2023-Grade 8 EMS Module 1&2-TK 14Jan PDF

EMS Grade 8 Textbook 2024 Name: CONTENT PAGE (LINKS) MODULE 1 1 Factors of production 2 Forms of ownership 3 Levels of management 4 Sectors of the economy 5 Business Functions 6 Business plan MODULE 2 1 The government 2 The National Budget 3 Standard of living 4 Markets 5 The circular flow 6 Price theory 7 Economic systems 8 Trade unions 2 MODULE 1 - ENTREPRENEURSHIP 1 Factors of production MODULE 1: SLIDE PRESENTATION 1 CAPS: Capital – borrowed and own capital; labour – unskilled, semi-skilled and skilled labour; role of workers in the business; fair employment practices; natural resources; entrepreneurship; remuneration of the factors of production https://docs.google.com/presentation/d/1kx6_ lf9QxwBtdkOWWhIDVLDjFAhfh3zBOLTdm1 A__Tc/edit?usp=sharing 1.1 Entrepreneurship (remuneration - profit) The word entrepreneur comes from the French word “Entre”, which means “to Enter”. The entrepreneur “enters” into the business world by starting his/her own business. Entrepreneurs are one of the factors (resources) needed to use and process natural resources so they can be sold to consumers. There are four resources required to produce goods and services, namely land (also known as natural resources / raw materials), labour (also known as human resources), capital (also known as financial resources) and the entrepreneur. 1.1.1 Who is an entrepreneur? The entrepreneur is the person who brings natural resources, capital, and labour together and combines them into a business. The remuneration (payment) received by the entrepreneur in exchange for their ideas and effort is called profit. Good planning, management, decision-making and the willingness to take risks are characteristics of an entrepreneur. Entrepreneurs look for opportunities to create jobs for themselves, and in the process also create jobs for others. They use their ideas and talents to plan and start a business. This means they must take a calculated risk because they do not know if their idea will definitely work. A calculated risk is a risk taken after evaluating (or considering) all the odds. Entrepreneurs are job creators rather than job seekers and help a country to develop and to grow. ○ A job seeker is someone who depends on a business owner to supply them with a job. ○ A job creator is someone who provides others with jobs by opening their own business. 3 1.1.2 Why is entrepreneurship important? a) Entrepreneurs create new businesses Entrepreneurs create new products and services that others find useful and therefore improve the quality of life for others. Entrepreneurs create new businesses and in doing so create employment for workers. The population in SA is growing faster than the SA economy. This means more people are born every year than new jobs are created. People who fall in the EAP (Economically Active Population) group (age 15 - 64) have to create jobs for themselves because of the high unemployment rate in the country. b) Entrepreneurs add to national income The businesses created by entrepreneurs pay tax and individuals working for entrepreneurs earn salaries and wages and pay income tax for individuals. The taxes are collected by SARS (South African Revenue Services) and used by the government to meet its budget obligations. c) Entrepreneurs create change Through their unique offerings of new goods and services, entrepreneurs break away from tradition. Advancements in technology, for example, smartphones, bring about social change. d) Community development Entrepreneurs invest in community projects and provide financial support to local charities. This enables further development beyond their own businesses. 1.1.3 Characteristics (qualities) of entrepreneurs Entrepreneurs usually have some or all the following characteristics: Entrepreneurial Explanation quality Creative and Entrepreneurs must be creative thinkers who take the initiative innovative mindset to seize opportunities when they arise. They must be able to think outside the box and must not be satisfied with the status quo (how things have always been done). Passionate Being passionate about what you are doing is very important, visionaries because it means you enjoy what you are doing. This love for what they do will give them the drive and motivation to continue with their vision (the dream that they want to achieve). 4 Good These two qualities are important to entrepreneurs because decision-makers starting a business means the consumer’s problem (need not and previously satisfied) is solved. problem-solvers Businesses face many challenges that need to be solved on a daily basis. Entrepreneurs have to be able to think proactively (prepare for the unexpected) of problems that will arise in the future and implement plans to manage the risks. But not all problems can be anticipated. Sometimes unexpected problems happen. The entrepreneur also has to be able to think quickly to decide what the best course of action will be when unexpected problems arise. Determination and Entrepreneurs must be willing to work hard over long periods perseverance of time to build successful businesses. They must follow through with their goals, especially when it is difficult. Calculated risk Entrepreneurs must be calculated risk-takers. taker Being a calculated risk taker means not all risks are accepted, but positives and negatives are considered before a decision is made. This means that entrepreneurs will not just take a risk for the sake of taking a risk. They will rather evaluate all the facts before taking a risk. Entrepreneurs must evaluate all the odds of a decision to be ready to bear the risk of uncertainty. Negotiation skills Tactful communication is necessary to reach an agreement when dealing with business stakeholders (owners, suppliers, consumers, competitors, employees etc) Negotiation is a necessary skill that helps the business to maintain a positive business image and to reach a consensus that will be in the best interest of all parties. Leadership skills Entrepreneurs have to be able to inspire others to follow them. They need to be able to guide staff in the direction the business will go. Entrepreneurs need to be able to motivate employees to continue when times are tough. 1.1.4 What is an ‘intrapreneur’? Intrapreneurs include all employees with similar qualities to an entrepreneur. Someone who is innovative, committed, hard-working and energetic but does not own a business because of the following reasons: o The intrapreneur didn’t have sufficient capital to start his/her own business. o The intrapreneur is not a risk-taker and chooses not to open his/her own business. 5 1.2 Land/Natural resources (remuneration - rent) ‘Land’ is the natural resources needed in the production process to produce the goods. The remuneration (payment) received by owners of the land or raw materials is rent. People need materials to be able to produce goods. These materials could be: raw materials (e.g. apples, eggs, minerals), semi-processed goods (e.g. the thread from a cotton plant that is wound on a reel, but not woven into a cloth yet) or semi-finished goods (e.g. processed raw materials made into cloth from which something like a garment, can be made). 1.2.1 Examples of natural resources: Natural resources are extracted from the earth or harvested from the primary sector. There are four main activities that make up the primary sector: Mining: mineral resources, rocks, groundwater, gas, oil etc. extracted from the earth to use as raw materials in the production of a variety of products, e.g. metal is used to produce steel, which is used to produce cars. Farming: agricultural land, vegetation and soil is used to produce crops (such as potatoes) and for livestock to feed on grass. Fishing: freshwater fish and seawater fish are harvested to process into fish cakes or to sell fresh or frozen fish at retail stores. Forestry: trees are harvested to produce paper and furniture. In South Africa, Blue gum trees and Pine trees are planted in the forestry sector because it grows rapidly. 1.2.2 Examples of products made from natural resources: Natural Resource Product or service Paper, furniture Trees Fuel Coal Clothing, linen Cotton 6 Bottled water Ground water Cars Metal 1.2.3 Renewable and non-renewable resources Because natural resources are scarce, it is of vital importance that we take care to protect our natural resources and to replace them wherever possible, e.g. planting a tree every time one is chopped down. Renewable resources, like sun and wind, are resources that can be replaced at about the same rate at which they are used. They still need to be carefully conserved and maintained or they will be exhausted. Non-renewable resources are natural resources that are exhausted at a faster pace than they can be replaced. Certain resources such as fossil fuels like oil and natural gas were formed over millions of years. Non-renewable resources are gone forever (in our lifetime) once they have been used up. Renewable resources Non-renewable resources Wind Coal Sun Natural gas Plants Petroleum 7 1.2.4 Businesses and environmental sustainability Businesses and individuals also must consider the environmental damage that can occur during the production process. Today, where natural resources are used up at an alarming rate, the government has made it compulsory for businesses to reduce the environmental impact of their operations and to include taking care of the environment in their business practices. Businesses are fined if they do not reduce their ‘carbon footprint.’ All of us are being asked to ‘go green.’ There are many ways each of us can conserve natural resources. Some examples include ○ Reducing our consumption – that is reducing what we buy, buying products with less packaging, reusing what we can, and recycling. ○ Planting trees. ○ Saving water and electricity. ○ Supporting businesses that have a ‘green’ policy, and boycotting products from businesses that damage the environment. ○ Recycling reduces pollution, conserves natural resources, conserves energy; and reduces deforestation. 1.3 Labour (Salaries & Wages) Human labour is necessary to produce goods and render services. People do not only have to do physical work. Highly skilled and trained people also provide intellectual labour (knowledge). The knowledge and skills that make it possible for people to make products or provide services are known as human resources. The remuneration that a worker receives in exchange for labour is known as a wage or a salary. ○ A wage is usually a weekly payment for unskilled or semi-skilled workers ○ A salary is usually a monthly payment for semi-skilled or skilled workers. 1.3.1 Unskilled, semi-skilled and skilled labour Labour includes all human resources. They may be unskilled, semi-skilled, or skilled. Cheap unskilled and semi-skilled labour may be an important location factor for multinational corporations while skilled labour is needed in high-technology industries. Industries can be capital-intensive (using more machinery than labour) or labour-intensive (using more labour than machinery). 8 We generally refer to three levels of skills associated with jobs: LEVEL OF SKILLED SEMI-SKILLED UNSKILLED SKILL Definition Skilled employees Semi-skilled Unskilled workers have a tertiary workers generally may have qualification from have completed their an institution of matriculated and secondary higher learning have some schooling (matric) and has a degree additional but have no or diploma. training in one or additional These people are more areas. training. often employed in Attended a short They often do management course. repetitive jobs positions and or basic jobs in earn salaries the primary or according to their secondary sector. qualifications. Payment Receive a salary at Receive payment Should at least the end of the above minimum receive minimum month which may wage – more than wage. include benefits. unskilled workers, Wages are mostly Salary earned is less than skilled paid weekly. influenced by workers. qualification, Some businesses experience, and give salaries career choice. whilst others pay a weekly wage. Examples CEO’s, teachers, Bricklayers, bus Canteen staff, filing doctors, engineers, and drivers, machine clerks, cleaners, and accountants. operators and production line staff. apprentices. 1.3.2 Role of workers in the business (diversity) The role of workers in the business is to get the job done. Some jobs require skilled labour, whilst other jobs have no requirements. It is important to have a diverse workforce that represents the population of the area and the country. What does diversity mean? Put very simply, diversity in the workplace means that a company hires a wide range of different individuals. Diversity applies to gender, race, ethnicity, age, sexuality, language, education, background, and more. Aspects such as different personalities must also be kept in mind when employing people. 9 Why is diversity important? Diversity increases the number of ideas in a business. Employees understand and celebrate each other’s differences which boosts confidence. Employees understand customers better because they have experience with diverse personalities, races, cultures, religions, genders etc. 1.3.3 Fair employment practices What is meant by ‘fair labour practices? Fair employment practices refer to hiring and treating employees based on merits, such as skills, experience, or ability to perform the job. Being fair also means not discriminating on grounds of age, race, gender, religion, family status or disability when making decisions about human resource activities such as recruitment, promotion, or remuneration. Basic Conditions of Employment Act To ensure that all members of the workforce are treated fairly, the Basic Conditions of Employment Act (BCEA) was introduced in 1997. The Act covers aspects such as: Regulation of working time: Working an 8-hour day for 6 days a week or a 9-hour day for 5 days per week. Workers may work overtime of not more than 10 hours per week (3 hours maximum per day). Leave: There are different types of leave - sick leave, maternity leave, annual leave to take a break from work, and family responsibility leave. Particulars of employment and remuneration: May include name, surname, ID, address, phone numbers, and the amount the employee will be paid. Termination of employment: The period of notice an employee must give the employer when they resign from their job and the period of notice an employer must give an employee when they no longer need their services. Prohibition of employment of child- and forced labour. The working age in South Africa is 15. Children may not work for payment before the age of 15. If the work is of a hazardous nature, the minimum age is 18. Labour Relations Act The Labour Relations Act 66 of 1995 (LRA) is the basic legal framework for labour relations in South Africa. The Act gives the basic rules and structures on how every employer and employee should communicate, bargain and negotiate and is applicable to each business, industry, trade or occupation in S.A. The Act also covers issues relating to freedom of association, trade unions, strikes and lockouts, collective bargaining, disputes in the workplace, unfair labour practice such as unfair dismissals, etc. 10 Trade unions A trade union is any number of employees (in a particular trade, sector or occupation) who are brought together for the purpose of regulating labour relations between themselves and their employers. Trade Unions have to comply with certain criteria in order to be able to exist and have to function within the laws of the land. Trade unions’ role/functions include: ○ Fight for worker's rights ○ Collective bargaining (negotiating) for its members on issues such as wage increases, handling of grievances, working conditions etc. ○ Improve conditions of employment ○ Represent members in disciplinary issues Offer advice to its members on labour legislation Industrial action The law cannot prevent labour disputes (disagreements) but it can put procedures in place to prevent disputes turning into strikes and lockouts. A strike is a temporary, collective refusal to work by employees to pressurise the employer to agree to the demands of the workers (e.g. higher wages or better working conditions). Employees do this because the employer loses income if they are not working and so it makes him listen to their grievances. A lockout is a refusal on the part of an employer to give workers access to the workplace by closing it until certain conditions are accepted by the workers or the strike is over. An employer may do this if he is afraid the workers will damage his property. Picketing is a form of protest where workers get together outside the workplace to protest. Workers have a right to picket but it must be organised by a registered trade union and it must be peaceful. 1.4 Capital (Interest) Capital is the money that is needed to pay for buildings, equipment, tools, machinery and running costs. Entrepreneurs need money to start a business. A producer (manufacturer), for example, needs capital to make goods and a service business needs capital for the rendering of services. Entrepreneurs use their own capital which they saved up, inherited, or secured from an investor. or they can borrow money from the bank. The remuneration received by the owner of the capital from the people who use it, is called interest. 11 1.4.1 Borrowed (AKA foreign capital) At times, an entrepreneur may not have enough money and must borrow money. This is known as borrowed capital. An entrepreneur may borrow funds from: ○ Investors (like you and I) in the form of bonds or debentures. Bonds or debentures are ways that people such as you and I can lend money to businesses in return for interest. Sometimes businesses cannot secure a bank loan (or don’t want to) and therefore they borrow money from people instead. ○ Institutions such as Business Partners will also assist in raising borrowed capital, especially for small businesses and entrepreneurs. Any money that the business borrows creates a liability for the business. It is important to remember if money is borrowed, that it is not only the loan amount that has to be repaid but also interest. Borrowed capital is also known as foreign capital because it does not come from the owner(s). Capital is usually borrowed from commercial banks such as ABSA, FNB, Nedbank, Capitec, Standard Bank, TymeBank, Discovery Bank Although buying on credit is not a loan, it is still a source of borrowed capital (a liability) for the business, as it must be repaid (sometimes with interest, but usually the business gets a couple of months interest-free to repay the creditor). Because businesses will borrow on both the long- term and short-term, we need to keep in mind that there is an important difference between long-term and short-term borrowing: ○ If capital is borrowed and repaid over the long-term (longer than one year), it is said that it was borrowed on the capital market. ○ If it must be repaid over the short-term (one year or shorter), it is borrowed on the money or credit market. Possible sources of credit in the short term include: ○ Overdraft: A business can withdraw more money of the account than what it has in the account. Interest is charged on the portion of the overdraft used. ○ Trade credit: Trade credit is allowed by the supplier (manufacturer). The amount that the business can buy for is based on the creditworthiness of the business. ○ Instalment sale: Equipment or vehicles can be bought on instalment sale. A monthly instalment is paid to repay the capital with interest. If the business does not pay their account as per agreement, the seller can repossess the items sold. Ownership of the item is only transferred to the buyer when the account is settled. 1.4.2 Own capital An entrepreneur may have enough money of his/her own savings for all the capital goods. This is called own capital and is made up of the money contributed by the owner(s). Owners can choose from a variety of different ownership structures (forms of ownership) and could include an owner of a Sole trader, partners in a Partnership, members of a Close Corporation (CC) or shareholders in a Private (Pty) Ltd - or Public (Ltd) company. Companies have the potential to raise the most capital. 12 1.5 Remuneration of the factors of production When we use the factors of production in their most effective manner, there is a reward or remuneration (payment/return on investment). The owner of the land (or natural resources) is paid rent for allowing other people or businesses the privilege of using the land. People offer their labour in return for a weekly wage or a monthly salary. If money or capital were to remain in a bank account (without it being withdrawn), it would earn interest. The remuneration for capital is therefore interest. A person starts a business to make a profit. The entrepreneur is entitled to the profit in his/her business. Factor of Brief explanation Reward/remuneration production Land Natural / physical resources Rent Labour Human resources Salaries / wages Capital Financial resources Interest Entrepreneurship Knowledge e.g. an expert on the Profit processes required 13 2 Forms of ownership MODULE 1: SLIDE PRESENTATION 2 CAPS: Sole traders; partnerships; close corporations; private and public companies; characteristics; advantages and disadvantages; their role in sustainable job creation; role in sustainable use of natural resources https://docs.google.com/presentation/d/1mm VTwnlBKJ-8njf2lwtxsU6nUgHOzUhCd2dcCo 8Jl4Q/edit?usp=sharing 2.1 Sole traders Characteristics Owned by: A Sole trader is also called a sole proprietor and is started by ONE entrepreneur who is the owner of the business, contributing capital and skill. Managed by: The entrepreneur usually manages his / her own business. Profits: All the profits of the business belong to the sole proprietor. Tax: A sole proprietor pays tax on a sliding scale (we call this the progressive tax system). ○ This means that a business that makes low profits will pay tax at a lower rate than a business that makes a high profit. ○ The profits are taxed between 18% and 45%. Name ends with: The name of a sole trader does not have to adhere to any particular requirements. Liability for debt: A sole trader is not a registered business and therefore the owner is responsible for the debt of the business. We refer to this as unlimited liability. Advantages & disadvantages 14 2.2 Partnerships Characteristics If an entrepreneur does not have enough capital on his/her own, the entrepreneur can sign a partnership agreement with another person(s) to form a partnership. Owners and management: The owners in a partnership are referred to as partners. ○ A partnership must have at least two owners, but there is no limit in terms of the maximum number of partners who may join. ○ Partners contribute capital and manage the partnership. ○ They must come to an agreement on how they are going to divide the profits of the business amongst them. Tax: Just like a Sole proprietor, partners are taxed at the individual tax rate which is between 18% - 45% on the profit. ○ The tax depends on how much money the partner makes. ○ Lower profits will be taxed at a lower rate whilst higher profits will be taxed at a higher rate. ○ This is known as the progressive tax system and uses a sliding scale to calculate tax. Name ends with: The name of a partnership does not have to adhere to any particular requirements, but usually the partners use their surnames in their business name: E.g. Beekman and Kotze Accounting Services. Liability for debt: A partnership is not a registered business, and therefore the partners are jointly and severally responsible to pay back any debt the business has. We refer to this as unlimited liability. Advantages & disadvantages 15 2.3 Private and public companies Characteristics Companies have the biggest potential for capital growth. Owned by: The owners of a company are called shareholders. Shareholders contribute capital by buying shares. By contributing capital, the shareholders become part-owners in a company. Managed by: A company is managed by a board of directors who make decisions for the business. The shareholders of a company will not necessarily serve on the board of directors – it depends on the size of the company. Profit: In return for their capital, shareholders will receive dividends. A dividend is a part of the profit made by the company. You can think in terms of the profit that will be divided amongst the investors (shareholders). Tax: Companies are taxed on the profit they make at a flat rate of 27%. Dividends distributed to shareholders will be taxed at 20%. Private and public companies exist. ○ Private companies are owned by selected shareholders whilst public companies are mostly owned by shareholders who purchase shares on the JSE. ○ This means that anyone can own shares in a public company. Name ends with: The name of a private company must end with (Pty) Ltd, which stands for Proprietary Limited, and a public company’s name must end with Ltd for limited. Liability: A company must be registered with CIPC (Companies and Intellectual Property Commission). This means that the owners of a company (shareholders) will not be held liable for the debt of the company. We, therefore, refer to the liability of the shareholders as limited liability. Advantages and disadvantages 16 2.4 Close corporations Characteristics Closed corporations still exist, but since the implementation of the New Companies Act, no new close corporations can start up in South Africa. Existing close corporations may continue to operate. Owned by: A Closed Corporation is owned and managed by members (1-10 members). Tax: Tax is paid at a flat rate of 27% on the profits of the Closed Corporation. Members have to pay 20% tax on the profits distributed to them. Name ends with: In professional documentation, a Closed Corporation must indicate that they are a Closed Corporation and therefore the name of a Closed Corporation must end with CC. Liability for debt: In a CC, the members are not liable for the debt of the business because the CC is registered with CIPC. The members therefore have limited liability. 2.5 Corporate Social Responsibility (including job creation) Any form of ownership creates jobs for others, but they also need to be responsible towards society. Companies are usually larger than Sole Traders and Partnerships and therefore they should be responsible Corporate Citizens. CSR is defined as management’s responsibility to protect and promote the welfare of all stakeholders (individuals or groups of people that have an interest in or that will be affected by the business). A business’ primary social responsibility is towards the business itself, its shareholders (owners), employees, suppliers, customers and competitors. A business’ broader social responsibility is all activities aimed at the local community as well as the country as a whole for example: ○ Ecological control and nature conservations without harming local communities ○ Sponsorships for sports activities ○ Creation of infrastructures (schools, medical facilities, etc.) ○ Upliftment of the poor through training and education. ○ Health and safety in the community ○ AIDS prevention and treatment ○ Anti-drug abuse campaigns ○ Control of pollution (air, water, noise) Although donations and any help given to the less fortunate is helpful, it is always better to develop programmes that are sustainable. Sustainable means programmes that make a difference in the long-term where a process is set up to make sure the programme continues. For example: Instead of just donating food, teach people a skill so that they can get a job and earn an income. Or teach to grow their own vegetables, and rather donate the seeds and implements; they would then be able to eat for a long time to come. 17 2.6 Role in sustainable use of natural resources The environment is in urgent need of protection – increased technology, growing populations and urbanization have led to increased strain on our natural resources. Government, businesses and individuals all need to work together to address these issues and contribute towards environmental management. What can businesses do to protect the environment? Some suggestions include using bio-degradable materials and packaging; cut wastage of resources, recycling glass, paper and plastic, etc. 18 3 Levels of management MODULE 1: SLIDE PRESENTATION 3 CAPS: Different levels of management; management tasks such as planning, organising, leading, and controlling; characteristics of good management; different styles of management – autocratic style, permissive or free-reign style (laissez-fair), democratic or participatory style https://docs.google.com/presentation/d/1-7yC aeURIpAK3Ny6b4hlL5ZNB-X4BVlR4XnrtShs b3s/edit?usp=sharing 3.1 Different levels of management LEVEL OF EXAMPLES TYPE OF SKILLS REQUIRED MANAGEMENT PLANNING / DECISION-MAKING Top level General Manager, Strategic planning Needs mostly management Chief Executive and decision making intellectual / Officer (CEO) or (setting the vision, conceptual skills Managing Director mission, goals, and (MD) objectives of the business) Middle level Functional Managers Tactical planning Needs mostly management (Marketing, (steps needed to interpersonal / Production etc) achieve goals) human relational skills Lower-level Supervisors Operational Needs mostly management planning and technical skills decision making (day to day management of staff). 19 3.2 Management tasks A manager is a person who plans, leads, organizes and controls the people, materials, finances and information in the business, in order to achieve the goals of the business. From this it is clear that there are four elements of managing (tasks) that are vital for the success of a business. The four tasks are planning, organising, leading and controlling (POLC). Planning Manager looks at the future of the business (vision) and decides how to approach it. They decide in advance what, when, who, why, where, and how (5W1H) to do it. Planning is important to ensure that the resources of the business are used properly. Organising The manager needs to bring together and combine all the physical, financial and human resources (employees) needed for the work to be done and to achieve the goals of the business. These resources are also known as the factors of production. Leading Plans will only be carried out through good leadership. A good leader leads his/her people well and treats them with dignity and respect. The leader needs to influence, guide, supervise and motivate his subordinates to work towards achieving the goals of the business. Controlling Actual results are compared with the standards set during planning and feedback is given to management of the performance of the business. Controlling is also involved in the correction of any mistakes or deviations. 3.3 Characteristics of good management 20 Which 5 other characteristics / skills do you think are important? 3.4 Different styles of management People are born with different personalities. Some people argue that a person is born to lead or not. On the other hand, it is said that leadership characteristics can be developed. There are different styles in which people lead. Some tend to be “bossier” than others, while other leaders tend to be more informal and relaxed. A leadership/management style is the manner and approach that a manager or leader uses to provide direction for the implementation of the business’s goals, whilst motivating workers to work to their best potential. Entrepreneurs as managers and leaders can make use of the following leadership styles. 3.4.1 Democratic or participatory style A democratic leader has an open way of running the team and regards the team as equals. They encourage workers to share their ideas and information and create two-way communication or dialogue. Advantage: it allows for more involvement by the workers in the decision-making and will improve their ‘buy-in’ to the decisions. Disadvantage: It may take a long time before decisions are made because the workers participate in decision-making. 3.4.2 Autocratic style An autocratic leader keeps as much power and decision-making as possible. This leader dictates policies and procedures and does not value the opinion of the staff or allow them to contribute input. Staff are expected to obey orders without receiving any explanation. Advantage: Decisions can be made quickly. Disadvantage: Staff becomes demotivated if the leader persists in using this style. 3.4.3 Laissez-faire (Permissive or free-reign style) ‘Laissez Faire is a French word that means no interference. Managers inform workers WHAT must be achieved but do not get involved in telling workers HOW these objectives should be achieved. The laissez-faire style is sometimes described as a "hands-off" leadership style because the leader delegates the tasks to their followers while providing little or no direction to the followers. Advantage: This style of leadership works well when the followers are skilled and can work independently because they feel trusted by the leader. Disadvantage: If followers are not skilled, they need more direction from the leader, but the leader is not involved and therefore tasks take longer to complete. 21 3.4.4 Transformational/charismatic leadership A transformational or charismatic leader gather followers through their personality and charm. Their goal is to bring about change and therefore they are focused on the team and the task. They motivate staff to achieve more than expected. Advantage: Transformational leaders identify strengths and weaknesses in team members and allocate tasks accordingly. Disadvantage: If team members don’t agree with the direction of the leader, the leader will eliminate them from the team to achieve their goal. At the end of the day, the task (end goal) is more important than the team. 3.4.5 Transactional leadership Transactional leadership is based on a give-and-take transaction where the leader offers something of value (e.g. remuneration) to his/her followers in return for their services and following. Advantage: If the reward is in line with, or more than the effort of the employee, the employee will be satisfied with the reward and their job. Disadvantage: If the reward is not what the employee expects for their effort, they will be dissatisfied with the reward and will be negative towards their job. 3.4.6 Situational leadership This style varies from situation to situation. The leader adapts their style according to the circumstances. The situation is influenced by: ○ The organisational culture ○ Ability of the leader ○ The relationship between the leader and the followers. Advantage: The leader can adapt their style if the circumstances change. Disadvantage: Followers are confused because they can’t predict the leadership style the leader is going to use. 22 4 Sectors of the economy MODULE 1: SLIDE PRESENTATION 4 CAPS: The primary sector, the secondary sector, the tertiary sector; types of businesses found in the three sectors; the interrelationship of the three sectors; sustainable use of resources in the three sectors; the role of the three sectors in the economy; types of skills required in each sector https://docs.google.com/presentation/d/150U GmPIizn7dvgtU37MVkJFHqa1w8Py6rfK--J2 N5lk/edit?usp=sharing In order for businesses to produce goods, raw materials from the primary sector is processed by manufacturers or other businesses in the secondary sector to sell products or services to the customer in the tertiary sector. 4.1 The primary sector The primary sector provides raw materials to many other businesses. Activities include the extraction, cultivating and harvesting of raw materials from the earth such as farming (crops and animal husbandry), mining, fishing, and forestry. 4.1.1 Farming (Agriculture) The agricultural sector consists of animal farming and crop farming. ○ Animal farming: The most common farm animals include cattle, sheep, goats and chickens. ○ Crop farming: This depends on the climate of the area as well as the season. Fruit, vegetables, rooibos tea, nuts, herbs and spice are harvested in different regions in South Africa. 4.1.2 Mining South Africa is a world leader in mining. The country is famous for its abundance of mineral resources, accounting for a significant proportion of world production and reserves, and South African mining companies are key players in the global industry. Some of the main minerals and metals mined in South Africa include coal, gold, diamonds, platinum, chromium, oil and natural gas. Examples of mines include Harmony Gold Mine, Anglo American Corporation of South Africa Limited (AAC), Avgold, Durban Roodepoort Deep, Impala Platinum Holdings Ltd (Implats). 23 4.1.3 Fishing / fishery Fresh water fishing as well as deep sea fishing form part of the fishing industry. Produce includes mussels, oysters, lobsters, sardines, calamari, tuna and hake. Fishing licenses are needed. As part of environmental conservation, some species of fish are classified as endangered. These are indicated on the red list by SASSI (South African Sustainable Seafood Initiative). Some species of fish that appear on the red list include Galjoen, Kingfish and imported or longline Tuna. 4.1.4 Forestry The Department of Agriculture, Forestry and Fisheries (DAFF) is the custodian of South Africa's forest resources, which cover over 40 million ha of the country's land surface area. The forestry industry provides jobs to thousands of workers in South Africa. In the forestry industry the focus is on pine trees and gum trees because these trees grow fast enough to continue with paper production. It is, however, necessary to remember to recycle paper as it is difficult to provide enough paper to meet the demand. 4.2 The secondary sector Materials extracted in the primary sector are processed into manufactured goods. The secondary sector includes manufacturing, construction, electricity generation, gas production and water production. This includes: Using raw materials to make plastics, steel, glass and petrol Making motor cars, furniture, electrical appliances, and clothing Processing foods such as bread, canned fish, and breakfast cereals Assembling goods such as cell phones and TV sets Constructing roads and buildings Generating power 4.3 The tertiary sector The tertiary sector is the services sector and includes industries that provide services and sell goods to the final consumer and businesses. Examples of businesses in the tertiary sector: Wholesaling and Wholesaler: A wholesaler is a business that sells large retailing volumes of stock to retailers. We refer to this as selling in bulk. An example of a wholesaler is Makro. Retailer: A retailer is a business that sells products to the final consumer. Examples of retailers include SPAR, Shoprite, Woolworths, Mr Price etc. 24 Finance Banks and other financial institutions offer financial services to customers. This includes: o normal day-to-day banking transactions of receiving money and paying suppliers o loan applications and overdraft facilities o investing in fixed deposits, money market accounts, bonds, debentures and shares. Insurance Companies selling life assurance, household, car, and business (commercial) insurance to cover insurable risks that the business may face. Personal services Example of personal services include: o Medical services o Educational services, o Legal services, o Cleaning services o Entertainment o Tourism o Personal grooming (hairdressing, beauty etc) Business services Any services provided to the business such as: (aka commercial o Information technology services) o Logistics services (transport & storage) o Advertising and other marketing services Real estate Agencies that buy and sell property Accommodation and Restaurants and hotels catering Transport Transport for employees and business trips o Airlines o Railways o Road and motor services o Taxis Communications Cell phone and internet networks Radio Government services Social services such as o medical and education o community services o sanitation o power o roads o police o courts 25 4.4 The role of the three sectors in the economy The GDP (Gross Domestic Product) of the country indicates the economic growth rate. South Africa is the most developed country in Africa and was the most prosperous in terms of economic growth until 2014 when it was overtaken by Nigeria. The largest sector of the economy (in 2022) was services (teritary sector) which accounts for around 73 percent of GDP. ○ Within services, the most important are finance, real estate and business services (21.6 percent); ○ government services (17 percent); ○ wholesale, retail and motor trade, catering and accommodation (15 percent); ○ and transport, storage and communication (9.3 percent). Manufacturing accounts for 13.9 percent; Mining and quarrying for around 8.3 percent and Agriculture for only 2.6 percent. https://tradingeconomics.com/south-africa/gdp-growth 4.5 Types of skills required in each sector The primary and secondary sector require more unskilled workers and semi-skilled workers than skilled workers due to the physical nature of work. In many industries, unskilled workers have been replaced by machinery (e.g. farming and manufacturing) which leads to a high level of unemployment. In the tertiary sector, semi-skilled and skilled employees are needed to sell goods and provide services. 26 5 Business Functions MODULE 1: SLIDE PRESENTATION 5 CAPS: Functions of a business: administration, purchasing, marketing, finances, public relations, human resources, production, general management, and risk management; characteristics of the business functions; role and importance of the business functions https://docs.google.com/presentation/d/1giGz XIOoXWi_yHU2G_UuQX2b5ClshkHhX6AOY a_0CUQ/edit?usp=sharing The daily activities of a business are divided into specific areas called business functions. Traditionally, there are 8 main functions in a business that an entrepreneur needs to manage. This year, we will look at 9. Depending on the size and type of business, these functions can be carried out by one person or a team of people. It is important for a business owner to be aware of all the activities in a business so that they can organise the tasks and duties that need to be done. 5.1 Administration The administration function is responsible for collecting raw data and processing it into information used for decision-making. The administration function is also responsible for general office work such as filing and storing of information. Administration is about managing information through people. The administration department collects and processes data, processes it, store it and backs up information. Data is raw facts and figures whilst information is processed data. Data and information collected includes information related to products, prices, accounting records, human resources records, and customer and supplier records. 27 5.2 Purchasing The purchasing function is responsible for buying goods and services needed by all the other functions so that the business can operate efficiently. Goods and services must be bought at the right price and time, the right quantities and quality by the purchasing department form the best supplier(s) they can afford. In manufacturing, the purchasing function is responsible for the acquisition of required raw materials, services and equipment used. In the retail sector, the purchasing function is responsible for maintaining acceptable stock levels. The purchasing department must buy raw- materials for the production department as well as materials needed by the other business departments. It is as important to purchase good quality materials as it is to purchase products at the best price. Buying in bulk (large quantities) could lead to discounted prices, saving on costs and an increasing in profit. Materials or resources can be bought from three sectors of the economy. Products move through different sectors before it can be bought by the consumer. Raw materials come from the primary sector and is used in the secondary sector to produce products that are sold in the tertiary sector. 5.3 Marketing The marketing function is responsible for the sale of goods and services to meet the needs of consumers. The right product must be sold at the right price in the right place and using the best promotion. The marketing function determines the needs and wants of consumers by means of surveys and then delivers products that satisfy the needs and wants of consumers, using the marketing mix. Remember that the traditional marketing mix consists of Product, Price, Place and Promotion! 28 5.3.1 Product The business needs to sell the right product/service that meets the needs of the customer. It includes the development of completely new products as well as changing existing products. Categories of products and services Products and services can be classified into: SERVICES PRODUCTS / GOODS Personal and Professional Services: Industrial goods: These are goods used Services aimed at the final consumer, in the manufacturing of other goods, e.g. hairdresser, doctor, etc. e.g. raw materials, spare parts, Commercial Services: Helps the machines, and equipment. business to improve the marketing Consumer goods: Consumer goods are process, e.g. transport, insurance, goods consumers are interested to telecommunications, storage, financial purchase. These include convenience services, etc. These are often referred to goods, select/shopping goods and as B2B (Business to business) services. speciality goods. Consumer goods There are THREE types of consumer goods, namely convenience goods, select/shopping goods and speciality goods. 29 Product design It is important for a business to develop products continuously to ensure new ideas are available to replace goods that are becoming outdated. The steps involved in product design are as follow: Packaging Packaging is mainly used to protect the product and to provide space for information on how to use the product as well as on the ingredients in the product. It is also used to promote the product by using unusual, interesting and colourful packaging. Requirements of good packaging include: Eye-catching – to attract the attention of the consumers Designed for the specific target market Different from that of competitors Promote the image of the business Must be easy to handle and must ensure the safety of the content It is very important to consider the impact on the environment when designing packaging. Plastic should be avoided as far as possible. 30 Different forms of packaging 5.3.2 Price The price is the monetary value that a business charges for their product or service. Setting the price of a business depend on a variety of factors. These are known as factors that determine price: Demand and supply The price competitors charge for a similar product The price of complementary products (e.g. a cone is a complementary product for ice cream) The price of substitute products on the market The current economic position of the country The mark-up needed by the business to make a profit. 31 Mark-up Substitute product Complementary product Percentage profit charged A product that can be Product that will be linked by the business on the used instead of another, to the sale of another cost price of their product e.g. margarine can be because it adds value to used instead of butter the main product. A complementary product’s sales are reliant on the sales of the main product. 5.3.3 Place Place refers to where the customers can buy the product. The product must be available at the right place, the right time, and in the right quantities. Businesses can decide to sell directly to customers, or they can use other businesses to sell their product. The way in which a business gets its products to the customers is known as the channels of distribution. Example of distribution channels a) Manufacturer: The manufacturer makes the product. In some cases, the producer and the manufacturer are the same, e.g. I&J produces fish products. b) Wholesaler: The wholesaler buys from the manufacturer and sells to retailers, e.g. Cadbury (manufacturer) sells to Makro (wholesaler) who sells to school tuck shop (retailer). c) Retailers: The retailer is the last link in the distribution channel. The retailer buys from the wholesaler and sells to the final consumer. The following businesses are examples of retailers: ❖ Fast-food franchises ❖ Clothing stores ❖ Grocery stores ❖ Petrol stations ❖ Pharmacies ❖ Gift shops 32 d) Agents: An agent acts as representative for wholesalers or manufacturers and do not take ownership of products. They usually earn commission. Examples are agents selling Tupperware, Justine beauty products. Restaurants often make use of agents to buy from suppliers that are most cost effective. Agents will, for example, negotiate bulk discount on behalf of the businesses they serve with manufacturers such as Tigerbrands, Pioneer food and Unilever. Agents can get discounts on flower, eggs, sugar and so on because they purchase these for many other businesses too and can buy in bulk. The agent also has expertise in certain fields and will for example research the best supplier of wine by taking into consideration quality and price. Franchising as method of distribution Franchising is a marketing system whereby the franchisor (supplier / mother company) enters into an agreement with the franchisee (distributer/ individually owned business) to distribute a product/service on certain agreed-upon terms. Franchisor Franchisee Franchisor is a person or business who A franchisee is a person who pays the owns the entire franchise chain. franchisor to use his/her business idea. The franchisor sets the rules and The franchisee is given the right to own develops the brand. and manage one (or more) stores. Franchisor The franchisor is the creator of the franchise or seller of the business idea. Some advantages of being a franchisor are: The franchisor can expand quickly without a large capital outlay – therefore business gets well-known across the country or internationally. The franchisor receives a percentage of the franchisee’s profit, called royalty, for the use of their brand. More funds are available for promotion as all franchisees pay and advertising levy. Products can be purchased at a cheaper price from suppliers due to bulk orders. Franchisee A franchisee is the buyer of the rights to the franchise. Some advantages of being a franchisee include: Chance of success is good if the franchisor is successful since the brand is already well-known. Has access to advice from the franchisor. The franchisee and employees are trained to familiarise them with the expectations of the business and business operations. Franchisees often assist each other with various marketing activities- advertising, distribution etc. 33 Comprehensive marketing plan done by franchisor whilst the franchisee pays a percentage towards advertising, saving cost. Product research and development is undertaken by the franchisor. Factors that must be considered in the delivery of the product to the consumer has already been put in place (Product, Price, Place, Promotion, People, Process and Physical evidence) Consistent customer base is kept due to loyalty and reward programs. 5.3.4 Promotion Promotion is making customers aware of the product or services that the business is selling. Promotion must get attention, be attractive, give a reliable message and above all else give the customer a reason to choose the product rather than the product of a competitor. Before a business can promote their product/service they first need to know who their customers are going to be, what they can afford to spend, where they live and how the advertising message will reach them. The business can use a variety of different advertising media such as newspaper, magazines, television, radio and more. The AIDA principle is often used by marketers to ensure that their advertisements meet a good standard. Requirements of a good advertisement (AIDA principle) To attract the attention of the consumer, “disruption” is Attract Attention / Create used by placing an advertisement in an unexpected Awareness location, adding something to shock or by personalising the message. Sometimes colour or a song could also be effective. Once the business has the attention of the consumer, the Attract / Awaken the business must keep it AND get the consumer interested Interest in the message. Keeping the message light and easy to read with lively subheadings and humour will be more effective and remembered for longer than having pages of text. A prominent, interesting image is a good idea. The advertisement must create desire within the Create a Desire for consumer to own the product. The story portrayed in the advertisement must be relevant to make the product irresistible. When the target audience include children, fast food businesses often add a toy with the meal. The child desires the toy and then puts pressure on his/her parent. Action is about closing the sale. Consumers must feel Action prompted to buy the item after seeing the advertisement. They must also be convinced that they are getting a good deal. 34 Advertising media A variety of advertising media can be used to promote the business’ products and/or services. Social media is the most popular media to reach customers. Outdoor advertising / billboards / electronic billboards: Outdoor advertisements reach a large audience but are limited to a picture and a finite number of words. Radio: A radio message reaches a large audience but might not reach the right target market. Radio is also often “background noise” and the advertisement has to be repeated a number of times before people take note. Television: Although many viewers see the advertisement, it might not be worth the cost. Television advertisements are very expensive. Newspaper / insert in the newspaper: People who want the product or service are more likely to notice the advertisements, whilst others who do not have an immediate need are not attracted. Printed media cannot reach the large number of illiterate people in South Africa. Magazines: Magazine advertising is an expensive media but reaches the target audience effectively. The message is however not repeated enough, as it usually only appears once in the magazine issue. Pamphlets / brochures: These are relatively cheap to produce and easy to distribute but is often seen as junk mail and thrown away immediately. Guerrilla Marketing: This is a creative content marketing strategy that focuses on keeping costs low. Examples of guerrilla marketing include viral videos and stencil graffiti. Testimonials and endorsements: Making use of celebrities to recommend the product or service to consumers is a powerful advertising method. Consumers feel more confident to purchase a product when celebrities support it. An example is if Suzelle, on her DIY program, makes use of a specific brand in her video. For example, in ‘How to Dolly your Trolley,’ Suzelle shops at Checkers. Telemarketing: Marketing a product or service over the phone or Web conferencing has become a popular method of direct marketing. Although sales calls are seen as an unwelcome interruption, customers can ask questions if they are interested in the product or service. Google advertisements: Google advertising is paid for “per click”. The business might be able to gain customers who click on the advertisement but paying “per click” could end up expensive if many people click on the advertisement without buying the product or service. The business also competes with many other Google advertisements and the message might not reach the right geographical audience. Furthermore, advertisements can be blocked by firewalls and browser extensions such as Ad Block Plus. Advertising on SMS and email: Although SMS and email advertisements are regarded as spam, readers sometimes do take note of them. When a person develops a need for the product or service, they might remember the advertisement. The danger, however, is to irritate the consumer. Facebook, YouTube & TikTok: Facebook and other social media advertising methods are very effective. Advertisements can be shared with others on social media. Facebook has a page called ‘Marketplace’ where people can buy or sell. Businesses can place adverts on YouTube and TikTok to market themselves to prospective customers. Websites and mobile applications: The younger generation of consumers make use of digital media rather than buying magazines and newspapers. It is in the best interest of the business to have a website or a mobile application (or both) as many consumers search on Google when they are looking for a specific business or even a product / service. 35 5.4 Finances The financial function is responsible for planning and managing all the funds (money) and assets in the business as well as investing surplus funds. Budgeting, record-keeping of financial transactions and the compilation of financial statements form an important part of the financial function. 5.4.1 Budgets Budgets are used to manage funds. It is a plan that shows how a business will spend income it expects to receive. Types of budgets include: Capital budget (Long term): A capital budget contains details about the plans for investment in fixed assets such as land and buildings. Fixed assets include vehicles, equipment and land and buildings. The business does not buy fixed assets with the purpose of reselling it. They use these in the business. Fixed assets are usually of high value (expensive). Cash budget (Short term): A cash budget is used to determine how much working capital the business will need over a specific period. Working capital is needed for expenses related to the day-to-day running of the business. Some examples of working capital items include stationery, salaries and wages, water and electricity, traffic fines, fuel for vehicles, marketing, administration expenses, interest paid to the bank on an overdraft. Ways to earn income: Operations: Income from operations is earned by selling products or services. Interest: Interest is earned when the business has a positive bank balance or if the business invested in a fixed deposit account or money market fund at the bank. Rent: Income earned when leasing a property to a tenant. Commission: Income earned on the sale of items that have value, for example furniture, vehicles, and property. Money is spent on: Capital expenses: Money spent on items of value, for example vehicles, ovens in a bakery Operating expenses: Money used to run the business on a day-to-day basis to pay salaries and wages, water, and electricity, insurance etc. Financing expenses: Interest and other costs that a business has to pay when borrowing money. 5.4.2 Financial statements A financial statement is a report that shows the financial activities and performance of a business. It is used by lenders and investors to check a business's financial health and earnings potential. 36 The following are examples of financial statements: ○ Cash Flow Statement ○ Statement of Comprehensive Income ○ Statement of Financial Position 5.5 Human Capital Function (Human Resources) Responsible for finding the right employees who are qualified for the relevant position as well as training, evaluating, promoting, and remunerating them. The HR department (or personnel or human capital function) recruits (finds) staff for vacancies (open positions) in the business. The selection procedure below is followed when recruiting (finding) staff: Collecting CV’s (Curriculum Vitae) Sifting CV’s Drawing up of a short list Interviewing potential candidates Choosing the most suitable candidates The HR department is responsible for salary and wages which includes the administration of benefits such as pension, medical aid, insurance, and sick leave. 5.6 Public relations The public relations function is responsible for creating a positive image of the business to the public. The public includes consumers, customers, suppliers, government, and the broader community. The business uses various methods to improve the image of the business in the eyes of the public, for example creating goodwill through ○ social responsibility projects and ○ supplying feedback on customer complaints. 5.7 Production The production function process (convert / change) raw materials into finished products by combining raw materials with labour, capital, and entrepreneurial skill. The production function uses the factors of production to develop a product by making use of a production system. There are three production systems (AKA production methods) that can be used, namely mass production, batch production and jobbing. 5.7.1 Example of production of a lock Below is an example of batch production producing a lock. You do not have to study these steps. 37 5.7.2 Production systems / methods 38 5.8 General management Levels of management The general management function is responsible for managing the other seven business functions. This is done by planning, organisation, leading and control so that business goals can be achieved. The general manager has the overall responsibility of the business. According to the traditional management model, there are THREE levels of management in a business: LEVEL OF EXAMPLES TYPE OF PLANNING / SKILLS MANAGEMENT DECISION-MAKING REQUIRED General Manager, Strategic planning and Needs mostly Top level Chief Executive decision making (setting intellectual / management Officer (CEO) or the vision, mission, goals, conceptual skills Managing Director and objectives of the (MD) business) Functional Managers Tactical planning (steps Needs mostly Middle level (Marketing, needed to achieve goals) interpersonal / management Production etc) human relational skills Supervisors Operational planning Needs mostly Lower-level and decision making (day technical skills management to day management of staff). Tools managers can use to strategise for challenges SMART goal technique (tool) 39 SWOT analysis SWOT = Strengths, Weaknesses, Opportunities, Threats Strengths and weaknesses are internal aspects related to the business. The business can control these. Opportunities and threats are external aspects that may have an effect on the business. The business cannot control these factors, but they can strategise to overcome threats and make use of opportunities. The following are examples of strengths, weaknesses, opportunities, and threats that may exist in a business: ○ Strengths: Offering a quality product at an affordable price; having skilled employees and being financially stable. ○ Weaknesses: Not being in a financial position to employ enough employees; a poor vision statement, staff that do not have the correct skills and a poor location. ○ Opportunities: A new market for a product; positive media coverage; only a few competitors in the area; changing consumer trends. ○ Threats: New competitors entering the area; changes in legislation; negative media coverage; changing consumer trends. 40 Porter’s Six Force technique (tool) Professor Michael Porter (who was a lecturer at Harvard Business School in the US) developed a tool that analyses competitors in an industry to shape strategy. The tool contains the following forces: Bargaining power of the buyer Bargaining power of the supplier Level of rivalry in the market Threat / availability of substitute products in the market Threat of new entrants to the market The power of complementary products (complementors). This force was added at a later stage. Bargaining power of the buyer The buyer is any business or person who purchases products or services from the business. Businesses should assess the power of their buyer to switch brands. If there are many competitors, the buyer has power over the business (power of the buyer is high) because there are many choices for them, but if there are only a few competitors, the power of the buyer is limited (power of the buyer is low) because the buyer does not have many businesses to choose from. Bargaining power of the supplier Suppliers include suppliers of products or services, e.g. suppliers of raw materials and suppliers of finance. The business must assess the power of the supplier and how open the supplier is to bargain with the business. If there are many suppliers for the same product, the bargaining power of the supplier will be low. If there are only a few suppliers (or one) providing the product or service, the bargaining power of the supplier is high. E.g. there are not many coffee bean suppliers in South Africa and therefore stand-alone coffee shops (not belonging to a franchise) will find that suppliers are not willing to bargain on matters such as the price of the product, the minimum quantity that needs to be ordered, delivery service and the quality of coffee provided. Level competitive rivalry These are direct competitors in the market. Direct competitors are businesses that sell the same or a similar product to the same target market. E.g. Starbucks is a competitor for Vida e Café and Debonairs is a competitor for Romans. Threat of substitute products in the market Substitute products include all the products on the market that can be used instead of the product sold, i.e. all the alternatives that could be used. Substitute products are different to the products offered by the business, but it satisfies the same need. E.g. A substitute product for coffee is tea / milkshake / fizzy drinks / fruit drinks / water. All of these satisfy the same need. When a coffee shop offers a variety of beverages on their menu, customers will not have to go elsewhere to satisfy their needs. Other examples: KFC is a substitute product for Debonairs because both businesses satisfy the consumer’s need for food. The products offered are vastly different. 41 Threat of new entrants to the market Any new business entering the same market is a new entrant. Businesses should assess potential competitors and barriers to prevent entry in the given market. A barrier could be expensive machinery, highly skilled employees needed for a business operation, franchisor controlling how many franchises may open, legislation. E.g. when an entrepreneur opens a coffee shop, they will need coffee machines, a delivery vehicle, tables and chairs, cash register, kitchen equipment and ovens, raw materials, or stock (capital investment is required). They also need to know how to roast coffee beans and how to make an exclusive cup of coffee to be a competitive coffee shop. The power of complementary products (complementors) A complementary product is a product that adds value to another product. We refer to it as a reliant product because its sales depend on the sales of the main product. Example: the sale of iPad covers (reliant product) depend on the sale of iPads (main product). If a store sells iPads it adds value to the consumer if they also sell iPad covers. An example related to the coffee shop industry: When customers drink coffee at a coffee shop, they might want to eat a snack too. It therefore adds value to the business if they offer eats customers can order. Some businesses make use of the power of complementary products by pairing them on the menu, e.g. muffin and coffee combo at a more affordable price than ordering them separately. PESTLE tool The PESTLE tool is used to analyse factors that the business does not have control over. These factors are mostly current affairs. Each letter of PESTLE stands for a different challenge that businesses can’t control: POLITICAL ECONOMIC SOCIAL TECHNOLOGICAL LEGAL ENVIRONMENTAL 42 5.9 Risk management The business face many challenges daily. Challenges are also known as risks. Management must anticipate risk and put proactive strategies in place to mitigate risks in a business. Mitigating risks mean that you control the risk to minimise its effect on the business. Tools such as a SWOT analysis, Porter’s Six Force Tool and PESTLE can assist the business to analyse risk factors and develop strategies. Insurance can help to mitigate some risks; a safe work environment can mitigate risks related to workplace injuries. Investing surplus funds can assist the business when they are in need of funds due to unforeseen circumstances, e.g. COVID lockdown period. Some risks are identified below, but these are not the only risks that exist: 43 6 Business plan MODULE 1: SLIDE PRESENTATION 6 CAPS: Concept of a business plan; components of a business plan; format of a business plan [the front cover, table of contents, description of the product or services offered by the business, goals of the business, the business owner, production plan, marketing plan, management plan, SWOT (strengths, weaknesses, opportunities, threats) analysis and conclusion]; financial plan (fixed and variable costs, break-even points, mark-up on sales, profit percentage) https://docs.google.com/presentation/d/1yWf 9Yc9jD2OpXd0SLseGdkIxcRCa3OO95cnW Y5z5EWA/edit?usp=sharing 6.1 The concept of a Business Plan A business plan is a professional document that states the goals of the business and the plan for reaching those goals. A business plan is important for two reasons: It forces the owner to think through and write down their plans and goals for each aspect of the business. It helps owners if they want to approach someone to invest in the business or if they want to apply for a loan. 6.2 The elements of a Business Plan Business plans are important to draw up when starting a new business but must also be updated and used regularly. Here are some of the elements: Title Page: This page will include the name of the business, the physical address, contact details, as well as the entrepreneur's details. Table of Content: The table of content will list the different sections of the business plan with relevant page numbers. Executive Summary: The Executive Summary will look at each aspect of the business briefly and will give a description of the product or service. This section gives the reader an overview of the business / product. Goals of the business: The SMARTER tool can be used to define the goals of the business. 44 Market Analysis: This section will look at the market the business is entering. It will also assess and describe the customers' behaviour patterns as well as relative competitors. Marketing Plan: The Marketing Plan gives details regarding the business's marketing and promotional strategies. Financial Plan: This section of the business plan will provide particulars of the income earning potential of the idea / opportunity, i.e., the viability analysis. It will also include projected financial statements. Some costs that need to be reflected include the fixed and variable costs of production, break-even points, mark-up on sales and the profit percentage. Production Plan: The Production section will give details regarding the entrepreneur's plans to transform factors of production into goods / services that will satisfy customers' needs / wants. Organisational Plan: This section will provide particulars of the necessary positions and skills needed in the business. In addition, the Organisation Plan will give specifics of the layout of the business and the key management tasks and activities within the business. SWOT analysis: A SWOT analysis can be used to reflect the strengths, weaknesses, opportunities and threats of the business. Other tools such as Porter’s 6 Force analysis and a PESTLE analysis can be used to assist the business to analyse the external environment of the business for opportunities and threats. Appendix: All additional, but important information that will add value to the understanding of the Business plan will be included in the appendix. 6.3 Setting up a Business Plan Let’s set up a business plan. Click on the link below to access the task to complete a business plan. The link will also be available on Google classroom: Task: https://docs.google.com/document/d/1yVHQ05SO3gd3j1S0dbhnAiRE9vBIXAFs0dh-Tn9NeB8/e dit?usp=sharing Template: https://docs.google.com/document/d/19xcOSsxLATbR3kuAmyG4-qo-6eRDNV2xVbzyJEozLv0/ edit?usp=sharing 45 Module 2 - The Economy 1 The government MODULE 2: SLIDE PRESENTATION 1 CAPS: Meaning of government; different levels of government; roles of the different levels of government in respect of households in the use of resources and services (both as consumer and producer); roles of the different levels of government in respect of businesses in the use of resources and services (both as consumer and producer) https://docs.google.com/presentation/d/1gQ3 wRYt7lD8Q6Nx_2hPAfXFwy8ezIm3arWMwE _pvKbw/edit?usp=sharing 1.1 Meaning of government The word government is derived from the Latin infinitive ‘gubernare’, meaning ‘to govern’ or ‘to manage’. Businessdictionary.com defines government as “a body of people that sets and administers public policy, and exercises executive, political, and sovereign power through customs, institutions, and laws within a state.” 1.2 Role (functions) of the government The state or government has the following functions: The government has to make laws about the rights and responsibilities of citizens. The government collects revenue income in the form of taxes and provides a budget on how the taxes are spent. The taxes are used to provide services and infrastructure to improve the lives of all the people in the country, particularly the poor. The government has to deliver government services to the citizens. These services include: ○ General services – administration of justice and police as well as administration of the country through Parliament and the various state departments. ○ Common services – building of roads, bridges, sanitation and other basic but essential services. ○ Social services – education, health and welfare services, and housing. ○ Economic services – these are offered by the government to different sectors of production. An example of a state-owned company that provides an economic service is Eskom. *Infrastructure is the physical structures of the country, e.g. buildings, roads and power supply 46 1.3 Levels of the government The government in South Africa is a constitutional democracy made up of branches that operate on different levels or government. The Constitution is the supreme law in South Africa and every person, legislation or institution is ruled by the Constitution. In South Africa, elections for both national and provincial governments are held at least every five years. Every South African citizen over the age of 18 has the right to cast his or her vote. The people who get elected to govern the country will make decisions that affect all the citizens. The South African government meet in parliament where all the members of parliament debate laws. If the majority of the members accept the proposed laws, the laws are signed. *Democracy is a system whereby all the citizens above 18 in SA have the right to vote and elect a government. 1.3.1 Branches of government 47 1.3.2 Levels of government 1.4 How does the government get elected? The election of the government in South Africa is a 3 step process. STEP 1: The citizens of South Africa vote for a party of their choice. The outcome of the votes will determine which parties are represented in parliament and how many seats each party receives. STEP 2: The President is elected by parliament. STEP 3: The President appoints the cabinet of ministers. 1.5 Services provided by the government 1.5.1 National governments and Provincial governments According to the Constitution, the nine provinces may have legislative and executive powers together with the national government over the following services: Agriculture Police services Casinos, racing, gambling, wagering Provincial public media Cultural affairs Public transport Education at all levels, excluding Regional planning and development university and university of technology Road-traffic regulation education Tourism Environment Trade and industrial promotion Health services Traditional authorities Housing Urban and rural development Language policy Vehicle licensing Nature conservation Welfare services Figure: National and Provincial legislature and executive services 48 1.5.2 Provinces have exclusive responsibility for providing these services: Abattoirs Provincial planning Ambulance services Provincial cultural matters Liquor licences Provincial recreation and activities Museums other than national Provincial roads and traffic museums Figure: Provincial services 1.5.3 Local governments South Africa has 283 local government authorities. Local government services include the following services to businesses and private individuals: Vehicle licence administration Disaster Risk Management Drivers licence administration Traffic Signal faults Cultural affairs Fire and rescue services Waste management Library and Information services Provision of electricity and water Human settlements Cemetries Property zoning City Parks Transport City Health Tourism Figure 24: Municipal Services 1.6 Who rules the country? Research the following ministers on the internet. (The link below the table might be helpful to research some of them): President Vice president Minister of finance President Cyril Ramaphosa Mr Paul Shipokosa Mashatile Enoch Godongwana Minister of education Minister of water and Minister of tourism sanitation Mrs Matsie Angelina Mr Senzo Mchunu Ms Patricia de Lille Motshekga https://www.parliament.gov.za/ministers 49 2 The National Budget MODULE 2: SLIDE PRESENTATION 2 CAPS: Government revenue: direct tax, indirect tax; government expenditure on services such as education, health, housing, social grants, transport, security, etc.; the influence of the National Budget on growth and redressing of economic inequalities https://docs.google.com/presentation/d/1xwkl PCajbFAfubCj9erRKS5cCJN_QWJGZQfgrcS CZXU/edit?usp=sharing The National Budget is a framework within which the state or government has to operate. It describes how government will raise money and spend it. The National Budget divides money between national departments, provinces and municipalities. The Medium Term Expenditure Framework (MTEF) means that budgeting is now done for a three-year period in advance. Every year a new year is added and the figures of the other years can be revised. The budget has two main functions: ○ to balance income and expenditure; and ○ to finance the deficits by borrowing funds. (If there is a budget deficit, i.e. expenses are greater than income, then money may have to be borrowed through loans in order to cover this deficit.) In February of each year, the Minister of Finance announces government’s spending, tax and borrowing plans for the next three years in his annual Budget Speech. 2.1 Government revenue Much of the government’s income is derived from taxation – either direct tax or indirect tax. The South African Revenue Services (SARS) is the branch of government that collects all forms of taxation. 2.1.1 Examples of direct tax Personal income tax: This type of tax is paid by individuals who receive money above a certain threshold. South African citizens are taxed according to the progressive tax system. This means the higher your income, the higher the percentage of tax you will pay (PAYE - Pay As You Earn). Sole traders and Partnerships are taxed using the same system as individuals. Corporate tax: Companies and Closed Corporations pay tax at a flat rate of 27% (since tax year 2022). Capital gains tax (CGT): Tax is calculated when selling (disposing of) assets such as property and shares (if a profit was generated). 50 2.1.2 Examples of indirect tax Indirect taxes are taxes which are levied on transactions rather than on persons (whether individuals or corporate). Examples are VAT, fuel levy and excise duty. VAT (Value Added Tax) is charged at a rate of 15% (2022). Fuel levy is added to the price of fuel and is paid whenever vehicles fill up at the petrol station. Excise duty (AKA sin tax) is charged on fast-moving, high-volume daily consumables and non-essential products such as alcohol and tobacco. 2.1.3 Government bonds When the government does not get enough money through taxes, they will borrow money from citizens, businesses and other countries in the form of bonds. Rating agencies rate the ability of the government to pay back their loans. If they don’t feel comfortable with the way a country is run, they categorise the country’s bonds as ‘junk status’ to let

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