Production

• Production refers to the process of changing

raw materials into goods and services that
can satisfy needs and wants.
• Needs- essential for survival – food , shelter,
clothing
Production • Wants- things we consume that aren't
necessary for survival
• Factors of production include land, Labour ,
capital, enterprise
• Rewards for the factors of production: rent,
wages, interest, profits
Land

• Not just the physical land but also

the natural resources found on
earth. E.g. mineral deposits ,
bauxite, oil, iron, gold , diamond,
ocean, deserts , forest.
• Land includes the geographical
surface area, rivers, lakes, sea,
minerals and chemicals
• The supply of land is fixed
• Production cannot take place
without land
Labour
• Labour is the mental and
physical contribution of people
to the creation of goods and
services.
• The factor that converts
resources into goods and
services
• Reward for their contribution is
wages.
• Labour can be
• Skilled- engineers
• Semi skilled –drivers
• Unskilled – janitors
Capital

Capital is money and all

Venture Capital/ startup
other assets that are
capital – money used to
employed in the course of
finance the business
production – machinery,
activities
stock etc

Producer goods used in

the production of other
goods(machinery), Fixed capital- items with
consumer goods the end long life (building)
products of producer
goods (can food)

Working – items with

short life (cash, stock)
Enterprise
• This refers to entrepreneurship
(organizing all the factors of
production)
• Taking the risk of starting a
business
• Entrepreneurs must be willing to :
• Raise startup capital
• Take risk
• Organize Labour
 • Inputs and Outcomes
• Inputs – what goes into the production process. This
applies to whatever factors of production the
business is engaged in
• Outcome is the level of performance or
Production achievement the business has gained as a result of
its activities.
and • Production is the process of combining units of
Productivity inputs (raw materials or man-made parts) and
human resources (capital and labour) to create
goods and services to satisfy human wants and
needs.
• Productivity – A measure of the increase in output
from each unit in the production process
 • Productivity increases the level of output,
higher level of output results in lower cost
per unit. An increase in output in
productivity can be achieved by increasing
The training for existing Labour and investing in
new technology and machinery.
Importance
• Productivity deals – productivity increases
of the overall efficiency of the business. When
Productivity the efficiency of the business the production
capacity is closer to optimum level.
Resources are being used as efficiently as
possible. Providing bonuses for employees
are examples of productivity deals.
 • We spoke about capital goods being
the machinery and technology used in
the production of consumer goods
• Some production are capital
Capital for intensive, requires the use of machine
production technology while other production
are more Labour intensive uses more
Labour than machinery
 Types of production

Types and Production can be classified as primary,

levels of secondary or tertiary, collectively they are
sometimes referred to as chains of production
Production
Primary Production- production which includes
the extraction of basic raw materials. The
extractive industries include agriculture, fishing
and mining. These industries are the foundation
for other industries
Types and levels of production

Secondary Production – this consist

of manufacturing and construction
industries. They take the production
from extractive industries and
change them into end products.
Tertiary Production / Commercial
services – they enable the change of
ownership of goods and services.
Tertiary activities begin when goods
leave producers (those who make
consumer goods), to the traders(
retailers who sell consumer goods)
Levels of production
• There are three levels of operation :
• Subsistence – this level of production looks at supplying basic needs.
Sufficient resources are provided to enable the populace to survive.
Subsistence production is mainly used in underdeveloped societies
and are mainly agriculture intensive
• Domestic – At this level there is only local production (within the
home country). This level does not include any imports or exports
• Surplus – At this level there is not only domestic production, but
production also takes place for the export market. Enough is
produced to satisfy the local market and the excess that is
left(surplus) is exported
Small business
• There are many advantages to operating as a small business
• Providing employment
• Faster decision making process (owner and manager are
the same)
• Boost entrepreneurship
 • Cottage Industry – A cottage industry is one
of the smallest type of business . These are
operated in the home, community center
parish halls and other village facilities.

Small • Typically involve manual Labour

• A means of increasing income from home
business • Spare time can be used productively
• Governments encourage cottage industries
as a means of providing employment
• Provide extra income for persons
 • Supply goods and services to satisfy wants
and needs
• Providing development in rural areas
Functions of
• Increasing competition
a small • Fulfilling a niche in the market ( wedding
business parties)
• Creating employment
• Making profits
 They provide employment
Advantages of
small business Owners are not answerable to a lot of persons

Closer communication between owners and

employees

Good work relationships are easier to establish

because of smaller span of control

Can benefit from supplying a niece

 High financial risk

More difficult to source capital

Disadvantages
of small Income is very variable
business They typically operate on a low budget

They have low bargaining power

 • Collectively small businesses provide
employment
Value of • Small business can respond faster to
customer needs than larger
small businesses
businesses to • Small businesses boost competition
a country • Only through small businesses can
some services be provided eg
gardening services
• Business Risk- The main risk a business faces
is the possibility of making a loss.
• Economies of scale- benefits gained from a
businesses growth and expansion.
• Reasons for economies of scale include: Business
1. Expansion is necessary to meet demand
2. They wish to make higher profits
Growth
3. They wish to increase market share and
reduce competition
 • Internal growth looks at growth that
takes place within the organization.
Internal growth requires :
Internal 1. Employing machinery at labour at
full capacity
Growth 2. Investing in better technology
3. Expanding physical space
4. Employing more efficient labour
 • Joint ventures- two or more
businesses pooling their resources to
achieve a common goal
• Mergers /amalgamation – combining
External two or more businesses into a single
Growth business
• Takeovers / acquisition – Control of
the business is taken over by another
business by purchasing at least 51% of
shares
Types of mergers and
takeovers
• Horizontal integration – a firm merges or takes over a firm
at the same level of production
• Vertical integration –one firm merges with or takes over a
firm at a different stage of production.
1. Vertical backwards- merging or taking over a firm at a
lower level of production
2. Vertical forward- merging or taking over a firm at a later
stage of production
• Conglomerate/ lateral merger – the merger or takeover of
companies engaged in unrelated business, creating a
cooperate structure usually involving a parent company
Linkage industries / screw driver/ spin off
• This looks at the linkages between firms at different stages
production
• Linkage industries are called screw driver of spin off industries
because they come about because of some other development. E.g.
canning and preserving food are spin off from agriculture ( forward
linkage)
• Forward linkage is where the firm advances to a higher stage of the
production process
• Backward linkage is where the firm goes back in the production e.g.
from selling bananas to farming bananas
 • Provide increased employment and
standard of living
• Reduce dependence on imported
Benefits of goods
linkage • Reduce wastage of country's
resources
industries • Encourages growth of skills in the
labour
• Promote earnings of foreign exchange
Business growth
• Effects of business growth
• Organizational structure
• Risk of the business
• Capital
• Access to market
• Access to technology