5 Production Caribbean Business Chapter Five Caribbean Business
5 Production Caribbean Business Chapter Five Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production 5. 1 5. 2 5. 3 5. 4 5. 5 5. 6 5. 7 5. 8 5. 9 5. 10 5. 11 Factors of production Natural resources Production and productivity Labour and migration Levels and types of production Agriculture and processing Linkage industries Mining and processing Location Small and growing businesses Business and technology Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production 5. 1 Factors of production Caribbean Business Chapter Five Production Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Factors of production Land ● All natural resources ● Earns ‘rent’ Enterprise ● Takes risk ● Rewarded with profit Labour ● Human effort ● Earns wages or salaries Capital ● Earns interest ● Financial capital ● Fixed capital ● Working capital Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production 5. 2 Natural resources Caribbean Business Chapter Five Production Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Natural resources ● ● ● Fertile soil Warm climate Rainfall Oil Natural gas Gold ● ● ● Limestone Bauxite Rivers Hydro-electric power Beaches Marine resources Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production The economic contribution of oil and gas in Trinidad and Tobago Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production 5. 3 Production and productivity Caribbean Business Chapter Five Production Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production and productivity Production: The use of resources to make goods or services. Production can be organized within firms (businesses) or within the household. In both cases inputs are employed to produce outputs. Firms (businesses) produce the outputs to sell and earn profit. The household produced the outputs to meet the needs of the family. (Oxford Dictionary of Economics) Productivity: The measure of the output of an organization or economy per unit of input (labour, raw materials, capital etc). (Oxford Dictionary of Business and Management) Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Which estate has the highest production? Which has greatest productivity? Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Reasons for high productivity ● ● ● Some possible reasons… Fertile land good natural resources Hard work by employees Effective entrepreneurs and managers Advanced technology High-quality physical capital Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Calculating productivity Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production When productivity increases… Businesses can… For the national economy… ● ● ● Output increases ● Local goods are more competitive ● Exports increase ● Wages are higher ● Consumer spending increases ● Inflation is reduced. Reduce prices Increase wages Earn a higher profit Increase production Save labour costs. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Labour productivity in Jamaica Productivity is highest in industries with high capital investment per worker. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production 5. 4 Labour and migration Caribbean Business Chapter Five Production Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production The number of workers depends on… Barbados example ● ● ● ● Total population Adult population Participation rate Labour force Unemployment rate Employed population ● ● ● ● 276, 000 213, 000 67% 143, 000 11, 000 7. 7% 132, 000 Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Employment and population – Barbados 2008 Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Unemployment and participation rates Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production In 1993 in Barbados unemployment is high when the economy is in difficulties (24%). In 2000, unemployment is low when the economy is strong (9. 4%) Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Quality of labour depends on… ● ● ● Level of education Work-related skills Health of labour force Working conditions Entrepreneurial skills Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Reasons for migration Push factors Pull factors ● People leave their home environment because of… ● Unemployment ● Low wages ● Poor living conditions ● Few educational and career opportunities ● Conflict and crime ● Natural disasters ● People are attracted to a new environment because of… ● Employment opportunities ● High wages ● Good living conditions ● Good educational and career opportunities ● Safe and peaceful living conditions Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Effects of migration Positive effects of migration Negative effects of migration For the migrant ● Work opportunities ● Higher earnings ● Educational opportunities ● Better living conditions For the migrant ● Life may be hard ● Finding a good job is not easy ● Racial or cultural intolerance ● Family ties are strained. For the home country ● Relieves unemployment ● Cash remittances sent home ● Migrants return with enhanced skills and capital. For the home country ● Energetic workers are lost ● Training and skills are lost ● Children and elderly may lose care and support. For the destination country ● Inflow of energetic workers ● Increased cultural diversity For the destination country ● Migrant labour allows employers to keep wages low. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production 5. 5 Levels and types of production Caribbean Business Chapter Five Production Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Levels of production Subsistence • For family and local community Domestic • For national market Export • For international market Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Levels of production Level Market Example Subsistence production Family and community Small farm growing fruit Building or repairing and vegetables your own home or working for neighbours Domestic production National Food crops, eggs or milk for the national market Building roads and major housing developments Export production International Coffee or sugar for export to Japan or Europe Architectural or engineering services for major overseas projects Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Types of production Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Primary production Extractive industries based on natural resources Example Agriculture ● Growing coffee in Jamaica Fishing ● ● Lobster fishing offshore from Belize Flying fish in waters around Barbados Forestry ● Logging for greenheart in Guyana Mining ● ● Bauxite mining in Jamaica or Guyana Oil and natural gas extraction in Trinidad and Tobago Gold mining in Guyana Quarrying stone for construction in many Caribbean countries Quarrying volcanic ash in Montserrat ● Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Secondary production Examples Processing industries ● ● ● Sugar factory Alumina plant (from bauxite) Aluminium smelter (from alumina) Oil refinery Chemicals such as methanol and ammonia (from natural gas) Assembly industries ● ● Car assembly Consumer electronics Garments and clothing Ship- and boat-building Construction ● ● Home construction and repair Electricians, masons, plumbers Building roads, ports, airports Hotel and resort construction Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Tertiary production Service industries such as… Examples Financial services Banks, insurance companies Transport services Road haulage, bus services, airlines, ports Communications services Telecommunications, television, radio, internet, cable services. Tourism services Hotels, resorts, car rental, restaurants, visitor attractions, dive shops. Retailing services Supermarkets, specialist stores, small shops. Government services Schools, hospitals, government offices Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production ● ● ● Employment in Barbados in 2006 What percentage of the working population was employed in: Primary production? Secondary production? Tertiary production? Tourism? Government services? Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Cottage industries… Benefit the economy… ● ● ● ● Provide employment ● Combine easily with household, gardening, childcare ● Provide market for local products ● Need only a small amount of capital ● Earn foreign exchange if products exported. Home-based Use mainly manual labour Use family labour Small-scale May use local raw materials May be financed from personal savings ● Need only a small amount of capital. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Acquero women cassava producers ● What do they produce? ● What local materials do they use? ● How does this business help the economy? Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production 5. 6 Agriculture and processing Caribbean Business Chapter Five Production Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Agriculture ● ● ● Uses natural resources, such as soil and climate. May operate at subsistence, domestic or export levels. Produces goods for local use and export. Buys inputs from local suppliers. Provides material for processing industries. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Jamaica UCC Blue Mountain Coffee Company ● What countries does Ueshima Coffee Company operate in? ● Describe the operations of the Jamaican Craighton Estate. ● Is this an eco-friendly operation? Why? ● What public sector body regulates the industry? ● How does the company link its activities to the tourism industry? Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production ● ● ● George Lewis, small farmer Why did George Lewis start to cultivate his own farm? Give three reasons why he was able to start farming? Which crop provides the main cash income? What other sources of income help support the family? What risks do small farmers face? Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Dr Henry Canton Citrus products of Belize ● What are the export markets for Belize citrus? ● Which Barbados company owns 47% of the operation? ● How many citrus growers are there in Belize? ● What is meant by ‘moving up the value chain’? ● What processed citrus products are produced in Belize? ● What is meant by co-packaging? ● What does Henry Canton see as a challenge for the future? Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Banks Holdings Limited ● What drinks are produced by Banks Holdings and its subsidiaries? ● Which other Caribbean companies have ownership links to Banks Holdings? ● What local products are used to manufacture and package drinks? ● What regional products are used? ● Which local businesses would buy drinks from Banks Holdings Limited? Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production 5. 7 Linkage industries Caribbean Business Chapter Five Production Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production The chain of production Primary Secondary Tertiary production Growing sugar cane Sugar factory Restaurant Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production The chain of production Gold mine Making jewellery Jewellery store Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Linkage industries ● Industries are linked in a chain of production. ● A sugar factory has a backward linkage to a farm which grows sugar cane. ● A sugar factory has a forward linkage to a restaurant or supermarket. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production The chain of production Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production A business may have several forward and backward linkages. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Benefits from forward and backward linkages ● Backward linkages stimulate supply industries, such as agriculture or mining. ● Forward linkages provide materials to develop manufacturing or service industries. ● Growth of linked industries saves foreign exchange and creates employment. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Linkages from oil and gas production Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production TOFCO – Trinidad Offshore Fabricators Company ● How is this industry linked to oil and gas production? ● Which US company is involved in the joint venture? ● How has this company helped the Trinidad and Tobago economy? ● What issues have to be dealt with to assist further development? Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production 5. 8 Mining and processing Caribbean Business Chapter Five Production Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Mining ● ● ● Is a primary or extractive industry. Uses mineral resources, such as bauxite or crude oil. May be located in remote areas. Usually operates as an export industry. Buys inputs from local suppliers. Provides material for processing industries. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Gold mining in Guyana ● ● ● Miners work in the interior of Guyana They stay in camps for several weeks. Transport is by truck, boat or air. Gold-bearing sand gravel is extracted in or close to rivers. Many tonnes of ore are needed to produce 150 grammes of gold. The mine manager is a trusted employee. Miners use new technology. Environmental awareness has increased. The Gold Board buys gold and refines it for further use. Most gold is exported. Some is sold to local jewellers, who employ skilled workers to manufacture jewellery. Jewellery is sold locally and exported. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production 5. 9 Location Caribbean Business Chapter Five Production Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Location ● Any business must be at a suitable location. ● Many factors influence the location of a business. ● Each business has its own requirements. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Location factor Example Raw materials and Sugar factories must be close to cane fields. supplies Climate and soil Banana growers need a warm, moist climate. Landscape Tourist resorts need beaches, coral reefs or nature reserves. Market Supermarkets must be close to their customers. Labour supply Call centres need a plentiful labour supply. Infrastructure All businesses need telecoms, electricity, water supply. Power Aluminium smelters need low-cost electric power. Transport Roads, ports, airports. Government regulation Industrial estates and zoning. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Government policies Encourage location where… Discourage location where… ● Unemployment is high. ● Infrastructures are available. ● Pollution does not pose a threat. ● Traffic is congested. ● Pollution can damage public health or the environment. ● There is no adequate infrastructure. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Choosing a location Which of the locations is most suitable for: ● A supermarket? ● A methanol plant? ● A citrus farm? ● A hotel? ● A call centre? ● A gas station? Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production 5. 10 Small and growing businesses Caribbean Business Chapter Five Production Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Small businesses Most businesses begin as small firms. ● Some fail. ● Some succeed but remain small. ● Some grow and prosper. Small businesses help the economy by: ● Creating employment ● Encouraging economic growth ● Providing competition for established firms. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Small businesses Strengths Weaknesses ● Quick, imaginative decisions ● Moves fast ● Can change direction when needed ● Close communication between managers and staff ● Personal service to customers ● Difficult to raise capital ● Major investments are out of reach ● Exporting is difficult ● Depends on one or two entrepreneurs ● Some important skills may be missing. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Google Inc Discussion point Could a company like this have started and grown in the Caribbean? ● ● ● 1995 – Aged 22 and 21, Larry Page meets Sergey Brin. 1996 – They produce a search engine. 1998 – Google Inc is formed with US$100, 000 in venture capital and starts business in a garage with one staffer. 1999 – 40 staff and US$25 m funding. 2000 – Partnership with Yahoo! Advertising sales start. 2001 – Tokyo office. 2004 – 800 staff Share issue raised US$1. 7 billion. 2007 – Larry Page and Sergey Brin each have wealth of US$18. 5 billion. Fifth place on US rich list. 2009 – 20, 000 employees. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production As a business grows… ● ● ● Organization becomes more complex. Capital is increased. More labour is recruited. Technology is improved with new investment. The business can move to the export market. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Economies of scale ● ● ● Bulk purchase of inputs at lower cost Investment in equipment and technology Large-scale equipment put to full use Staff and management time work to capacity Fixed costs increase more slowly than production A larger volume of sales to cover advertising costs Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Diseconomies of scale ● Existing suppliers can not take more orders. New suppliers are more costly. ● Staff work overtime, increasing labour costs. ● No time to maintain machinery properly. ● Additional managers and new staff may be less efficient. ● Factory or buildings become overcrowded. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production 5. 11 Business and technology Caribbean Business Chapter Five Production Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Business and technology ● Investment in new technology assists a move from labourintensive to capital-intensive production. ● Productivity is improved. ● Mechanization and automation reduce the need for labour. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Mechanization and automation… Advantages Challenges ● ● ● May increase unemployment. ● Equipment failure can bring disaster. ● Capital costs are increased. ● High and fixed interest costs reduce business flexibility in a downturn. Reduce staff costs. Improve product quality. Reduce wastage. Extend work time for the business. ● Improve safety. ● Allow greater flexibility in work schedules. Caribbean Business for CSEC® Principles of Business © OUP 2010
5 Production Gary Turton ACLA Works ● How does the business use Computer Aided Design (or CAD)? ● How has CAD changed and developed since it was first introduced? ● What are Building Information Models? ● Besides architecture, which other professions use Computer Aided Design? Caribbean Business for CSEC® Principles of Business © OUP 2010
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