Production Factors and Industries in the Caribbean PDF

**PRODUCTION** ### Factors of Production The term 'factors of production' refers to the resources that are combined in the production process to create goods and services. These are: Land - natural resources Labour -- human resource Capital -- man made resource Entrepreneur -- human resource...

**PRODUCTION** ### Factors of Production The term 'factors of production' refers to the resources that are combined in the production process to create goods and services. These are: Land - natural resources Labour -- human resource Capital -- man made resource Entrepreneur -- human resource **Land** includes all natural resources such as soil, seas, rivers, forests, minerals, vegetation etc. **Labour** is categorized as skilled, semi-skilled, unskilled or professional workers **Capital** includes assets such machinery, equipment and vehicle owned by the company. Capital also includes raw materials, finished and semi-finished, goods, bank and cash balances. **Entrepreneur** is the owner and risk taker in a business venture. He is responsible for combining all the factors of production. ### Industries Developed from Natural Resources in the Caribbean Caribbean countries have been blessed with a plethora of natural resources. The industries developed from these natural resources have created employment as well as foreign exchange earnings from exports. **Examples:** **Crude oil** is a natural resource of Trinidad. The petroleum industry employs nationals and earns foreign exchange for the country. **Clay** is found in abundance in Barbados. Pottery making is a large industry in Barbados. **Bauxite** is found in abundance in both Jamaica and Guyana. The Alumina industry is an important foreign exchange earner. Alumina is exported to be further processed to make aluminium products. **Guyana** also has very large **forest** areas and has developed a very vibrant lumber and timber industry. Lumber is used in the construction industry. **Limestone** is processed to make cement in Jamaica. ### ### Difference between Production and Productivity Production is the process of combining units of inputs (natural, man-made and human resources) to create output (goods and services) capable of satisfying human needs and wants. Productivity is the increase of output from each unit in the production process.  There are several ways of achieving productivity. These include the training of workers and the introduction of machinery and equipment into the production process. **Importance of Productivity** Productivity increases output. High productivity results in lower cost per unit of output resulting in higher levels of profit for a business. For example, a factory worker can produce 10 items in an hour and he subsequently produces 20 units in the same hour after some training. His productivity has doubled and the business will benefit from a fall in unit cost as more units are being produces at the same costs of production. Higher profits for the firm will mean more funds available for its expansion, new business ventures and community support. It may also wish to pass on the benefits of lower costs to consumers in the form of lower prices. **Labour Productivity = Output / Number of employees = 200 watches/ 10 employees** **= 20 watches per employee.** ### ### Effects of Migration Migration is the permanent movement of workers from one location to the next in search of better opportunities. **Internal Migration** Migration within a country e.g rural --urban migration. This is migration of persons from rural communities to the city areas. **External Migration** Migration of persons from one country to another -- For example, the migration of Caribbean people to developed countries such as the United States and England. **Effects of Migration** **Internal (Rural --Urban migration)** - The loss of persons from rural areas impacts on the level of output and development of these areas. - It also impacts negatively on the level of commodities available for export form these regions. - The influx of workers in urban areas increases competition for jobs, houses, health facilities, schools etc. **External Migration (Caribbean to developed countries)** - Professional and skilled workers who migrate reduce the level of skills available in their countries resulting in a brain drain effect.  This will impact on growth and development**. ** - They increase competition for jobs, houses, health facilities and schools in their new territory. - Money earned by Caribbean nations in foreign countries is sent home to support their families reducing poverty and making foreign exchange available for their respective countries. - Caribbean professional and skilled workers contribute to the growth of developed countries ### Role of the Entrepreneur: Decision Making Process The entrepreneur organizes the factors of production to create goods and services. The most suitable location, qualified workers, and the right equipment and machinery will ensure efficient production. It is therefore important for him to make the right decisions concerning the employment of the required resources for his business. He must also make decisions on systems and processes to be applied in the production process. ### Role of Capital in Production Capital refers to assets such as machinery, equipment, inventory and cash that are used to start and continuously operate a business. **Fixed capital** includes machinery, equipment and vehicles owned by the company. These assets are so called because they cannot easily be turned into cash. **Circulating capital** **or Current Assets** includes raw materials, finished and semi-finished, goods, bank and cash balances. These assets can easily be converted into cash. Tools and machinery are necessary for products to be fashioned from raw material e.g. mineral mining,  oil  drilling and lumbering. These assets also increase productivity for example sewing with a machine as opposed to sewing by hand. **Venture** capital is needed for business start-up. The business owner will need equipment, funds for promotion etc. to start the business. **Working capital** is the cash available for the daily operation of the business. It is used to pay workers, utilities and purchase raw materials. **[Levels of Production]** **Subsistence** This is the lowest level of production. Subsistence productions refers to output from the production process that is just enough for the survival. This amount of production is therefore not adequate to meet all needs and wants of a family, community or a country. For example, subsistence farming involves the production of crops to feed the family and for survival. Wealth is not created as whatever is produced is consumed. **Domestic Production** Domestic production refers to production that is more than survival level. It provides output that is enough to satisfy domestic needs and wants. Excess is not available for export. However, production is adequate to supply local demand. Examples include: - - **Surplus or Export ** This level of production is adequate to supply local demand and for export.  Large industries can produce large quantities of output to satisfy local consumption and earn foreign exchange from export, for example, the sugar and banana industries. - ### Trinidad and Tobago produces crude oil for export - ### Jamaica and Guyana Produces bauxite for export ### ### ### [Types of Production] **Primary Production** This includes all kinds of extractive industries such as agriculture, mining, forestry and fishing. **Secondary Production** This is the second stage of production after extraction from the natural resources. It involves converting raw materials into finished goods. This includes manufacturing such as assembling, baking, refining and construction (building) industries. **Tertiary Production** This is the final stage which can be classified into **Direct Services** such as hairdressing, babysitting and secretarial work and **Commercial or Indirect services** such as banking, insurance and advertising. Service industries include transportation, communication and tourism. ### Cottage Industry Cottage industry is a generic term for any type of home--based production business. The term is specifically used to describe industries of a craft nature e.g. basket weaving, carving and pottery. This type of home--based business is not difficult to start as it requires little capital to purchase tools and employs family members. These small scale businesses are important to an economy. They utilize local raw materials such as clay for pottery, wood for carving and straw for baskets. They earn foreign exchange from selling to tourist at craft markets and fairs. Examples also include: - - Importance of Cottage Industries: 1. 2. 3. 4. 5. 6. 7. Factors required for cottage industries to survive: 1. 2. 3. 4. ### Linkage Industries This refers to industries that are connected because they depend on each other to obtain or to sell raw materials i.e. the output of one industry (finished product) is the input (raw material) of the other industry. **Forward Linkage** If the final product or finished products of one industry is used in another industry as its raw material then a forward linkage occurs. For example, sugar produced from a sugar factory is used by a bakery to make pastries. Sugar is therefore the end product of one industry and used as raw material in another.  Other examples include agriculture and canning, lumber and construction and cattle farming and meat processing. A **backward linkage** occurs when the demands of an industry leads to the establishment of other industries to produce for the needs of this industry. For example, the establishment of several multinational fast food restaurants in the Caribbean has led to new businesses being established to supply these restaurants with raw materials (vegetables, ground provisions, meats and paper based products). Benefits of Linkages: 1. 2. 3. 4. 5. ### Impediments of Linkages: 1. ### Lack of Venture Capital for primary sector development 2. ### Limited access to foreign markets 3. ### Investment in equipment and machinery can be expensive. ### Factors that determine Business Location The location identified for the operation of a business will impact on its success or failure. An unsuitable location can result in high operational costs or low sales volume. Business owners must therefore consider the following factors when choosing a location. **Geographical Factors** Climate, geology and terrain can determine the location of an industry. Cool Climate for Coffee in Jamaica, Sea for fishing and Tourism in Antigua and St. Lucia. **The proximity to customers** It is important that business owners give customers easy access to goods and services.  Shopping plazas in very central locations are very popular locations for businesses. Many companies now opt for selling online and therefore do not need to be centrally located. **The proximity to raw materials** It is more cost effective for a business that uses raw materials that are heavy and or bulky to locate close to the source of raw material. For example, bauxite processing plants are located close to mining areas and sugar factories are located close to sugar fields. **Availability to suitable labour supply** A business will need adequate number of workers who possess the skills suitable for the creation of its goods and services. The availability of health facilities will also ensure a healthy workforce. **Adequate Infrastructure** Firms will locate where there are adequate supplies of water, lighting, airports, seaports, good roads, transportation, and communication facilities. Failures in any of the utilities and infrastructure can severely hamper operations. ### Government Regulations - ### Government may want to develop certain locations in line with their developmental plans as opposed to protected natural areas. ### ### Functions of a Small Business - **Supplying goods and services that satisfy demand** Identifying a particular need in a market and developing a product that will supply that market need, improves standard of living and increases the overall revenue (GNP) earned in a country. Small businesses have the advantage over large businesses to identify changing market trends as they are closer to the customers. They are also able to produce unique products to suit the needs of each customer. - **Creating employment** Small businesses account for a large percentage of total employment in Caribbean economies. - **Making profits** The main purpose of starting and operating a business is to make profits.  Profit makes it worthwhile for the entrepreneur to continue business. Profit earned may be reinvested to expand the business. ### Small Business +-----------------------------------+-----------------------------------+ | ### Advantages | ### Disadvantages | +===================================+===================================+ | - ### Less layers of Management | - ### Unlimited liability | +-----------------------------------+-----------------------------------+ | - ### Personal interaction with | - ### Difficult to access finan | | clients | cing | +-----------------------------------+-----------------------------------+ | - ### Less complicated to start | - ### High risk due to economic | | | pressures | +-----------------------------------+-----------------------------------+ | - ### Able to source government | - ### Unable to compete with co | | assistance | st savings | +-----------------------------------+-----------------------------------+ | - ### Can cater to niche market | ### | | s better | | +-----------------------------------+-----------------------------------+ ### Large Business +-----------------------------------+-----------------------------------+ | ### Advantages | ### Disadvantages | +===================================+===================================+ | - ### Easier to access financin | - ### Greater bureaucracy | | g | | +-----------------------------------+-----------------------------------+ | - ### Experience economies of s | - ### Increased barriers to com | | cale | munication | +-----------------------------------+-----------------------------------+ | - ### Able to spread risk | - ### Inflexible to market due | | | to standardisation | +-----------------------------------+-----------------------------------+ | - ### Able to invest in R&D | - ### Impersonal dealing with c | | | lients | +-----------------------------------+-----------------------------------+ ### ### Effects of Growth on a Business Small businesses that are efficient, creative and are cognizant of changing market trends are poised for growth.** ** Growth impacts on the business organizational structure and the business operations. The creation of new posts and departments as a result of specialization and expansion will change the organization's structure. More workers will also be employed resulting in greater specialization or division of labour (more workers will mean that tasks can be subdivided into smaller tasks). There will also be an increase in the internal communication systems (telephone, mail etc.) to accommodate this expansion. More factory and office space, equipment and furniture will be required to facilitate expansion. As the business expands it can take advantage of economies of scale. Economies of scale refers to the benefits that firms are able to enjoy because of expansion. **Internal Economies of Scale**\ This refers to the benefits enjoyed by a firm because of its own expansion. These include: - **Technical Economies of Scale -** Expanding businesses will need to purchase machinery and equipment to supply the level of output required. With the use of machines productivity will rise and the firm will experience technical savings as unit cost of production will decline. - **Marketing Economies --** Expanding businesses can take advantage of bulk buying and receive discounts on raw materials. - **Financial Economies -**Larger firms will access loans more easily and at a cheaper interest rate than small firms since they already have established reputations and adequate collateral. - **Managerial Economies -**The employment of experts who will specialize in various management functions such as marketing, personnel, accounting and production will increase efficiency and thus output. **External Economies of Scale**\ External economies refers to the benefits enjoyed by a business because it is part of a well-organized industry and not because of its own expansion. Thus any businesses whether large or small can reap these benefits as long as it is part of an industry enjoying these benefits. Benefits include; government subsidies offered to particular industries, tax holidays and reduced duties on items imported. **Internal Diseconomies of Scale**\ A diseconomy of scale refers to the disadvantages arising from the expansion, such as: 1. High Advertising Cost: This becomes a diseconomy when the percentage increase in a firm's advertising cost is much greater than the percentage increase in its revenue. 2. High maintenance cost for machinery and equipment. 3. Increased difficulty in controlling the organization. ### External Diseconomies of Scale 1. ### Shortages of Raw materials 2. ### Decline in the Industry 3. ### Negative externalities such as pollution can affect businesses ### ### Internal Growth - ### Expanding plant and equipment to full capacity - ### Increasing plant size - ### Creating or expanding product lines ### External Growth - ### Horizontal mergers or vertical mergers - ### Formation of a conglomerate through the assembly of multiple businesses in the same industry. - ### Takeovers ### Impact of growth on: 1. ### Organisational structure 2. ### Capital 3. ### Labour 4. ### Scale of production (economies of scale) 5. ### Use of technology 6. ### Potential for export ### Economical and Social Implications of Technological Development Technological development increases the quality and quantity of output. This results in the lowering of unit cost of production which may be passed on to consumers in the form of lower prices. When goods and services become more affordable the standard of living of citizens will rise. Developing countries employ both labour and capital intensive methods of production. Labour intensive industries include banana and craft and capital intensive industries include petroleum and bauxite. **There are three methods of production:** - This method of production utilizes mainly manual labour along with a limited amount of machinery - This method of production utilizes mainly machinery along with a limited number of workers. - Automation is the employment of machines in a continuous process of operation. This is the further stage of mechanization. This production process is carried out automatically with little or no human involvement.  For example, the automated teller machine (ATM). **Mechanisation** This is the substituting of human and animal labour with machines such as robotics and computers to produce more effectively. **Computer Aided Design (CAD**) Computer aided design is a computer software used in the product design process to produce designs with greater accuracy, speed and flexibility.  Its powerful computer graphics allow product designers to produce 3-dimensional objects, which can be fully examined and tested before they are implemented. *[Advantages include:]* - - - - **Computer Aided Manufacturing (CAM)** This involves the use of computers in a variety of manufacturing tasks. Computers are used to coordinate every aspect of production, from design through stock control to production scheduling and control. Benefits are increased productivity, reduction in waiting time, greater consistency, greater flexibility, and improved coordination of operations, direct and flexible control of tools and materials, and continuous flow of operations. **Computer Aided Instruction (Instructional or Teaching software)** Software application designed to instruct users on procedures and methods. It involves self-paced and interactive instructions with on line testing and feedback. It identifies areas of weakness and provides remedial work until the learner understands. Teleconferencing is possible. **Mechanization and Automation** results in increased output but reduces the amount of labour required in the production process. This creates unemployment in Caribbean countries. Workers must be retrained for new developing industries such as information technology. New industries will absorb the fall out of workers from other industries. **Advantages and Disadvantages of Automation and Mechanisation** +-----------------------------------+-----------------------------------+ | **Advantages** | **Disadvantages** | +===================================+===================================+ | - Increase productive capacity | - Increased unemployment | | in a shorter time | | +-----------------------------------+-----------------------------------+ | - Reduce labour cost | - High initial investment | +-----------------------------------+-----------------------------------+ | - Reduction in defects | - High maintenance cost | +-----------------------------------+-----------------------------------+ | - Minimal need for supervisors | - Technical disruptions | +-----------------------------------+-----------------------------------+ | - Increased support to tertiary | - Can only be used for large or | | services | standardised output | +-----------------------------------+-----------------------------------+ | | - Machines become obsolete and | | | depreciate | +-----------------------------------+-----------------------------------+ Implications of change from labour intensive to capital intensive: 1. 2. 3. 4.