BUSINESS STUDIES | INVENTOR | FORM1| SECONDARY SCHOOL
Inventor Secondary
Business Studies
Form
One Students’ Book (Fourth Edition)
KENYA LITERATURE BUREAUP.O Box
30022-00100, Nairobi Website: www.klb.co.ke
E-mail: info@klb.co.ke
© Michael K. Nyangah and Michael K. M. Mungiria
All rights reserved. No part of this book may be reproduced, stored in a retrieval system or transcribed in any form or by any means,
electronic, mechanical, photocopying, recording or otherwise, without the prior
written permission of the publisher.
ISBN 978-9966-44-800-2
First published 1987
Reprinted 1988, 1989, 1990, 1991, 1992
Second Edition 1995
Reprinted 1995, 1997, 1999
Third Edition 2003
Reprinted 2003, 2004, 2006 (thrice), 2007(twice), 2008
Fourth Edition 2008
KLB 9083 10m 2008
Published and printed
by Kenya Literature Bureau
KENYA LITERATURE BUREAU NAIROBI
Prologue
The
syllabus prescribed for Business Studies under the new curriculum is a
departure from the traditional view of this subject held by education
authorities in Kenya since
independence. By covering the elementary introduction to the commercial world
in Form One, the book justifiably creates an opportunity to enrich the students
in the subject for further studies.
Business Studies as a field of study touches on the daily lives of
each individual and the society in general. It deals with activities that take
place in and
around production, distribution and consumption of goods and services. Concepts
and content from Commerce, Economics, Accounting and Office Practice have been integrated into one subject,
now known as Business Studies.
Business Studies is a living subject which is of interest to all.
The learners’ experience and the
local environment forms a very useful
tool of learning.
At the end of each topic, assessment exercises are provided. These
exercises are essential for self evaluation.
Where appropriate, the book has addressed emerging issues like
information technology, environmental issues, ethical issues, integrity in
business and HIV/AIDS.
This students’ book covers the whole of revised form one Business
Studies syllabus (December 2007). Students and teachers will definitely find
this book very useful.
I am grateful to the panel of writers and everybody who took part in
the writing, editing and production of this fourth edition of the book.
MANAGING DIRECTOR
Kenya Literature Bureau
Acknowledgements
The Managing Director, Kenya Literature Bureau, would like to thank
the following writers who contributed in the writing of this fourth edition:
Michael K. M. Mungiria — Chuka Boys’ School, Chuka
Michael K. Nyaga — Kamama Secondary School, Embu
Olive Njoroge — Mang’u School ,Thika
Julius J. Ngugi — J. G. Kiereini Secondary School, Ruiru
T. K. Olielo — Kenya Bureau of Standards, Nairobi
Contents
Introduction to Business Studies Production
Importance of Business Studies in Society
Business and its Environment Meaning of Business
Business Environment and their Effects on the Business
Internal Business Environment
Satisfaction of Human Wants Types of Human Wants Goods and
Services Economic Resource Exercises
Direct and Indirect Production
Levels of Production and Related Occupation Division of Labour and Specialisation Exercises
Importance of Entreprenuership Characteristics of an Entreprenuer Business Idea
Type of Office Layout Office
Equipment Office staff
Home Trade Classification of Trade Wholesale
Trade Functions of a Wholesaler
Documents used in Home Trade Open and Closed Cheques Standing
Order
Introduction
to Business Studies
The
term business may refer to any activity that is carried out by an individual or
an organisation concerning provision of goods
and services with a view to
making profit. Profit is made when the activity carried out brings in more
money than the amount spent. Efficient provision of goods and services requires
the knowledge of business studies. Business studies is the study of the
activities that are carried out in and around production, distribution and
consumption of goods and services. Each of these terms is explained below.
Goods
Goods are items that are tangible, i.e., they can be touched
and felt. Examples are furniture, buildings,
vehicles and medicine. Figure 1.1 illustrates examples of goods.
Services
Services
are actions or activities that may be sold. Therefore, unlike goods, services
are intangible. Examples are teaching, banking, hairdressing and shoe shining.
Teaching as a service is illustrated in figure 1.2 below.
Production
Production
refers to creation of goods and services or increasing their usefulness through
activities such as transporting them to where they are required. People who are
involved in the production of goods and services are referred to as producers.
Examples of people who produce goods are: farmers, manufacturers, house
builders and road constructors. On the other hand, people who provide services
include drivers, teachers, lawyers and doctors. Figure 1.3 below is an
illustration of how people are involved in production and provision of good and
service.
 |
Distribution
The term distribution refers
to movement of goods and services from producers
to the users. There are many activities that take place as goods and services
are moved from producers to the users. For example, goods require to be
transported, stored and insured. Other activities that take place in the
distribution include buying and selling, communication, advertising and banking.
Below is an illustration,
figure 1.4 showing how goods may be distributed.
Consumption
The
term consumption simply means ‘using’. The person who uses a good or service is
therefore referred to as a consumer. For example, when a student reads a text book, he/she
would be consuming it. Consumption is the ultimate goal of production.
Business studies is a subject that covers topics from various
disciplines. Some of these disciplines are discussed below.
Economics
This
is the study of how human beings strive to satisfy their endless wants using
the available scarce resources. The desires that people strive to satisfy by
using goods and services are referred to as human wants. Human wants are
unlimited, i.e., endless. Resources, on the other hand, are things that are
required in order to satisfy human wants. Resources are limited, i.e., scarce
in supply.
Commerce
This
is the study of trade and aids to trade. Trade refers to the exchange of goods
and services for other goods and services or for money. Aids to trade are human
activities (services) that assist trade
to take place.
For example, transport, banking warehousing and
communication.
Accounting
This
refers to a systematic way of recording business activities which are used for
decision making.
Office Practice
This refers to all the activities that are carried out in an office.
For example, communication, filing, reproduction of documents and clerical
work.
Entrepreneurship
This
is the study of the activities involved in the process of identifying a
business opportunity and acquiring the necessary resources to start and run a
business. The person who carries out these activities is referred to as an entrepreneur.
Importance of Business
Studies in Society
A
society is basically a group of people living in a certain area carrying out
activities that cater for their well being. Business studies is important to
society in that it enables
individual members of the society to acquire knowledge, skills
and attitudes
which would in turn be beneficial to the general
society as follows:
(a)
Assists members of society to
relate the knowledge, skills and attitudes acquired to the day to day business
activities around them.
(b)
Equips the members of society with
knowledge and skills necessary to start and run a business comfortably.
(c)
Assists the individuals in
appreciating the role of business in provision of goods and services.
(d)
Makes
the members of society to appreciate the need for good business management
practices.
(e)
Assists individuals to acquire self
discipline and positive attitude towards work.
(f)
Equips individuals with abilities
to promote co-operation in society through trade.
(g)
Enables the individuals to
understand the role of government in business activities.
(h)
Equips individuals with abilities
to understand the role of communication and information technology in modern
business management.
(i)
Helps the individuals to develop positive
attitudes towards the environment.
(j)
Equips the individual with
knowledge and skills required to evaluate business performance.
Learning Activities
Hold group discussion to:
(i)
Identify various business
activities.
(ii)
Come up with importance of business studies.
Exercise 1 A
1.
State the term given to each of the following
statements:
(a)
Activities carried out with a view to making profit.
(b) Increasing the usefulness of a good or service.
(c) Movement of goods from producers to consumers.
(d) A person who uses a good or service.
2.
State the term given to each of the following
disciplines:
(a)
Study of how man strives to satisfy
his unlimited wants using the limited resources.
(b) Study of trade and aids to trade.
(c) Study of the activities
that are carried out in an office.
(d)
Study of the process of identifying
a business opportunity and acquiring resources to start and run a business.
Exercise 1 B
1.
Explain the importance of business studies in society.
2.
Explain the subjects
that compose business
studies.
Business and its Environment
Meaning of
Business
As
pointed out in the previous chapter, the term business refers to any activity
carried out by an individual or by an organisation with an aim of making
profit. It mainly involves the provision of goods and services required
by consumers. The term is also used
to refer to firms or entities that provide goods and services to make profit.
Purpose of
Business
Business
is important in any society today because it is not possible for people to
provide themselves with all what they need without direct or indirect aid from
others. For instance, one may
require medical care, clothing, shelter,
to travel from one place to
another, entertainment or good furniture. Because one cannot provide all these
things that one requires, one has to rely on others for their provision. People
who provide such goods or services at a fee are said to be in business. The
main purpose of most businesses is to make profit. To accomplish this purpose
the business may need to:
(i)
Have satisfied customers.
(ii)
Reduce operating costs.
(iii)
Strive to survive by competing
favourably.
Figure 2.1 below shows two bussinesses, one with many satisfied
customers and another with few dissatisfied customers.
Types of Business
Activities
There are many types of business
activities. The main ones are as follows:
(a) Extraction
This involves obtaining of goods from their natural setting, for
example; mining, farming, lumbering and fishing.
(b) Processing of raw materials
Some goods need to be processed in order to make them useful.
Processing means changing the form of a good without combining it with other
goods. For example; grinding maize into maize flour, refining crude oil to get petrol, diesel and paraffin. Similarly,
iron ore may be taken to an iron smelting plant to be converted into iron.
(c)
Manufacturing
This involves combining different raw materials to come up with one
final product, e.g., a table is made up of wood, glue, nails and varnish.
Similarly, bread is baked from wheat flour, yeast, sugar, margarine and water.
(d) Construction
Construction involves building of structures such as roads, bridges
and houses.
(e)
Distribution of goods
Distribution refers to the activities involved in moving goods from
where they are produced to where they
are needed. People who carry out distribution
are called distributors.
Among the distributors are the wholesalers who mainly sell goods to other
businessmen. A wholesaler may
collect goods from various producers into his warehouse. These goods may then
be resold to retailers who in turn sell them to the final consumers.
(f)
Trade
Trade involves buying and selling of good with a view to making
profit. People involved in trade are called traders. Examples of traders are
wholesalers and retailers.
(g) Provision of services
Some individuals or orgnisations sell services to the consumers.
Examples are: hair stylist, car washer, electrician, travel agency and
insurance companies.
Business Environments
and their Effects on the Business The
term business
environment refers to conditions or factors that affect business operations.
These factors could be within the business (internal
environment) or from outside the business (external environment).
Internal business
environment
This
consists of factors that are within the business unit itself. Internal
environmental conditions could be either strengths or weaknesses of the
business. The strengths tend to improve the performance
of the firm while weaknesses tend to affect operations of the business
negatively. For example, skilled manpower, which is a strength, is more
efficient in production than unskilled manpower. Firms have influence and
control over internal factors. Internal environment is also referred to as micro-environment.
Micro means small. Micro
environmental factors include:
(a) Business Structure
This is formal arrangement of activities that are carried out at
various levels of the organisation so that objectives of the business can be
achieved. For example, duties and responsibilities of all the workers are
defined in the business structure. Their interrelationships are also defined.
A well laid
out business structure is likely to lead to success of the business since:
(i)
Each of the employees knows what is expected of him/her.
(ii) There will be no conflicts or confusion among the workers.
(iii)
Team work is enhanced.
(iv)
Ensures proper control which in turn promotes
efficiency.
On the other hand, a poor business structure is likely to lead to
business failure.
(b) Resources
A resource
refers to something that can be used to achieve an objective. Business
resources include human, finance, physical and technological capabilities.
(i)
Human resource
Employees are important in a business organisation in that they take
an active part in production. To maximise on the use of their skills, there is
need to match the correct people with the correct job activities.
A business that has enough, well skilled workers who are
correctly matched with their respective jobs is likely to do better than a
business that lacks such personnel.
(ii) Financial resource
Money is raised either internally or externally and is allocated to various activities within the organsation.
There is need to monitor it to make sure that its use is in line with the organisation’s
objectives.
A business with adequate finances which are properly
allocated to various activities and also well monitored is likely to do better
than the one lacking such aspects.
(iii) Physical resources
These include tangible facilities which belong to the business such
as buildings, machinery, furniture and stock. Availability of such facilities
enables the business to operate.
(iv) Technology
Technology refers to skills and methods used in production. Use of
up- to-date technology enhances production of goods and services.
(c) Business culture
Business culture is a combination of employees’ expectations,
beliefs and values within the business. It is normally passed on from one
generation of employees to the next. Employees acquire norms and code of
conduct that is acceptable to all from the General Manager down to the sweeper.
A business that has a culture of
involving employees in decision making may perform better than one that does
not involve its employees.
(d) Owners
The owners of the business provide finances to start and run the
business. They also make decisions concerning operations of the business.
Appropriate decisions are likely to lead to well being
of the business while poor decisions may adversely affect the business.
External Business Environment
Business
organisations do not operate in isolation. They operate in environments where
there are external factors which are likely to affect their operations. Some
external environmental conditions offer business opportunities while others may
create problems. Businesses have limited or no control over external
environmental factors and should therefore try to adjust in order to cope with them. External environment is also
referred to as macro-environment
meaning environment that is large in scale. It includes the
following factors:
(a) Economic environment
These are factors that affect buyers’ ability to buy the goods and services offered by a business.
This includes, changes in buyers’ incomes,
changes in tax rates and changes in prices of other related goods and services.
If the buyers’ ability to purchase increases, the business is likely to sell
more. On the other hand if the buyers’ ability decreases the
sales volume of the business may go
down.
(b) Demographic environment
This refers to population change. Such a change may include the size
of the population, geographical distribution, age and sex distribution,
density, birth and death rates. A growing population, for example, creates a wider
market for goods and services. If people are migrating from rural to urban
areas, it means that in the near future, majority of the people will be living
in towns, thereby reducing the demand for goods and services in the rural
areas. The age and sex distribution
are important to a business because they shape the line of business. Better
education and jobs for consumers would improve
their taste and demand for quality goods and services.
(c)
Legal-Political environment
The government closely monitors businesses and passes laws and
policies that regulate their
activities. Many business decisions are hence made only after careful analysis
of consequences of these laws and policies. For example, a business person may opt to invest in area A instead of area B because area A has tax
advantages, like lower tax rate or even no taxes for a given period
of time. Firms are required by law
to sell goods that
meet certain specified standards. For example, those manufacturing food stuffs
or drugs are required to state their expiry dates. On the other hand, political
stability creates conducive environment for business
to thrive. Moreover, in a situation where political climate is hostile or
unfavourable business cannot do well.
(d) Technological environment
Technology may refer to levels of know-how, efficient use of tools
and equipment and of other resources. Advancement in technology will lead to
better quality goods and services. If the business uses outdated technology,
while other firms are using modern technology, consumers will tend to go for
the goods and services produced by other firms. This may have a big impact on
the business which may lead to its closing down.
(e)
Cultural Environment
Culture refers to the norms that regulate behaviours of people in a
society. It includes customs, values and beliefs that are shared by a given
society and are
passed on from one generation to another. Culture dictates how people live and what products they consume, for
example, muslims do not eat pork. Therefore, pork selling business in a muslim
community will not be viable. Businesspersons should therefore assess peoples’
culture so as to get information concerning the business opportunities that
exist.
(f)
Competitive environment
This is an environment whereby firms are trying to outdo each other
in their efforts to maximise profits. This could take either of the following
forms:
(i)
Generic Competition
This refers to competition where products are used for the same
purpose though the products are different. For example, cinemas and discos are
competing forms of entertainment.
(ii) Enterprise Competition
This kind of competition is found where a firm’s products are
similar to those of the other firms. For example, a local shoe manufacturing company
competing with imported shoes. A firm may be put out of business if it cannot
cope with competition in the external environment.
(g) Physical Environment
The physical environment includes factors such as relief, climate
and infrastructure like roads, water supply, electricity, telephone, security
and banks. These factors may affect a business either positively or negatively.
For example, good infrastructure would support business activities while poor
infrastructure may discourage business activities. The figure on page 10
(figure 2.2) shows the components of internal and external business environment.
Fig. 2.2:Internal and External Environment of a Business
Learning Activities
1.
Visit a local firm and list all the
internal and external factors that affect the firm. Show whether the factors
affect the firm positively or negatively.
2.
List down the factors that affect the performance of your school.
Exercise 2A
1.
With aid of appropriate examples
differentiate internal business environment from external business environment.
2.
Outline four types of business
activities.
3.
State whether each of the following
factors fall under micro-environmnet or macro-environment:
(a)
Competitive environment.
(b) Legal-political environment.
(c) Business structure.
(d) Business culture.
4.
Highlight the benefit
that may accrue to a firm that uses modern technology.
5.
Classify each of the following
into generic or enterprise competition:
(a) A coffee seller competing
with a tea seller.
(b)
Kenya Literature Bureau competing
with Longhorn publishers in book selling.
(c)
Boys of Mountain School competing
with girls from Lowel School in academic excellence.
(d)
A television station competing with
a radio station in entertaining customers.
Exercise 2B
(a)
Explain the importance of business in society.
(b)
Explain external business
environments.
(c)
Explain how demographic environment affects business operations.
(d)
Explain the various micro-environment and their effects in business.
(e)
Explain how business
resources may cause business success.
Satisfaction
of Human Wants
Introduction
People
require goods and services in order to stay alive and to lead comfortable
lives. They, for example, require food without which it is not easy to survive.
Some
of the foods required by people are bread, milk, fruits, vegetables, ugali and
githeri. People require clothes to
keep them warm and protect them from cold, rain, harmful insects, dangerous
animals and bad weather. In addition they may require other things such as
cars, radios, newspapers, medicine and education.
All
the things required by human beings are intended to satisfy human wants. Human wants are
the desires that human beings strive to satisfy by using goods and services.
Satisfaction of human wants is the process of acquiring and using goods and
services.
Characteristics of Human wants
Generally, human wants have the following
features:
(a) They are insatiable
Human wants cannot be fully satisfied. This is because:
(i)
They are endless — For example, no
matter how many clothes one has, one still feels the urge to have more.
Similarly, one feels the need to eat food even if one ate the previous day.
(ii)
They
are unlimited in number — For example, even if one has enough food one would
want other things such as shelter, security, education and entertainment.
(b) They vary in intensity and urgency
The amount of a good or service required vary from one person to
another and also from one time to
another depending on age, sex and situation. For example, some people eat more
food than others. Similarly, people will tend to buy food before they buy
furniture because food is normally more
urgently required than furniture. Likewise, heavy clothing are
needed more during cold seasons than hot seasons.
(c)
They are competitive
Wants compete for attention such that each one of them yearns to be satisfied first. For example, as one
attempts to provide food for one’s family, other things like clothes, books,
paraffin and medical care also need to be provided. Since it is not possible to
provide all of them at the same time, one has
to prioritise the wants in the order
they are to be satisfied. This is because
human wants are unlimited
while resources to satisfy them are limited in supply.
(d)
They are recurrent (repetitive)
A particular want will demand to be satisfied over and over again
because wants are not fully satiable. This is to say that when a want is
satisfied, the satisfaction does not last for ever. That is why we need to eat
today even if we ate yesterday. Similarly, a person needs to be entertained
even if he/she was entertained the previous day.
(e)
Some are universal
Most human wants are common to all human beings though in varying
quantities. For example, all human beings require food, shelter, clothing,
education, security and entertainment.
(f)
They are habitual
Once an individual has developed a taste for a given commodity,
he/she tends to use it over and over again thereby becoming a habitual user.
For example, frequent use of tea makes one a habitual tea taker. Similarly, the
use of certain brands of soaps, toothpaste, perfumes and so on is usually based
on habits. Some commodities such as alcohol and cigarettes are even addictive.
(g) They require resources
All human wants require resources for them to be satisfied. For
example, for one to acquire education, resources such as teachers, books, pens
and desks are required. As was pointed
out earlier resources are scarce in supply. If they were not, human beings would
satisfy all their wants. However, due to limitation of the means, only a few of
human wants are satisfied.
(h)
They are complimentary
Satisfaction of human wants may create a need, a second want derived
from the first. That is to say, for the first commodity to function, it
requires to be complemented by the second. Note that if you acquire a car it
will need fuel; if you buy shoes you
will require shoe polish and if you buy a radio you will require batteries.
Figure 3.1 shows cars being fuelled at a petrol station as they cannot do without the compliment —
fuel.
Types of Human Wants
Human
wants can be broadly classified into two; basic wants and secondary wants.
(a) Basic wants
Basic wants, also called needs or primary wants are the requirements
that one cannot
do without because they are necessary for life. They fall under food, shelter
and clothing. Without food, one will die of hunger and without shelter one
faces the dangers of attack from wild animals and enemies.
Similarly, without clothes
one may be exposed to adverse weather conditions. Basic wants must
therefore be satisfied first before one can think of satisfying secondary
wants. The following are the characteristics of basic wants:
(i)
One cannot do without them.
(ii) They are felt needs.
(iii)
They cannot be postponed.
(iv)
They are satisfied
before secondary wants.
The figure below shows various basic wants.
(b) Secondary wants
These are requirements that one can do without but are needed to
make life more comfortable. They include all requirements that are not basic
wants.
Secondary wants can be categorised as comforts and
luxuries.
Comforts are wants that improve one’s living standards beyond the level of mere
survival. Things like furniture, medicare, security and education enable one to live a
more comfortable life. Luxuries, on the other hand are requirements that
provide excessive comfort. Goods such as gold watches, diamond necklaces,
fourty-bed roomed house, very expensive cars, some types of foods, e.g., biscuits and sweets are
luxuries.
Note that some basic wants are at times luxuries while
secondary wants can be basic wants. For example, sweets and biscuits are foods
that are luxuries to people who eat them for leisure. Similarly, medicine,
being generally a secondary want, is a basic want to a sick person. Figure 3.3
shows someone watching a T.V. Television is an example of a secondary want.
Goods and Services
It
has been pointed out earlier that human wants are satisfied by using goods and
services. Goods and services, also called commodities, have distinct features
that help in differentiating them. Generally, goods are physical commodities
that are tangible (can be touched and be felt). Examples of goods are radio,
furniture, vehicles and shoes. Services on the other hand are actions. They are
therefore intangible and invisible. Examples are, teaching, banking, transport,
security and hairdressing.
Characteristics of Goods
The following
are some of the characteristics of goods:
(a) Are tangible
As pointed out above, the main feature of goods is that they are
tangible i.e. can be touched and hence felt. This is because goods are
material.
(b) Can be stored
Goods can be stored for future use. Some goods can however be stored
for longer periods than others. Goods that stay a long period without getting
spoilt are termed as durable goods, e.g., furniture, buildings and radios. The
goods, on the other hand, that go bad easily unless stored under special
facilities are referred to as perishable goods. Examples are meat, milk,
vegetables and bread.
(c)
Quality can be standardised
The quality of goods can be made uniform especially through mechanisation. Mechanisation and use of modern
technology has enabled mass production where goods of standard sizes and
qualities are produced. Quality control may also be applied on production to
ensure standardisation of goods produced. Quality control involves checking of
goods produced to ensure that they meet the set standards. Figure 3.4 shows a conveyer
belt in a printing press that
ensures mass production.
(d)
Can change possession
Through trade, goods can change owner
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