Cash in transit
It covers the loss of money from the businesses’ premises as well as on transit to or from the bank against theft and
armed robbery.

g) Business Interruption / Loss of profit due to fire/consequential loss

It covers the business against loss of profit due to fire which may lead to the business being temporarily closed or forced
to restrict production waiting for repairs to be completed.
It also extends to cover risks such as breakdown of machinery, accidental damage by vehicles/ aircraft, power failure.

h. Motor insurance: This covers the risks of fire, theft, accidental damage to the vehicle as well as loss to third parties
who happen to be traveling in the car or knocked down by the car of their belongings damaged in an accident. The
following are types of motor insurance:

a. Third Party Policy

It covers the death or bodily injury caused to third parties (passengers or other road users) as well as damage to their
properties. The policy is compulsory and a minimum legal requirement for anyone buying a car.

b. Third Party fire and theft Policy

It covers the insured’s vehicle against the risk of fire and theft in addition to third parties and their belongings. The
premium is higher than in third party.

c. Comprehensive Policy
This is the most secure policy which covers third party, fire and theft, damage to the vehicle and loss of properties in
the vehicle as well as injury to or death of the insured.

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3. MARINE INSURANCE
This is the insurance of mainly ships and their cargoes.

TYPES OF MARINE INSURANCE

a) Cargo insurance
It covers goods which are being carried by the ship against loss or damage at sea. The insurance may be arranged to
cover the cargo on a particular trip or voyage. E.g. from Durban to London, or it may be open.

b) Hull Insurance
It covers the ship itself against the risk that may occur to it like fire, accident and sinking of the ship on the sea.
It can be arranged to cover the ship for a particular period of time e.g. 1 year or 2 or for a particular voyage.

c) Freight Insurance
It covers the transport cost charged by the shipping company for carrying the goods. It is usually paid in advance but
the shipping company is entitled to it only if the cargo is safely delivered.

d) Ship owners ‘Liability insurance

It covers the ship owner against claims from third parties like injury/death of passengers traveling in the ship, damage
to or loss of their property and damage to port facilities or other ships.

4.AVIATION INSURANCE

Aviation insurance is an insurance coverage available to cover the operation of aircraft, including drones, and the risks
involved in aviation.

a)Public liability insurance/Third party liability:This covers aircraft owners (insured) for accidental
injury to or death of persons, damage that their aircraft does to third party property, such as houses,
cars, crops, airport facilities and other aircraft struck in a collision.

b)Hull-Loss or damage insurance: The policy provides cover for the aircraft against accidental loss or
damage from whatever causes while the aircraft is in flight (commences from the time the aircraft
moves forward to take off, attempting to take off, whilst in the air, and until it completes the landing
run).

c)Passenger liability insurance: Passenger liability protects passengers riding in the accident aircraft
that are injured or killed.

d)Combined Single Limit (CSL):CSL coverage combines public liability and passenger liability
coverage into a single coverage with a single overall limit per accident.

e)Ground risk hull insurance not in motion:This provides coverage for the insured aircraft against
damage when it is on the ground and not in motion.

f)Ground risk hull insurance in motion (taxiing):This provides coverage while the aircraft is taxiing,
but not while taking off or landing.

g)In-flight insurance: In-flight coverage protects an insured aircraft against damage during all phases
of flight and ground operation, including while parked or stored.

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LIFE ASSURANCE POLICIES
The insurance of people’s lives is termed assurance; this is because it provides cover for an event [death] that will
certainly occur.
• It is a form of saving plan rather than insurance i.e. it ensures that surviving family members are taken care of
after the death of breadwinner.
• The principle of indemnity does not apply here because there is no amount of monetary compensation
which can restore the insured back to life.

TYPES OF LIFE ASSURANCE POLICIES

a. Whole life policy

A policy under which a person assures his/her life for a certain sum of money which will be paid to his/her dependents
upon death. The assured decides the amount of money he/she wants to assure his/her life for and pays a certain amount
of premium until his/her retirement or death.

b. Terms policy:
It covers a person for only a fixed period of time e.g. 25 years, if the person dies within the period of cover the amount
agreed upon is paid to dependants but if the person does not die until the period elapses no money is paid out.

c. Life endowment
Under this policy the assured is covered for a specific period of time e.g. 20 years, if he/she dies before the maturity
date, the money is paid to his dependents but if he lives up to the maturity date the money is paid to him/her personally.

There are two types of this policy.

i) With profits policy assurance: the policy pays the assured the sum assured plus a bonus or profit.
ii) Without Profits: pays the assured a lump sum upon expiry of the cover.

d. Family income policy:

Under this policy if the policy holder dies, his/her dependents will be paid an agreed sum at regular intervals for a
specific period of time.

e. Mortgage Security:
it provide cover for those who have mortgage loans by settling out the outstanding balance to the lending institution if
the assured dies. This avoids the borrower repossessing the assured’s house.

f. Educational policy: taken out by people for their children’s education in the future. The policy pays out educational
expenses.

DOCUMENTS USED IN OBTAINING INSURANCE

i. The proposal form

This is an application for insurance form filled in by the proposer with utmost good faith.

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 • Its purpose is to collect the information from proposer which would assist the insurance company to make an
assessment of the risk and calculate a fair premium to be paid.

ii. Cover Note

It is a temporary document of contract of insurance issued as proof of insurance pending the preparation of insurance
policy.
• It is normally issued on the same day the contract is signed and remains in use until the insurance company
draws up the policy.

iii. Insurance policy

It is the final document that is issued by the insurance company clearly stating the terms, warranties and conditions
under which the contract has been entered into as well as the obligations of both parties.

DOCUMENTS USED IN MAKING CLAIMS

i. Claim form
This is a form used for making claims when the risk has occurred filled by the claimant giving all the details of the risk
and amount of loss suffered.

ii. Police Report:

A report issued by the police after carrying out a thorough investigation explaining the cause of the risk and points
whose fault it was and the actions taken to try and reduce the loss. It accompanies the claim form.

iii. Agreement of loss form: a form signed by the client binding him/her to accept the figure offered in compensation
and state that if recovery is made it belongs to the insurance company.

EXPLAIN PROCESS OF BUYING INSURANCE

• The proposer approaches the insurance company directly or goes through an insurance broker.
• He/she would be given a proposal form to fill in, giving detailed information about the property concerned
and the risk being insured against.
• The insurance broker then investigates about the property and assesses the risk being insured and calculates
the premium to be charged.
• Upon payment of the premium the proposer is now insured, he/she is given a cover note.
• The full policy will then be issued in a month or so.
• At the end of the period of cover, the insurance company issues a renewal notice to remind the insured to pay
a further premium.

EXPLAIN THE PROCESS OF MAKING A CLAIM

• Carry out thorough inspection of the accident
• Take any steps necessary to minimize or prevent further damage
• Make note of any expenses incurred in carrying out the above for the insurer to reimburse
• Keep as evidence the damaged components
• Notify the insurance company as soon as possible
• Complete a claim form giving full details of the loss incurred accompanied by a police report.
• Sign an agreement of loss form to accept the figure offered as compensation
• Insurance company then settles the claim
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EXPLAIN THE FUNCTIONS OF INSURANCE BROKERS, AGENTS AND UNDERWRITTERS

INSURANCE AGENTS
These are individuals who act on behalf of the insurance company to sell life policies, they never handle premiums but
are paid directly to the insurance company. They are paid a commission based on the number of clients they have found.

INSURANCE BROKERS
These are also agents but mostly companies whose work is to link those seeking insurance cover and the insurance
company, they are paid a commission based on the amount of premium collected from the insured (usually 15%).
Functions
• They give expert advice on the levels and type of cover one may need and seek the best possible policy
• They approach different insurance companies to get quotations on behalf of the clients.
• They undertake any clerical work involved in collecting and forwarding premiums to the insurance company
• They provide all the necessary documentation for the insured.
• They help in negotiating cheaper premiums on behalf of the client.

UNDERWRITERS
These are very rich people who accept insurance risks i.e. they insure by themselves, they pay out compensation from
their own pockets when the risks occur and enjoy the premiums if no risk occurs.
They have unlimited liabilities and usually work in groups or syndicates through underwriting agents.

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 FINANCE AND BANKING

METHODS OF PAYMENT IN BOTSWANA

1. Cash: anything which is generally accepted as a medium of exchange and as a means of settling debts and
obligations.
2.Cheques: -Cheques are safer and more convenient-because they can be written for any amount since they are not
bulky-this reduces the risk of carrying large sums of money.
-The clearing of cheques provides proof of payment so no receipts are required when paying by cheque however -
wastes time since they need to be taken and deposited into the bank account
-Cheques are numbered so they can be traced if lost or stolen however - -cheques can be safely sent by post especially
when crossed which is convenient however they may be valueless if the drawer does not have enough money in his/her
account
-cheque stabs that remain in the cheque book allows for easy banks reconciliation-They are no practical when paying
small amounts
3. Money orders: this is a means of payment through the post office where a sender fills in a money order form stating
the amount they want to send. The money order is then faxed to the paying office. The payee is given a notifying slip
with the amount to be paid to him/her.
Adv: it is very quick because it can be faxed however network failure may delay payment.
4. Postal orders: these are post office documents issued in lieu of cash issued in specific denominations. The sender
fills it in and posts it to the payee who then takes it to the named office to get cash. A fee called poundage is paid by
the sender.
Adv- they are safe since money is obtained from the post office however poundage is paid.
5. Credit transfers: -facility provided to current account holders for making regular payments directly into the payee’s
account. It can be used to make both single and multiple payments to large numbers of people.
Advantages of credit transfer facility
-leads to improved administration, less reconciliation and less errors for the business
-There is no restriction on the number of payees
-It is quicker and safer since one does not have to carry money to make payment.
-There is no chance of dishonoured cheques which reduces penalties

6.Debit cards: These are ATM cards that can also be used to buy goods and services from participating businesses.-
Debit cards do not entitle holders to obtain credits but to spend money they have in their accounts.

• Less bulky (1) so reduces risks and need to carry large amount of money around (1) however there are bank
charges [1]
• Can be used over the phone/ internet (1) therefore quicker to use (1) however there is limited protection
against fraud/theft (1)
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 • convenient (1) as it can be used at any ATM/POS (1) however it cannot work if there is no network. [1]
• ability to track spending [1] as transactions are recorded in their bank accounts [1] however there is a risk of
overspending [1]
• cashback /rewards on purchases [1] when using at POS terminals [1] however it does not improve customers
credit rating [1]
• A safe means [1] as it requires PIN [1] however the card can be blocked due to wrong PIN [1]

7. Credit card: This is a card that enables the holder to buy goods and services on credit from certain businesses
Advantages of credit cards
-They provide easy credit to the card holder which enables them to get goods whenever they need them however not
all businesses accept credit cards
-Convenience- cards are quicker and cheaper to use than cheque books however they are prone to fraud.
-Cards are globally recognised which allows one to buy from cheaper international suppliers however a fee is charged
for the service.
-Provides fast access to cash which is convenient however some bad debts may occur

8. Bill of exchange: -These are usually drawn for a future date, either for 3 months or more.
-They are used where the buyer requires short term credit but the seller is not prepared to give it.
-The seller draws up the bill setting out the debt and demanding payment in the stated period and gives the buyer for
acceptance.
-By signing the bill the buyer acknowledges the debt and promises payment on maturity date.
-If the buyer has a good reputation and record, banks can accept and discount such a bill.

9. Standing orders: a facility used when making regular payments, of fixed amounts on fixed dates. Importance: -the
bank will not forget to make such regular payments on the client’s behalf which reduces the penalty of interests from
creditors hence reducing expenses.
10. Direct debits:-a facility used for making regular payments of varying amounts and varying intervals.
Importance
-it is the payee to initiate payment, which reduces incidents of bad debts.
-it is convenient to the debtor who does not need to remember to make regular payments.
- It saves the business clerical work since the bank does this on its behalf thus saving time for other business needs.

11. Cable transfers: an electronic way to transfer money.

12. Documentary credit: the facility guarantees payment to the exporter in advance of despatching goods and the
importer is made certain that the ownership of the goods is assured before payment can be made.
13. Letter of credit: it is commonly used in foreign trade. This is an order from a domestic bank to a foreign bank,
authorising payment of a certain amount to a named person.
Importance
-it helps guard against default by the importer since the credit worthiness of the importer is not known however it can
be revoked or cancelled by the importer
-it gives the exporter guarantee of payment before he/she hands over the documents to the importers’ bank.
-the importer knows for sure he/she would have ownership of the goods before payment is made.

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Advantages

• Free of credit risk (1) so safer in case the importer goes bankrupt/ since the credit worthiness is transferred to the
issuing bank/ it is the bank’s obligation to pay the amount as agreed on the letter of credit (1) however the letter of
credit has date of expiry date so the business has a time limit within which he will have to deliver the bricks (1)

• The business will receive payment on time (1) this lead to better cash flow planning (1) however there are bank
charges (1)

• Helps The business to expand the business internationally (1) as the letter of credit gives the business the ability
to transact with unknown partners/newly established customers (1) however faces the risk of currency fluctuations. (1)

• Payment is assured in disputable transaction (1) if there is a dispute The business can withdraw the money as
agreed in letter of credit and settle the dispute later in court (1) however time consuming formalities. (1)

• The business and the company in Zimbabwe can put in their terms and conditions in the letter of credit (1) so The
business will receive money on fulfilling terms (1) however there are too many documents required so time consuming
(1)

Disavantages

• The letter of credit has expiration date (1) therefore The business has a time limit within which he will have to
deliver the bricks (1) however The business will receive payment on time (1)

• Time consuming formalities (1) as there are many required documents (1) however The business and the company
in Zimbabwe can put in their terms and conditions in the letter of credit

• Fees charged by the bank (1) adding to business costs (1) however using a letter of credit is safe since it is the
bank's obligation to pay the amount as agreed on the letter of credit (1)

• Carries forex risk/ facing risk due to currency fluctuations (1) so The business may face losses (1) however the
letter of credit gives TTM(Pty) Ltd confidence to transact with unknown partners/ newly established customers (1)

14. Bankers ‘draft: this is a cheque drawn by a bank on itself and is made payable to someone you want to pay.
Adv: the exporter has more confidence in receiving payment since the cheque is guaranteed by the bank.

Cashless society: financial transactions are not conducted with physical banknotes or coins, but instead with digital
information (usually an electronic representation of money).

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CASH AS A MEANS OF PAYMENT
advantages Disadvantages

It is universally acceptable so no one can refuse however it attracts the attention of thieves
to accept cash as a means of payment

It simplifies transactions since it reduces the time however it is not suitable to be sent or posted to
spent in exchanging of goods and services the payee

It encourages people to give you discount which however Fake bank notes can be easily used by
reduces expenses dishonest people to pay your company.

THE CENTRAL BANK

The bank is run by the governor and the board of directors. The governor is appointed by the State president. It is the nation’s
banker and its main customers are commercial banks and the government.
Functions of the central bank
i.Issuing bank notes and coins:The BOB is responsible for arranging the printing, minting, storing and circulation of notes and
coins.
ii.Keeping the government’s account: The government has an account with the BOB from which payments are made and to
which revenues are deposited the central bank looks after the government’s money and maintains the government’s account.
iii.Servicing the national debt: The central bank manages loans borrowed by Botswana from other countries and international
financial institutions such as World Bank and IMF.

iv.Lender of last Resort: The central bank can lend money to commercial banks as a last resort, if they cannot get money from
any other source.
v.The banker’s bank: All commercial banks have a deposit account at the central bank from which they can replenish their cash
stock and pay debts owed to other banks.

COMMERCIAL BANKS
Functions of commercial banks

1. Provide a bank account to safe keep money-to protect it from theft, Fire, floods etc

2. Making and receiving Payments: through cheques, Bank giro, standing orders, direct debit and remittances which is
convenient.

3. Lending Money-In the form of loans and overdrafts to start or expand the business.

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4. Foreign exchange facilities: in the form of cash or through the transfer or conversion rates which helps to pay for imports.

5.Issuing letter of credit: which assures the exporter that payment for goods will be made.

Discounting bills of exchange: It is a written agreement acknowledging the amount of money

to be paid against the goods purchased at a given point of time in the future. The amount can
also be cleared before the quoted time through a discounting method of a commercial bank.

Types of accounts offered by commercial banks

1. DEPOSIT ACCOUNT: it is an account suitable for keeping temporary liquid capital or money which one does not want to
use immediately.
-A high interest is paid by the bank depending on the amount deposited and duration
-No ledger fees
-No cheque books
-To withdraw money, seven days notice is given to the bank

2.SAVINGS ACCOUNT

-Provides a safe place for people to keep their money until they need it.
-It is intended for small savers with regular incomes but do not qualify for current accounts.
-Has a low opening and low minimum balance
-No cheque books issued

3. CURRENT ACCOUNT: This is a non- interest bearing account which provides cheque books and cash cards.

Features of a current account

-It is available to persons over the age of 21 with a regular monthly income, companies, clubs, societies, trustees, partnerships and
religious bodies
-Cheque books are issued to customers
-Account holders pay a ledger fee
-It offers free bank statements at regular intervals
-Current account holders are eligible for other banking services such as credit transfer, standing orders direct debiting and overdraft
facilities

IMPORTANCE OF SAVING TO THE INDIVIDUAL AND THE COUNTRY

-it is a process by which capital is accumulated, thus people save and create wealth.
-Provide cash for emergencies such as draught, floods etc.
• Reduce debt. When a country saves money, it can use those savings to pay down its debt. This can make
the country more financially stable and less vulnerable to economic shocks.
• Protect from economic shocks. When an economy experiences a shock, such as a recession or natural
disaster, it can be helpful to have a pool of savings to draw on. This can help to prevent the economy from
spiraling out of control.
• Finance investment. Savings can be used to finance investment in infrastructure, education, and other
productive assets. This can help to boost economic growth and create jobs.

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 • Promote economic equality. When people save money, they are more likely to be able to afford basic
necessities and invest in their education and skills. This can help to reduce income inequality and create a
more stable and prosperous society.

METHODS OF MAKING PAYMENTS ON BEHALF OF CUSTOMERS

1. Cheques:
2. Bank giro: Paying many employees with one cheque leaf
3. Standing/ stop order
4. Direct debit
5. REMITTANCES- Travellers’ cheques, credit cards, debit card, Telegraphic transfers, Bankers ‘draft, Bank guaranteed cheque:

USES OF ELECTRONIC BANKING

A) online banking,

Advantages Disadvantages

Convenient since customers can make It is prone to fraud

transactions at the comfort of their business.

Available 24hours hence transactions will be There may be lack of network/power failure
made at any time

Fast and efficient since you do not have to go to There is the need to memorise the pin
the bank to transact

There is a record of the transaction which reduces There is need to subscribe to internet in order to
paperwork access the record

Safer since you dot have to carry large sums of Requires skills to use.
money

b) Automatic Teller Machines (ATMs)

Advantages Disadvantages

• 24/7 access to banking services- so • Transaction limit: which may

transactions can be made anytime to avoid require one to use the bank teller
penalties service which may take time.
• Saves time- because there are less • Technical errors such as power
ques/lines failure or no cash lead to
inconinience
• Increased security- as customers choose
their own pins and can change it as and • Limited services: loans and
when they want. overdrafts cannot be obtained from

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 • Wide range of banking services- such as Atms /mini statements are not
cash deposit, withdrawal, mini statement detailed or comprehensive.
which is convenient • Fraud risks such as skimming and
• Easy accessibility-as there are different cloning of cards can led to financial
ATMs around towns and cities loss.
• Transaction fees reduce business
profit.

DIFFERENCES BETWEEN A BANK LOAN AND OVERDRAFT

Loan Overdraft
-is usually used for the purchase of capital items -used for short-term financial needs such as
eg buying motor vehicles buying stock
-collateral or security is needed - security is not needed
-interest is charged on the full amount -interest is only charged on the exact amount
overdrawn
-expensive way of borrowing -cheaper way of borrowing
-when a loan is granted a separate loan account is -no separate account is opened
opened
-money put in a current account does not reduce -money put in a current account reduces the
the loan balance overdraft balance

FACTORS CONSIDERED BY THE BANK BEFORE GRANTING A LOAN

-The applicant’s ability to repay the loan based on their income

-The security pledged by the customer
-In case of a business loan, the viability of the project, cash flow projections and the purpose

NEW TRENDS IN BANKING

These are; online banking/internet banking and mobile banking via smart phones
MOBILE BANKING
Advantages Disadvantages

-to check account balance which helps in budgeting -Prone to fraud

-Transfer funds from one account to another thus saving - may lead to extra charges
time.
-One still has to go to the bank to collect cheque books
and bank cards

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 -order a cheque book- one does not have to travel to the
business/bank
-Pay bills -meeting due dates and avoid penalties

OTHER FINANCIAL INSTITUTIONS

These are non-bank financial institutions which also provide a wide range of services.

1.BOTSWANA SAVINGS BANK:-It is an independent national financial institution, wholly owned by the government which
operates through the post office.
-It provides ways of saving for the small saver and provides financial services to all people of Botswana under the supervision of
the bank of Botswana.
-provides savings accounts and basic banking services

2.BOTSWANA BUILDING SOCIETY:-It is owned by shareholders, It Provides long term loans for the purchase or building
of houses.
ROLES
-Provides Batswana with access to finance to acquire affordable home ownership
-encourage savers to own shares in the society
-contribute and participate in, the growth, prosperity and future of the society and nation

3. NATIONAL DEVELOPMENT BANK-NDB: it was established by the government to offer finance for risky ventures where
banks are reluctant to provide fund eg in agriculture and industrial sectors.it gets funds from the government and does not accept
deposits from the public
-The loans have fixed interest and for longer periods than commercial banks.

4. BOTSWANA DEVELOPMENT CORPORATION:-Provides venture or start-up capital to businesses in the form of shares
to help businesses begin operating or expand.
-It also gives advice on how to set up and run businesses.

5. MERCHANT BANKS:- Merchant banks are banks that conduct fundraising, financial advising and loan services to large
corporations e.g African Banking Corporation is the merchant bank in Botswana.

Functions
-Provide advisory services like mergers and acquisitions for company growth
-Act as a broker- by selling shares on behalf of companies
-Act as registrars and transfer agents so that proper records are kept
-Manage portfolios to create wealth for their clients

6. MICRO LENDERS:-sometimes called loan sharks; people or organisations that offer illegal or unsecured loans at high interest
rates to people who cannot get loans from mainstream lending institutions like banks.

7. Finance company: A company whose business and primary function is to make loans to individuals, while not
receiving deposits like a bank.

THE CHEQUE SYSTEM

A cheque is an unconditional order to the bank to pay a certain amount to the named person or company or his/her order.
Parties to acheque
Drawer: a person who has a current account with the bank and writes the cheque to withdraw his/her deposits.
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Drawee: the bank which the cheque is drawn from.
Payee: the person named on the cheque to whom it is made payable.

TYPES OF CHEQUES

These are bearer cheque and order cheque.

Bearer cheque Order cheque

- This is a cheque made payable to the bearer i.e This is cheque made payable to the named person
anyone who presents it to the bank. or organisation or to their order.
-The order reads: Pay.............or bearer. The order reads: Pay.................or order
-It is not a safe means of payment since anyone -It is a safe means of making payments but good
who presents it to the bank would be paid for someone with a bank account
-cannot be transferred by endorsement -can be transferred by endorsement

CHEQUE CROSSINGS

-Refers to drawing two parallel lines on the face of the cheque to ensure that the cheque is deposited into a bank account not
cashed over the counter. This is a secure way of paying someone by cheque.

TYPES OF CHEQUE CROSSINGS

1. General Crossing
-This is when two lines are drawn across the face of the cheque. The phrases ‘Account payee only’ or ‘And company’ or ‘not
negotiable’ may be added between the parallel lines.
-This means that the cheque can only be deposited into a bank account

ii) Special crossing

-This is when the parallel lines are drawn down the face of the cheque with the name of the payees’ bank and branch written in
between the lines.
-This means that the cheque can only be paid into the named branch

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Endorsement of cheques: means to sign it at the back in order to transfer the right of payment to a third party.

Dishonoured cheques: This is when the bank refuses to make payment to the named person, organisation or their order. Instead
the bank teller would write RD meaning refer to drawer on the face of the cheque and return it to the payee. Such a cheque is
known as a dishonoured cheque.

Reasons for dishonouring cheques

-The signature on the cheque differs from the specimen provided to the bank
-The drawer has stopped payment
-The drawer has already closed the account
-The bank has been notified of death, insanity or bankruptcy of the drawer
-the cheque has some error eg date is not written
-The drawer does not have enough money in his or her account
-The amount in words differs from that in figures.
-It is stale
-It is post dated

THE CLEARING OF CHEQUES

This is when banks come together and settle the amounts they owe each other as a result of their customer’s business transactions.
This takes place in a clearing house at the central bank

WAYS BY WHICH BANKS CLEAR CHEQUES head office

clearing, inter-bank clearing)

1.Branch or local clearing

Takes place where both the payee and drawer keep their money at the same bank and same branch. The bank simply transfers the
amount from the drawer’s account to the payee’s account.
-the cheque does not need to go to the clearing house

ii)Internal or head office clearing

-This occurs when the payee and the drawer have accounts in the same bank but different branches.
-The cheque is sent to the bank’s central clearing department at is headquarters
-The cheque does not need to go to the clearing house

iii)interbank clearing:

-This occurs when two or more banks. The cheques passes through the clearing house and are cleared on the same day or many
days.
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 COMMUNICATION

Communication is the process of transmitting information from one person to another.

BENEFITS OF FAST AND ACCURATE TRANSMISSION OF INFORMATION TO A COMMERCIAL

ACTIVITY

• help managers to issue instructions to sales staff/cashiers [1] therefore cashiers will know exactly
what to do leading to smooth operation of the business [1]
• Workers are able to pass their grievances/ suggestions to management [1] leading to better
working relationships [1]
• customers can be contacted to place their orders of sweets [1] leading to increased sales [1]
• suppliers of candy can be contacted quickly [1] to deliver stock on time [1]
• helps widen the market [1] by contacting foreign customers to come and buy the chocolates [1]

POSTAL FACILITIES PROVIDED BY THE POST OFFICE

First class post -fast -Expensive

-Fast method of sending
letters
Second class Post - Cheaper than first class -slower than first class
Used to send less urgent - -can send heavier mail
letters
Parcel post -can send large and heavier - Slower
Slow and cheap service for items - has weight limits
sending large and heavier -provides “postage forward
items. facility’ which is convinient
Airmail -very fast - Very expensive
Mail is sent by air
Express mail: For mail - Cheap for short - Expensive for longer
marked “Express” on the left distance distance
hand corner -
Registered mail - Very safe -registration fee is paid upon
For sending valuable - - can be compensated if posting
documents that need a high lost
degree of care
Cash on delivery -Safe way of selling goods
Allows Traders to send
parcels to customers and the

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 post collets payment when
delivering the items.
Surface Mail -lower postage rate than - very slow
Mail conveyed by rail, road airmail
and boats - can send less urgent mail
Courier services(Expedited - Very fast - Expensive
Mail services) - Safe
Mail is delivered straight to - Delivered to the final
the customers; home or final destination
destination

Data post - Very reliable - expensive

Provides door-to-door - Very fast
overnight service for
transporting packages by road
so that they can reach their
destination by the next
morning
Poste resante - Convenient for -
Allows lettrers to be addressed travellers
to a post office for it to be - safe
collected in person.
Business Reply service - Encourages prospective - Postages plus a small
Allows the post to send cutomers to respond charge are paid to the
potential custonmers since they do not have post office
envelopes or post cards that to pay postage
allow them to write or reply to
the trader without paying
postage.
Recorded Delivery - Safe -
A facility that provides both - If lost or damaged Small
posting and delivery compensation is paid by
the post office
- -

PAYMENT FACILITIES PROVIDED BY THE POST OFFICE

Telegraphic money order: where a message is faxed to the paying post office to effect the payment of the sum in
question to the named payee.
Adv: it is very fast
Disavantage: commission is paid for the service.
Postal orders: these are post office documents issued in lieu of cash issued in specific denominations. The sender fills
it in and posts it to the payee who then takes it to the named office to get cash. A fee called poundage is paid by the
sender.
Adv- they are safe since money is obtained from the post office however poundage is paid.

FACILITISES PROVIDED BY THE TELECOMMUNICATION AND OTHER RELATED INSTITUTIONS

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 advantages disadvantages
Fax: sends the exact copy of a -Fast -not suitable for bulky
document to distant places -No distortion of information documents
using telephone lines. - -can be expensive
-Needs expensive equipment

2. Telephone: allows -cheap in terms of handsets/installation -can be expensive

interexchange of information
between the speakers. -fast because immediate response is sort
- wide coverage of the world increasing -no written record of the
market share conversation
-allows for clarity of information hence -Facial expressions cannot
right orders delivered be seen
-provides more services such as toll -only two people can
free/voicemail which is convenient communicate at a time
-facial expressions cannot be
seen.
3.Electronic mail (email): -Provide a record of sent messages -Not all customers have
where messages are sent from which can be used for future refence email addresses which limit
one computer to another - There is privacy due to use of the number of customers.
passwords -prone to hacking and
-Bulky files can be sent hence more computer virus
detailed information sent to customers -both the sender and receiver
need an email address
-Requires internet
connection to be access
which increase operational
costs.
4.Voice mail: -you never miss a call
-a 24 hour service
-available throughout because it is
within the telephone network
-accuracy and confidentiality of
information
5. telex: this is a teleprinter. -Available 24 hours -can be expensive for long
-Fast messages over long
-provides a written record distances
6. Confravision(video -cheap since people do not have to -expensive since it needs
conferencing) : allows people travel to the meeting place. certain equipment
in different distant locations to -
hold a face-to face
conversation without meeting
in one place.
7. Radio paging: -has visual display 1. It does not allow for
Allows the user to send a -It is a fast means of communication dialogue
telephone number or message -It provides 24 hours service 2. The person carrying
to another user. Uses a beeper the beeper has to use a
to warn people of the message. telephone to make contact
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 with the sender of the
message
8. radio phones: provides -quick
mobile phones which can be -convinient
hand held, installed in a car or
train
9.Datel: a service that allows a -may be attacked by
computer in a firm to computer viruses or hacked.
communicate with computers
in sites or countries. Can be
used by multinational
companies to transfer data on
sales on daily bases.
10. International telegrams: -very expensive
allows printed messages to be
sent or received in other
countries.
11. internet: a global network -can advertise the business globally -expensive to install
of computers which gives -provide email service - It contains a lot of
millions of people throughout -can research on various business issues uncensored information
the world access to a dynamic -can shop for goods and services -If the correct address is not
form of communication. - Operates 24hrs hence customers can used, the search for relevant
order anytime information may be futile.

12. Satellites: essential for -wide coverage -Expensive

transmitting television -high speed communication at real time -Signal interference due to
programs around the world. bad weather.
13. view data: a facility that
allows two way
communication where
subscribers can make
bookings, place orders, access
their bank accounts and send
messages. Each business can
have its own view data service.
14. Teletext: a new service
faster than telex which allows
business letters to be sent from
one computer terminal to
another in any part of the worl
over a telephone network.
15.Prestel: a telec
16.Toll free service -Encourages customers to contact the -May be expensive since the
business since it is free to the. bill is paid by the business.
17. Global prepaid card
18. Vsat Network It is fast
2. It is very flexible suitable for both
short and long messages.
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 3. Extends to remote areas
4. It can be easily relocated.

19. Mobile phones(cell

phones)
20. Telegram -The message is usually brief because of
the cost
-The message may be misinterpreted
-The message cannot be sent if the post
office has closed.

USES OF TELECOMMUNICATION AND COMPUTRERS IN THE TANSMISSION OF INFORMATION

Internet
• Operates 24hrs hence customers can order anytime however some customers are skeptical about internet
hence may not buy leading to reduced sales.
• The business can make or receive payments on the internet which is convenient however there may be cyber
fraud
• The business can create websites and advertise online to increase market share however it requires skilled
personnel
• Can be used for online banking to make/ receive payments which is convenient however it requires
subscription.

Social Media
• Allows interaction with customers hence improve customer services and respond effectively to feedback
however online exposure could attract risks such as negative feedback/ information leaks/hacking.
• It is cost effective because the cost of maintaining social media presence is minimal however there are costs of
creating videos or image content.
• Can be able to measure website traffic received by tracking how many sales are generated however competitor
may study their business.
• Can build relationships with customers with customers through social media this can help increase customer
loyalty however there may be a problem of false or misleading claims made on social media about its
business.
• Target audience as the business can choose to maintain presence on particular platforms that are in line with
its target market however social media can lead o bad publicity.

Factors that affect the choice of communication method

• Type of message being conveyed: if an exchange of ideas is required the]n face to face meeting will be most
appropriate.
• Confidentiality of the message: confidential messages cannot be sent by fax as they may be read by many
people.
• Urgency of the message: email can be used for urgent messages while posting letters can be used fo less
urgent messages.
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• Cost of the medium: email is cheap as compared to typing and sending messages by courier.
• Availability of the medium: an efficient and reliable media is one that is available all the time in business.
• -Number of recipients: if many, then a general notice board may be appropriate but not for confidential
messages.
• Speed of the medium and distance from the receiver.

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