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Business Management Questions

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What are the factors of production?

Factors of production refer to the inputs used to create goods and services. The main factors of production are labor, capital, entrepreneurship and land.

Labor comprises all human resources. It may be defined as the human effort employed in production. Labor reward is wages.  Labor is categorized into skilled, unskilled and semi skilled. Skilled labor is important for technological companies. Examples of skilled labor include labor employed in communications industry. Conversely, cheap semi skilled labor is very useful for multinational companies whose functions are not very technical. Semi skilled labor includes manual labor such as packaging in industries transportation.

Capital refers to man made goods or production means such as buildings and machinery used in the creation of goods and services. It is used jointly with labor and its reward is interest. It may be fixed or recurring. Circulating capital refers to goods the company has for future and may consist of inventory goods. On the contrary, fixed capital includes machinery and buildings.

Land is a natural resource whose supplies are necessary in terms of raw materials and expansion of companies. Land provides minerals and space for parking and storage. Once the resources on land are depleted, they are irreplaceable.  Land as a factor of production is rewarded with rent. It may be used to provide factory site or for mining such resources as iron ore.

Entrepreneurship is a production factor that provides management skill. It is the managerial, innovative function used by individuals to combine other production functions in order to make profit. Entrepreneurship is therefore the most important factor because it plays a coordinating function among all the other factors. He plays a vital role in ascertaining how capital, labor and land can be used to maximize profits. As a result, he is rewarded with profits. Entrepreneurs include all forms of management.

Comparison of the advantages and disadvantages of the major business ownership forms

Sole proprietorship involves an individual engaging himself in a business exclusively. The individual may register the business under his own name for example Jill’s Inn. It is advantageous in the sense that it is simple to operate, raise capital and there is independence in decision making. The major disadvantage is that the sole proprietor is prone to business’ liabilities. As such personal assets may be held against the business claims.

Partnership business is formed when two or people combine to operate a business. The partners operate under a written partnership agreement. The advantages are that on insolvency, a creditor would first claim the partnership assets before recovering against the personal assets of the partners. Additionally it is easier to raise capital because the partners are able to pool resources. The business does not reliant only on one person’s skills and ideas are shared especially where the partnership is formed by partners of a particular profession.

The major disadvantages are that decision making takes longer as all parties are involved. For limited liability partnerships, there is no privacy as there is disclosure to the public. Disagreements may arise among the partners that may lead to the dissolution of the partnership.

Corporations are separate legal entities mainly only owned by the government. The advantages of a corporation are that it is responsible for its own debts, it can enter into transactions in its own name, and it can sue and be sued in its name. The main disadvantage is that there is double taxation of its earnings. Both the company and the shareholder pay taxes on the earnings.

Limited liability companies’ debts are limited to the share capital contributed by its members. The advantages are that double taxation is avoided because profits are taxed directly to the members; shareholders are not personally accountable for the companies’ debts. The main disadvantage is that there are many legal formalities during formation and disclosure of the books of accounts is required for public limited companies.

How does a country’s balance of trade differ from its balance of payments?

Balance of trade is the disparity between the total value of goods and services exported out of the country and of those imported into the country. When the exports are more, the balance of trade is favorable as there is a surplus. An unfavorable deficit is whereby imports exceed exports. Equilibrium is achieved if the imports and exports are equal. Local producers of coffee in any given country are favored by a surplus balance of trade

On the contrary, balance of payments measures the cash inflows and cash out outflows between one country and another. If all transactions are well recorded, the payments and receipts should be equal. For example if Americans buy tea from Egypt with no other transactions, the Egyptians should end up holding dollars either in the form of U.S treasury bills or other deposits. Such deposits should be equal to the payments made by Japanese to individuals for the acquisition of such instruments of payment.

Why workers unionize in some work places and not in others?

A labor strike is one of the most important negotiating tools for workers unions. While such strikes come in handy in some work places, it is not as effective in others as the benefits being sought are not achieved. The loss of wages during the strike is not paid and one may lose their position. Hence workers may be reluctant to join trade unions in some contexts.

The labor unions decisions are reached by the majority and are independent and democratic hence workers are represented in one voice. However, one benefits from such unanimous decisions if they agree with it. Some workers may be hesitant to unionize for fear of differences that may arise.

While labor unions are a powerful vehicle in fighting for workers rights, they come at a price because members are deducted union fees. They are usually deducted in every workers paycheck even those who are not members. Even when one does not agree with the union decisions they still pay such fees hence it becomes unpopular in such places.

Differences between push and pull strategy

A push strategy entails putting in all effort to push the product into the market. One ensures his distributors are fully stocked with the expectation that the accumulation in stocks will push them to sell the product and promote it over the competitor product. The main benefit is that it does not require a high budget though it can strain relationships with the distribution channels. An example would be a second hand car dealership.

Pull strategy is usually on a make to order basis where the production plan is based on demand. It is mostly used where there is high demand uncertainty for products that are specifically ordered by particular customers. An example of pull demand would be where a consumer may be a particular brand of a car as a result of aggressive marketing. The main benefit is that no stocking is required since goods are availed on demand.

A firm would prefer push strategy because there is less expenditure on advertising than pull strategy and it is easy to implement. In contrast, in pull strategy, there is no inventory hence saving on storage costs and capital is not tied up. Lead time is also greatly reduced and production and distribution are based on demand.

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