Self Service
• Products are displayed on open shelves.
• Customers have to select them put them into trolley, take it to cash counter, make payment and arrange for their transportation.
• Generally used in large scale retailing especially supermarkets.
Advantages
To Retailers
1. Lesser requirement of shop staff.
2. More sales in given time.
3. More sales due to impulse buying. More turnover.
4. Attraction to the customers.
To Customers
1. Shopping can be done in free environment.
2. Freedom of choice.
3. Quicker shopping.
4. Low price.
Disadvantages
To Retailers
1. More capital required (for space, shelves and variety).
2. Shop lifting.
3. Security expenses increases.
To Customers
1. Impersonalized way of sales.
2. Impulse buying.
3. No delivery is provided.
Branding and Packing
• Branding means the selling of goods under the trade mark or brand name of manufacturer.
• Branding is done to differentiate products from competition.
• Brand Name = Name and Brand Mark = Symbol.
• Packing is the wrapper of product done to provide convenience to customers.
• Branding is only possible if packing is done.
Advantages
To Retailers
1. Products can be differentiated.
2. Market share can be created.
3. Adds value to the product.
4. Assists in handling of products.
5. Information about the product can be written.
6. Attracts customers.
7. Some packing can be reused.
8. Advertisement can be done.
9. Easy to handle. (Arrangement in self service retailing)
To Customers
1. Brand assures uniform quality.
2. With packing awareness is created.
3. Customer is well informed about the product by advertisement.
4. Some wrappers can be reused.
5. Shopping has become easier.
Disadvantages
To Retailers
1. Brands needs to be advertise and advertisement can be burden on resources.
2. Sometimes branding increases competition and competition puts pressure on firms profit.
3. Imitation brands reduce profit.
To Customers
1. Customers get confused as what brand to buy.
2. Cost of packing an advertisement is added to the price of product.
3. Customer may be misled by the advertisement of a certain brand.
4. Imitation brands.
After Sale Service
• All the services provided by the retailer, manufacturer, or the agent to support customers after the sale has been made.
• After sale services include: Installation, training, repairing and warranty.
• Warranty is provided by the produced as a guarantee of quality of a product.
• Warranty is valid within a specific period of usage or specific period after purchase.
• In warranty items with faulty performance will be repaired or replaced free of charge within warranty period.
Advantages
To Retailers
1. Better image.
2. More revenue with more sales.
To Customers
1. Support.
2. Spare parts are available.
3. Warranty.
Disadvantages
To Retailers
1. Capital requirement.
2. Management problems.
3. Parts repaired in warranty are a loss to the business.
To Customers
1. Warranty is added to the cost from customers.
2. Warranty is available only for limiter period.
Automatic Vending Machines (AUMs)
• These machines can sell cold bottled drinks, hot drinks, cigarettes and sweets.
• Often placed at cinemas, parks and supermarkets.
• Customers enter the money into the machine, presses a button and desired item comes out.
Advantages
To Retailers
1. Requires minimum space so rental cost is low.
2. 24 hours sale.
3. No sale staff required.
To Customers
1. Adds convenience.
2. Available all the time.
3. Self service. Less time required.
Disadvantages
To Retailers
1. Available only for the sale of limited range of products.
2. High capital cost.
3. Requires maintenance.
4. Total loss of sales when out of order or out of stock.
5. Machine can easily be broken and money inside can be stolen.
To Customers
1. Only limited range of products are available.
2. Inconvenience if machine out or order.
Shopping Complex
• One multistory building, with many different shops, each belonging to different owners.
• Wide range of goods and services are available.
Advantages
To Retailers
1. Common platform for achieving common goal.
2. Minimum expense on advertising.
3. Labour is available.
To Customers
1. Variety.
2. Other services like, ATM and post office are there.
3. One stop shopping.
4. Located in main commercial area.
Disadvantages
To Retailers
1. High rents.
2. High competition.
3. Low profit margin.
To Customers
1. Traffic, inconvenience.
2. Pollution.
3. Not located close to homes.
Barcodes
Advantages
To Retailers
1. Accurate billing.
2. Quick billing.
3. Better business control.
4. Integrated software can be used.
5. Labour cost is saved through automatic billing.
6. Security against shop lifting.
To Customers
1. Accuracy in bills. Not charged extra.
2. Quick billing.
Disadvantages
To Retailers
1. High capital cost.
2. Skilled labor required.
3. Computer software can malfunction.
To Customers
1. Impersonalized shopping.
2. Software malfunction.
E-commerce
• Also known as Electronic Commerce, Internet Commerce and
Web commerce.
• It is a branch of commerce in which commercial activities are carried out electronically.
Advantages
To Retailers
1. Wide market.
2. Low competition.
3. No requirement of retail outlet.
4. More chances of involving potential customers into sales.
5. Products can be displayed and specified on web.
6. Low labor cost.
7. Computer can help keeping a variety of information regarding customers and employees.
To Customers
1. More variety.
2. Benefit of arm chair shopping.
Disadvantages
To Retailers
1. Capital cost increases.
2. Expenses of developing and operating websites.
3. Danger of hacking.
4. Dependence on skilled labor.
5. Market is limited. (only computer literate people)
To Customers
1. Fraud.
2. Customers can check product only after it is delivered to them.
3. Impersonalized way of buying.
Franchising
• A successful business (franchiser) lets another business (franchisee) use its name under an agreement.
• All franchises are decorated in the same style.
Advantages
To Franchisor
1. Name is spread without much investment.
2. Gets franchising fee from the franchisee.
3. Has right to control certain activities of franchisee.
To Franchisee
1. Training by the franchisor.
2. Less advertisement is required.
To Customers
1. Convenience, easily located.
2. Guarantee of quality.
Disadvantages
To Franchisor
1. Any bad business practice of franchisee can damage franchisor’s image.
2. Responsibilities of training and educating franchisee.
To Franchisee
1. Heavy amount is to be paid to franchisors as franchising fee.
2. Loss of some business controls.
3. Agreement is valid upto certain period.
4. No separate identification of franchisee.
5. Franchising is not determinant of success.
To Customers
1. Limited choice of product.
Store Cards
1. A plastic card which can be charged by the customer only with one retailer.
Advantages
To Retailers
1. More sales.
2. Brand loyalty.
3. Customer profile can be maintained.
4. Additional revenue through sales of cards.
To Customers
1. Discounts.
2. Gifts.
3. Extra value added facilities.
Disadvantages
To Retailers
1. Discounts and gifts are Burdon on profits.
2. A whole system is required before issuing store cards.
To Customers
1. Have to purchase from those outlets which offer gifts and discounts.
2. Some times customers are not interested by gifts.
Electronic Point of Sale (EPOS)
Electronic Funds Transfer System (EFTS)
EPOS or EFTS refers to the computer-based systems used to perform financial transactions electronically.
Advantages
To Retailers
1. Accuracy in billing.
2. Minimum cash handling in case of EFTS.
3. Increased sales in case of EFTS.
4. Security of cash.
To Customers
1. Purchasing power increases.
2. Minimum cash handling.
3. Get itemized bill.
Disadvantages
To Retailers
1. More capital.
2. Skilled labor required.
3. In case of EFTS, retailer has to pay bank charges.
To Customers
1. Irrational buying.
Wednesday, 11 April 2012
Sunday, 8 April 2012
HOME TRADE : THE RETAIL TRADE
Home Trade
Home trade consists of buying and selling of goods with the aim of making profit among people of the same country. Home trade can be divided into wholesale trade and retail trade.
Wholesale Trade
Wholesale trade deals with the bulk buying of goods from various manufacturers and the breaking down of this bulk into smaller quantities which is then sold to the retailer. Wholesaler is a intermediary distributer.
Retail Trade
Retail trade deals with the buying of goods in small quantities from the wholesaler and selling of goods in yet smaller quantities to the final consumer. A Retailer is a intermediary distributer.
Channel of Distribution
This is the way in which goods are delivered from the producer to the customer.
Channel of distribution ends when goods are delivered to the point of consumption.
Ends when the form of good is changed.
Different Channels of Distribution
Producer to the consumer
Expensive, technical, perishable, exclusively made for one customer.
Producer to retailer to consumer
Large scale retailer, producer’s own outlet, suitable for perishable items for example bakery.
Producer to wholesaler to retailer to consumer
Standardized, consumer items, low value and high shelf life, suitable when demand of products are seasonal or the production is seasonal.
Producer to agent to wholesaler to retailer to consumer
Only incase of international trade. Overseas producer appoints a agent in home market. For example imported cars and cosmetics
Factors affecting choice of Channel of Distributions
Producer capabilities
Can producer open his own retail outlets?
Producer philosophy
Exclusive distribution (distribution at certain shops)
Extensive distribution (distribution at every shop)
Type of customer
Own use: from retailer
Business use: from producer
Size of order
Small: from retailer
Large: from producer
Nature of product
Perishable: small channel
Long shelf life: long channel
Value of product
Expensive: small channel
Cheap: long channel
Size of market
Small: small channel
Large: long channel
Nature of market
Home or International
Functions of Retailer
Always looking for good source of supply.
Further bulk breaking, and selling in smaller quantities.
Offers variety of goods from different producers.
They sell to the end customer.
Might be involved in branding and packing.
Might provide home delivery (small scale retailers).
Might provide informal credit to trustworthy customers (small scale retailers).
Provides after sale services to the customers.
Provides information to the customers about the new products and schemes.
Inform the wholesaler or producer about the reaction of market towards a certain product.
Deals with complaints from customers.
Warehousing.
Display products to the customers.
Large Scale Retailers
Purchase from the producer in bulk.
Normally work on the basis of public or private limited companies.
Involve a lot of capital.
Invest heavily in the fixed assets.
Employ specialist staff.
Arrange transportation from the producer.
Pay cash to the producer at the time of purchase.
Sell on cash to end customers (i.e. no credit is offered).
Provide impersonalized services to the customers.
Do not provide home delivery.
Types of Large Scale Retailers
Multiple Shops
Many similar looking outlets distributed all over the country under the same head.
Same product line is sold through all the shops.
Losses in one store may be offset by profits in another.
Stock is bought centrally.
Stock can be moved between branches.
Most operate as public limited companies.
Goods are usually on open display.
Prices are clearly marked.
Department Store
Many departments or specialist shops in one building, located in the centre of the city.
Each department specializes in particular line of goods.
Main aim is to provide complete range of goods under one roof.
Operates as limited companies.
Prices are clearly marked.
Variety chain store
Contains features of both multiple shops and department store.
Offers variety of goods, with similar looking outlets spread all over the country.
Sells by self-service, goods openly displayed and prices clearly marked.
Super market
Big department store, specialized in selling kitchen related and daily household goods.
Offers self-service.
High Rate of turnover.
Hyper Market
Are very large supermarket.
Sited outsides large towns.
Offers low prices, as they buy in bulk.
Suitable for those who want to buy in bulk and have own transport.
Mail order business
Run by manufacturers or the owners of departmental stores.
Only one office and a large warehouse is required.
Business will advertize extensively in newspapers.
They have printed catalogue and price lists.
Catalogue contains diagram, specifications and reference number of goods available. And telephone, fax number, email address and postal address of the company.
Price lists contains the prices of goods mentioned in catalogue against its reference number.
Goods are ordered by mail, e-mail or telephone.
Goods are delivered via mail.
Orders accepted either by C.O.D.(cash on delivery) or C.W.O.(cash with order)by credit card.
Mail order business sells under money back guarantee.
It can make use of inexpensive premises e.g. warehouse rather than use shop premises in a busy street.
It saves on other retail costs e.g. shop fittings, window displays, extra services for
customers.
It can serve customers all over the country and probably in many parts of the world.
It can target those who are unable to visit shops e.g. working women, the housebound.
Advantages of Large Scale Retailers
To Business
High Rate of Turnover-Economy of scale can be achieved.
Business can employ specialist staff – Efficient business.
Low competition due to high capital requirement.
Business can save on transportation.
They will get discounts because they purchase in bulk.
Have state of art warehousing techniques.
To Customers
Variety is available
Horizontal = Different brands
Vertical = Different products of same brand.
Generally customers can get low rates.
Benefit of one stop shopping.
Extra facilities like ATM and post office.
Since items are displayed openly on shelves, customers have freedom of choice.
Mail order business sell under money back guarantee.
Generally items of good repute and quality is sold.
Customers can enjoy arm chair shopping via mail order.
Disadvantages of Large Scale Retailers
To Business
High capital requirement.
High fixed cost (large expenses).
Greater risks attached (stock damage).
Management problems.
Business has to give incentives to customers which can be a burden on the business.
Business has to allocate certain area for non-productive activity (play area, parking lot).
Normally self service is offered and there are chances of shop lifting.
Mail order business can expect refund claims which is loss to the business.
To Customers
Not conveniently located.
All these are located in main commercial area their can be traffic, congestion and parking problems.
Customers get standardized items.
Impersonalized services.
Self service sometimes leads to impulse buying and irrational buying.
Do not provide home delivery.
Don not provide credit facility.
Small Scale Retailers/Independent Retailer
Dependant on wholesaler for their supply.
Limited capital is involved.
Capital can be raised from personal sources (savings and loans).
Normally do not employ specialist staff.
Normally do not employ latest equipment.
Why Small Scale Retailers are dependant on wholesalers
Small scale retailers purchase in smaller quantities.
They need variety (different brands).
Needs credit.
Transport to the shop is provided by the wholesaler.
Wholesaler advices small scale retailers on different selling issues.
Wholesaler advices small scale retailers on shop layouts.
Why Small Sale Retailers are still surviving
Nearness to the customers (saves travel costs and time).
Personal services.
Credit facility.
Opening hours (open early in morning and closed late at night).
Some shoppers do not like change so they go to the small shop because they have always done.
Free home delivery.
How Retailers can improve their Profits.
By improving the quality of products.
By offering variety.
By offering competitive prices.
By properly advertizing and giving incentives.
By improving shop layout.
By changing location.
By controlling costs of routine operation.
Points to be remembered before starting retail business
Knowledge about retailing.
Knowledge about the industry.
Knowledge about prevailing law.
Capital requirement.
Location
Aggressive: Locating with the competition.
Defensive: locating away from competition.
Good source of supply.
Home trade consists of buying and selling of goods with the aim of making profit among people of the same country. Home trade can be divided into wholesale trade and retail trade.
Wholesale Trade
Wholesale trade deals with the bulk buying of goods from various manufacturers and the breaking down of this bulk into smaller quantities which is then sold to the retailer. Wholesaler is a intermediary distributer.
Retail Trade
Retail trade deals with the buying of goods in small quantities from the wholesaler and selling of goods in yet smaller quantities to the final consumer. A Retailer is a intermediary distributer.
Channel of Distribution
This is the way in which goods are delivered from the producer to the customer.
Channel of distribution ends when goods are delivered to the point of consumption.
Ends when the form of good is changed.
Different Channels of Distribution
Producer to the consumer
Expensive, technical, perishable, exclusively made for one customer.
Producer to retailer to consumer
Large scale retailer, producer’s own outlet, suitable for perishable items for example bakery.
Producer to wholesaler to retailer to consumer
Standardized, consumer items, low value and high shelf life, suitable when demand of products are seasonal or the production is seasonal.
Producer to agent to wholesaler to retailer to consumer
Only incase of international trade. Overseas producer appoints a agent in home market. For example imported cars and cosmetics
Factors affecting choice of Channel of Distributions
Producer capabilities
Can producer open his own retail outlets?
Producer philosophy
Exclusive distribution (distribution at certain shops)
Extensive distribution (distribution at every shop)
Type of customer
Own use: from retailer
Business use: from producer
Size of order
Small: from retailer
Large: from producer
Nature of product
Perishable: small channel
Long shelf life: long channel
Value of product
Expensive: small channel
Cheap: long channel
Size of market
Small: small channel
Large: long channel
Nature of market
Home or International
Functions of Retailer
Always looking for good source of supply.
Further bulk breaking, and selling in smaller quantities.
Offers variety of goods from different producers.
They sell to the end customer.
Might be involved in branding and packing.
Might provide home delivery (small scale retailers).
Might provide informal credit to trustworthy customers (small scale retailers).
Provides after sale services to the customers.
Provides information to the customers about the new products and schemes.
Inform the wholesaler or producer about the reaction of market towards a certain product.
Deals with complaints from customers.
Warehousing.
Display products to the customers.
Large Scale Retailers
Purchase from the producer in bulk.
Normally work on the basis of public or private limited companies.
Involve a lot of capital.
Invest heavily in the fixed assets.
Employ specialist staff.
Arrange transportation from the producer.
Pay cash to the producer at the time of purchase.
Sell on cash to end customers (i.e. no credit is offered).
Provide impersonalized services to the customers.
Do not provide home delivery.
Types of Large Scale Retailers
Multiple Shops
Many similar looking outlets distributed all over the country under the same head.
Same product line is sold through all the shops.
Losses in one store may be offset by profits in another.
Stock is bought centrally.
Stock can be moved between branches.
Most operate as public limited companies.
Goods are usually on open display.
Prices are clearly marked.
Department Store
Many departments or specialist shops in one building, located in the centre of the city.
Each department specializes in particular line of goods.
Main aim is to provide complete range of goods under one roof.
Operates as limited companies.
Prices are clearly marked.
Variety chain store
Contains features of both multiple shops and department store.
Offers variety of goods, with similar looking outlets spread all over the country.
Sells by self-service, goods openly displayed and prices clearly marked.
Super market
Big department store, specialized in selling kitchen related and daily household goods.
Offers self-service.
High Rate of turnover.
Hyper Market
Are very large supermarket.
Sited outsides large towns.
Offers low prices, as they buy in bulk.
Suitable for those who want to buy in bulk and have own transport.
Mail order business
Run by manufacturers or the owners of departmental stores.
Only one office and a large warehouse is required.
Business will advertize extensively in newspapers.
They have printed catalogue and price lists.
Catalogue contains diagram, specifications and reference number of goods available. And telephone, fax number, email address and postal address of the company.
Price lists contains the prices of goods mentioned in catalogue against its reference number.
Goods are ordered by mail, e-mail or telephone.
Goods are delivered via mail.
Orders accepted either by C.O.D.(cash on delivery) or C.W.O.(cash with order)by credit card.
Mail order business sells under money back guarantee.
It can make use of inexpensive premises e.g. warehouse rather than use shop premises in a busy street.
It saves on other retail costs e.g. shop fittings, window displays, extra services for
customers.
It can serve customers all over the country and probably in many parts of the world.
It can target those who are unable to visit shops e.g. working women, the housebound.
Advantages of Large Scale Retailers
To Business
High Rate of Turnover-Economy of scale can be achieved.
Business can employ specialist staff – Efficient business.
Low competition due to high capital requirement.
Business can save on transportation.
They will get discounts because they purchase in bulk.
Have state of art warehousing techniques.
To Customers
Variety is available
Horizontal = Different brands
Vertical = Different products of same brand.
Generally customers can get low rates.
Benefit of one stop shopping.
Extra facilities like ATM and post office.
Since items are displayed openly on shelves, customers have freedom of choice.
Mail order business sell under money back guarantee.
Generally items of good repute and quality is sold.
Customers can enjoy arm chair shopping via mail order.
Disadvantages of Large Scale Retailers
To Business
High capital requirement.
High fixed cost (large expenses).
Greater risks attached (stock damage).
Management problems.
Business has to give incentives to customers which can be a burden on the business.
Business has to allocate certain area for non-productive activity (play area, parking lot).
Normally self service is offered and there are chances of shop lifting.
Mail order business can expect refund claims which is loss to the business.
To Customers
Not conveniently located.
All these are located in main commercial area their can be traffic, congestion and parking problems.
Customers get standardized items.
Impersonalized services.
Self service sometimes leads to impulse buying and irrational buying.
Do not provide home delivery.
Don not provide credit facility.
Small Scale Retailers/Independent Retailer
Dependant on wholesaler for their supply.
Limited capital is involved.
Capital can be raised from personal sources (savings and loans).
Normally do not employ specialist staff.
Normally do not employ latest equipment.
Why Small Scale Retailers are dependant on wholesalers
Small scale retailers purchase in smaller quantities.
They need variety (different brands).
Needs credit.
Transport to the shop is provided by the wholesaler.
Wholesaler advices small scale retailers on different selling issues.
Wholesaler advices small scale retailers on shop layouts.
Why Small Sale Retailers are still surviving
Nearness to the customers (saves travel costs and time).
Personal services.
Credit facility.
Opening hours (open early in morning and closed late at night).
Some shoppers do not like change so they go to the small shop because they have always done.
Free home delivery.
How Retailers can improve their Profits.
By improving the quality of products.
By offering variety.
By offering competitive prices.
By properly advertizing and giving incentives.
By improving shop layout.
By changing location.
By controlling costs of routine operation.
Points to be remembered before starting retail business
Knowledge about retailing.
Knowledge about the industry.
Knowledge about prevailing law.
Capital requirement.
Location
Aggressive: Locating with the competition.
Defensive: locating away from competition.
Good source of supply.
TRADE AND AIDS TO TRADE
Trade and Aids to Trade
Types of Trade
Home Trade is buying and selling of goods and services within international boundaries.
Foreign Trade is buying and selling of goods and services across the globe.
Aids to Trade
Services which are required to facilitate trade.
Aids to Trade Function
1. Banking Provides Finance and Services.
2. Transport Without means of transportation it is impossible to trade.
3. Communication To transmit and receive information quickly.
4. Insurance Absorbs some of the risks in production and trade.
5. Warehousing Provides storage facilities.
6. Advertisement Inform customers about products.
Comparison of Home Trade and Foreign Trade
Similarities between Home Trade and Foreign Trade
Buying and selling of goods for making profit.
Serve mankind by satisfying needs and wants.
Requires aids to trade.
Require surplus to be created.
Work on the principle of specialization.
Dissimilarities between Home Trade and Foreign Trade
HOME TRADE
1. Done within national boundaries.
2. Same currency is involved.
3. Same units of measurements.
4. Same government policies.
5. No taxes are involved.
6. Simple Documents.
7. Same culture and language
8. Mode of Payment is cash, cheque etc.
9. Mode of transportation is land or rail.
10. Small and big quantities are involved.
FOREIGN TRADE
Foreign Trade
. Done across the globe.
2. Different currencies are involved.
3. Different units of measurement.
4. Different government policies.
5. Import/Export taxes are involved.
6. Complex Documents.
7. Different culture and languages.
8. Mode of payment is online transfer, bill of exchange etc.
9. Mode of transportation is through sea or air.
10. Only large quantities are involved.
Types of Trade
Home Trade is buying and selling of goods and services within international boundaries.
Foreign Trade is buying and selling of goods and services across the globe.
Aids to Trade
Services which are required to facilitate trade.
Aids to Trade Function
1. Banking Provides Finance and Services.
2. Transport Without means of transportation it is impossible to trade.
3. Communication To transmit and receive information quickly.
4. Insurance Absorbs some of the risks in production and trade.
5. Warehousing Provides storage facilities.
6. Advertisement Inform customers about products.
Comparison of Home Trade and Foreign Trade
Similarities between Home Trade and Foreign Trade
Buying and selling of goods for making profit.
Serve mankind by satisfying needs and wants.
Requires aids to trade.
Require surplus to be created.
Work on the principle of specialization.
Dissimilarities between Home Trade and Foreign Trade
HOME TRADE
1. Done within national boundaries.
2. Same currency is involved.
3. Same units of measurements.
4. Same government policies.
5. No taxes are involved.
6. Simple Documents.
7. Same culture and language
8. Mode of Payment is cash, cheque etc.
9. Mode of transportation is land or rail.
10. Small and big quantities are involved.
FOREIGN TRADE
Foreign Trade
. Done across the globe.
2. Different currencies are involved.
3. Different units of measurement.
4. Different government policies.
5. Import/Export taxes are involved.
6. Complex Documents.
7. Different culture and languages.
8. Mode of payment is online transfer, bill of exchange etc.
9. Mode of transportation is through sea or air.
10. Only large quantities are involved.
PRODUCTION AND COMMERCE
Production And Commerce
What is commerce?
Commerce is study related to distribution of products from the producer (point of production) to the consumer (point of consumption).
Products, Production, Producer and Consumers
Products are the goods and services produced by a company, to satisfy needs and wants of customers.
Production is any activity which serves to satisfy human needs and wants.
Producer is a person or company who produces products to satisfy need and wants.
Consumers are the ultimate users of goods and services produced.
Creation of Utility
Utility of form: Any activity that changes the form of a product so that it becomes more useful to the consumer for example conversion of wood into more useful furniture.
Utility of place: Any activity that transfers the goods or services to a location which is within easier assess to the consumer, for example transfer of goods from far off factories to nearby retail shops.
Utility of time: Any activity that causes the availability of a product on time when it is needed, for example availability of wheat through out the year.
Needs and Wants
Needs are the things necessary for living, that is food, shelter and clothing.
Wants are those goods and services which are not compulsory for living but makes life easier.
Specialization/Division of Labour
Specialization or Division of Labour is breaking down of a productive activity into simpler tasks so that a person specialist in that task can perform it.
Advantages of Specialization
Concentration on work increases.
Increased out put per worker.
Mechanization can occur.
Economy of scale can be achieved (low average cost of product).
Less time consuming.
Better quality of products.
Mass production.
Saving of tools and equipment.
Skills in particular field develops.
Disadvantages of Specialization
Work becomes boring.
Interdependency increases.
Decline in craftsmanship.
Machinery replaces labor.
Standardized output, choice of customers decreases.
Demotivated staff.
Forms of Specialization
Specialization at country level occurs when a certain country devotes itself mainly to produce certain products which it exports to other countries.
Specialization at region level occurs when a particular region in a country devotes its self in producing certain types of products, which is used by all the country.
Specialization at town level occurs when a particular city in a country devotes its self in producing certain types of products, which is used by all the country.
Specialization at firm level occurs when a firm is divided into departments and within departments individual workers have their own specialized duty.
Branches of Production
Primary Production
First Stage of production.
Primary production is obtaining raw materials or food from nature.
Includes Extractive Industries for example mining, quarrying.
Includes Genetic Industries for example farming, forestry and fishing.
Products are in unusable state, so they are moved to secondary stage of
production.
Secondary Production
Second Stage of Production.
Secondary production is making goods from raw materials.
Includes Manufacturing, Processing and Constructing.
Products are ready to use, but are at wrong place, so moved at tertiary stage.
Tertiary Production
Third (last) Stage of Production.
It assists industry to function, by providing commercial services and direct
personal services.
Commercial Services: All services which are related to distribution of goods and services from producers to customers for example communication, finance, insurance, retailers and wholesalers.
Direct Personal Services: Provision of personal services directly to the consumer without anyone else involved for example teacher, actor and tailor. Are usually personal services to satisfying immaterial wants.
Note: Production is completed only when goods reach point of consumption.
Location of Production Units
Agricultural Unit
Climate: A farmer must ensure that crop is planted to a area where climatic conditions allow the production of that crop for example temperature and rainfall.
Nature of land: A farmer must select land which is flat and fertile.
Access to markets: A farmer must have a farm near to the market or customers, because most of agricultural products are perishable (for example sugar cane). There should be efficient and cheap transportation system available.
Labor: Without labor it would be very difficult to carry out the production.
Government policy: Government may favour the production of a particular crop at particular area by providing cheap land and giving other incentives.
Manufacturing Unit
Transport: Factory must be located where cheap and efficient transport facilities are available.
Power source: Factories are set up where there is cheap and adequate supply of electrical power.
Labor: Both skilled and unskilled labor should be present.
Nearness to market: Factory should be near its customers to avoid high transportations cost.
Government policies: Government may provide certain very attractive incentives for factories for example in rural areas to provide jobs to the people.
How are manufacturing and tertiary activities inter-related?
Manufacturing is concerned with producing goods from raw materials, tertiary activities are concerned with the distribution of finished goods from the factory to the final consumer.
Unless there were tertiary activities finished goods would not be sold because there would not be any advertising, no finance to build factories, no storage facility, no transport to the retailer/wholesaler and no communication between buyer and seller.
Manufacturing would not be able to take place as goods would be stockpiled and so it is dependent on tertiary activities to get the goods to the right person at the right time.
As manufacturing becomes more specialized, the manufacturer will become more dependent on others to provide tertiary services.
The manufacturer may set up some of the tertiary activities himself – advertise, have warehouses, have his own transport he may also have his own retail outlet, e.g. factory shop but usually he sells to wholesaler or retailer.
Tertiary activities are also concerned with trading in services, advertising and communicating these services and so is not entirely inter-related with manufacturing.
The manufacturer will need to insure the factory/its contents against risk, e.g. public liability, employer’s liability.
What is commerce?
Commerce is study related to distribution of products from the producer (point of production) to the consumer (point of consumption).
Products, Production, Producer and Consumers
Products are the goods and services produced by a company, to satisfy needs and wants of customers.
Production is any activity which serves to satisfy human needs and wants.
Producer is a person or company who produces products to satisfy need and wants.
Consumers are the ultimate users of goods and services produced.
Creation of Utility
Utility of form: Any activity that changes the form of a product so that it becomes more useful to the consumer for example conversion of wood into more useful furniture.
Utility of place: Any activity that transfers the goods or services to a location which is within easier assess to the consumer, for example transfer of goods from far off factories to nearby retail shops.
Utility of time: Any activity that causes the availability of a product on time when it is needed, for example availability of wheat through out the year.
Needs and Wants
Needs are the things necessary for living, that is food, shelter and clothing.
Wants are those goods and services which are not compulsory for living but makes life easier.
Specialization/Division of Labour
Specialization or Division of Labour is breaking down of a productive activity into simpler tasks so that a person specialist in that task can perform it.
Advantages of Specialization
Concentration on work increases.
Increased out put per worker.
Mechanization can occur.
Economy of scale can be achieved (low average cost of product).
Less time consuming.
Better quality of products.
Mass production.
Saving of tools and equipment.
Skills in particular field develops.
Disadvantages of Specialization
Work becomes boring.
Interdependency increases.
Decline in craftsmanship.
Machinery replaces labor.
Standardized output, choice of customers decreases.
Demotivated staff.
Forms of Specialization
Specialization at country level occurs when a certain country devotes itself mainly to produce certain products which it exports to other countries.
Specialization at region level occurs when a particular region in a country devotes its self in producing certain types of products, which is used by all the country.
Specialization at town level occurs when a particular city in a country devotes its self in producing certain types of products, which is used by all the country.
Specialization at firm level occurs when a firm is divided into departments and within departments individual workers have their own specialized duty.
Branches of Production
Primary Production
First Stage of production.
Primary production is obtaining raw materials or food from nature.
Includes Extractive Industries for example mining, quarrying.
Includes Genetic Industries for example farming, forestry and fishing.
Products are in unusable state, so they are moved to secondary stage of
production.
Secondary Production
Second Stage of Production.
Secondary production is making goods from raw materials.
Includes Manufacturing, Processing and Constructing.
Products are ready to use, but are at wrong place, so moved at tertiary stage.
Tertiary Production
Third (last) Stage of Production.
It assists industry to function, by providing commercial services and direct
personal services.
Commercial Services: All services which are related to distribution of goods and services from producers to customers for example communication, finance, insurance, retailers and wholesalers.
Direct Personal Services: Provision of personal services directly to the consumer without anyone else involved for example teacher, actor and tailor. Are usually personal services to satisfying immaterial wants.
Note: Production is completed only when goods reach point of consumption.
Location of Production Units
Agricultural Unit
Climate: A farmer must ensure that crop is planted to a area where climatic conditions allow the production of that crop for example temperature and rainfall.
Nature of land: A farmer must select land which is flat and fertile.
Access to markets: A farmer must have a farm near to the market or customers, because most of agricultural products are perishable (for example sugar cane). There should be efficient and cheap transportation system available.
Labor: Without labor it would be very difficult to carry out the production.
Government policy: Government may favour the production of a particular crop at particular area by providing cheap land and giving other incentives.
Manufacturing Unit
Transport: Factory must be located where cheap and efficient transport facilities are available.
Power source: Factories are set up where there is cheap and adequate supply of electrical power.
Labor: Both skilled and unskilled labor should be present.
Nearness to market: Factory should be near its customers to avoid high transportations cost.
Government policies: Government may provide certain very attractive incentives for factories for example in rural areas to provide jobs to the people.
How are manufacturing and tertiary activities inter-related?
Manufacturing is concerned with producing goods from raw materials, tertiary activities are concerned with the distribution of finished goods from the factory to the final consumer.
Unless there were tertiary activities finished goods would not be sold because there would not be any advertising, no finance to build factories, no storage facility, no transport to the retailer/wholesaler and no communication between buyer and seller.
Manufacturing would not be able to take place as goods would be stockpiled and so it is dependent on tertiary activities to get the goods to the right person at the right time.
As manufacturing becomes more specialized, the manufacturer will become more dependent on others to provide tertiary services.
The manufacturer may set up some of the tertiary activities himself – advertise, have warehouses, have his own transport he may also have his own retail outlet, e.g. factory shop but usually he sells to wholesaler or retailer.
Tertiary activities are also concerned with trading in services, advertising and communicating these services and so is not entirely inter-related with manufacturing.
The manufacturer will need to insure the factory/its contents against risk, e.g. public liability, employer’s liability.
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