Business Studies - Factors of Production and Entrepreneurship

Factors of Production (CELL)

Factors of production are the resources used to produce goods and services, serving as the building blocks of the economy, and are divided into four categories: land, labor, capital, and entrepreneurship.

1. Capital

Capital encompasses the machinery, tools, and buildings that humans use to produce goods and services. Examples include hammers, forklifts, conveyor belts, computers, and delivery vans. Capital varies based on the worker and the type of work being done.

Characteristics of Capital:

• Capital is formed through savings and profits.
• It is initially supplied by the owner(s).
• Capital goods are used over a period, such as machinery/equipment.
• The value of capital goods depreciates over time due to wear and tear.

Sources of Capital:

• Own capital: Investment made by the owner (sole trader, partners, shareholders).
• Borrowed capital: Also called foreign capital; can be borrowed over different periods.
  • Long term or fixed capital: Repaid over more than 12 months.
  • Working capital: Repaid in less than 12 months.

Different Uses of Capital:

• Fixed capital: Used to buy/invest in fixed assets such as land & buildings, vehicles, and equipment. It remains in the business for a long period (long-term assets). A capital budget is used to plan fixed capital requirements.
• Working capital: Used to purchase stock and to keep cash in the business to cover day-to-day running expenses such as telephone bills, salaries, stationery, and insurance. A cash budget, a short-term financial planning tool, is used to plan working capital requirements.

Capital Budget vs. Cash Budget

• Capital Budget (fixed): Factory equipment, delivery vehicle, factory building.
• Cash Budget (working): Rent, lights and water, salary and wages, advertising.

2. Natural Resources (Land)

Natural resources include all raw materials that are converted into finished products. They are limited and usually can't be replaced by humans (e.g., gold and diamonds). Resources differ from place to place and can't always be used in their natural state Irresponsible actions will exhaust them.

Examples in South Africa:

• Minerals
• Forestry
• Agriculture
• Fishing
• Water

Examples of Minerals in South Africa (Bushveld Complex):

• Manganese
• Phosphate
• Gold
• Chrome
• Asbestos
• Coal
• Iron
• Copper
• Diamonds

Industries in South Africa:

• Commercial Plantation
• Indigenous Forest
• Timber Processing Mill

Map of South Africa displaying industries:

Gauteng: Grains, Limpopo: Sugar, Forestry, Mpumalanga: Vegetables, Free State: Fruits,
KwaZulu Natal: Cattle, North West: Sheep, Western Cape: Diverse, Eastern Cape: None

Fishing Industry in South Africa:

The fisheries sector is worth around R6 billion per annum and directly employs some 27,000 people in the commercial sector. Examples of fish caught: herring, cod, anchovy, tuna, flounder, mullet, squid, shrimp, salmon, crab, lobster, oyster and scallops

3. Labour

Labour includes all efforts (mental and physical) to create goods and services, and is also referred to as human resources.

The Working World – Skill Levels:

• Unskilled: No formal qualifications (e.g., Gardener, Packer, Porter).
• Semi-skilled: Limited education, might have on-the-job training (e.g., Cashier, Forklift operator).
• Skilled: Completion of matric and additional training (e.g., Hairdresser, Plumber, Electrician).
• Professional: Minimum tertiary qualification (degree or diploma) (e.g., Lawyer, Accountant, Civil Engineer).

Remuneration:

The method of remuneration depends on several factors, including the type of job, industry, business goals, and employee preferences. A combination of fixed salary, performance-based pay, benefits, and opportunities for growth and development is often the best approach to ensure employee satisfaction and motivation.

• Weekly – wage
• Monthly - salary

Two Ways of Remuneration:

1. Salary plus benefits: The business pays a fixed salary and adds additional benefits like medical aid, pension, and other perks.
2. Cost to company: The business pays a total amount that includes all the costs (salary plus any benefits like medical aid, pension fund, travel allowances, etc.).

Employee Responsibilities:

• On time: Arriving at work punctually.
• Accountability: Taking responsibility for your tasks and outcomes.
• Professionalism: Completing work to the best of your ability, maintaining ethical behavior.
• Reporting: Keeping the employer informed about important matters related to the job, such as challenges or progress.
• Maintaining a positive attitude and respecting colleagues.
• Adhering to workplace safety standards.
• Maintaining a balance between work and personal life to avoid burnout.

Employer Responsibilities:

• Remuneration: Ensuring that employees are paid fairly and on time.
• Employee Benefits: Offering perks such as health care, retirement plans, and wellness programs.
• Workplace Safety: Creating a safe and healthy working environment.
• Professional Development: Offering opportunities for skills training, workshops, and career growth.
• Providing equal opportunities and avoiding discrimination.
• Offering support for employee well-being (e.g., mental health support, childcare facilities, wellness programs).
• Providing adequate tools, equipment, and resources to carry out the work efficiently.

Role of Workers in Business:

Workers are the backbone of any business. Without them, there would be no productivity or output. Workers help create goods and services that businesses can sell for profit. A highly skilled, motivated workforce can greatly increase the profitability and growth of a company. By contributing their time, energy, and expertise, workers play a key role in the success of a business, making them its greatest asset.

Trade Unions:

A trade union is an organization made up of employees within a specific industry or occupation, formed to protect and advance their members' rights and improve working conditions. Trade unions are essential for maintaining fairness in the workplace, negotiating with employers, and ensuring that employees are treated equitably.

Functions of a Trade Union:

• Being a mouthpiece for workers rights
• Collective bargaining for its members
• Improve conditions of employment
• Negotiate on behalf of its members
• Represent members in disciplinary issues
• Offer advice to its members on labor legislation

Collective Bargaining:

Collective bargaining is the process where employees (usually represented by trade unions) negotiate with employers to address issues like wages, working conditions, and grievances. This process aims to find a compromise that satisfies both parties, usually through structured negotiations.

Methods Used by Trade Unions and Employer Organizations to Make Themselves Heard:

• Strike: Employees refuse to work in an effort to compel the employer to meet their demands; occurs to protest poor wages, working conditions, or other grievances. Requirements: Two or more employees must participate, and the action must relate to work-related issues (not personal).
• Lockout: An employer denies employees access to the workplace, typically as a response to a strike. It is a tactic used to pressure workers into accepting specific conditions or to prevent damage to company property.
• Picketing: Employees protest outside the workplace to make their voices heard. The demonstration must be peaceful and organized by a registered trade union.
• Stay away: A form of protest where employees refuse to come to work to support socio-economic issues. The action must be authorized by a registered union and should be discussed in forums like NEDLAC (National Economic Development and Labour Council).
• Work-to-rule (Go-slow): Employees continue to work but only perform the minimum required tasks at a much slower pace. This decreases productivity and profits, pressuring employers to listen to workers' demands.

Essential Services:

Employees in essential services may not strike, and employers may not lock out such employees. The Labour Relations Act (LRA) defines an essential service as:

• A service, the interruption of which endangers the life, personal safety, or health of the whole or any part of the population.
• The parliamentary services.
• The South African Police Services.

Employer Organizations:

Seek to coordinate the behavior of their member companies in matters of mutual interest. An employer organization is when employers get together in order to bargain or negotiate with their employees. in order for trade unions and employer organizations to make full use of the procedures of the LRA, they must be registered.

Fair Employment Practices - Labour Laws:

• Basic Conditions of Employment Act (BCEA)
• Employment Equity Act (EE)
• Broad-Based Black Economic Empowerment (BBBEE)

Basic Conditions of Employment Act:

Aims to improve the working conditions of vulnerable workers, such as part-time, farm, and domestic workers. BCEA addresses problems of poverty in employment, the lack of mechanisms to set minimum wages, child labor, exclusively long working hours, especially in areas such as transport and security, and gender discrimination.

Issues included in Act:

• Working hours
• Leave
• Sick leave
• Public holidays
• Notice of termination of contract
• Deductions

Specifics:

• Working hours: A max of 45 hours per week may be worked, with a meal interval after 5 hours of work. 9 hours for a 5-day week and 8 hours for a 6-day week. Overtime must be agreed upon with a maximum of 3 hours per day or 10 hours a week, compensated at 1.5 times the normal rate or paid time off.
• Leave: Annual Leave: 21 consecutive days of paid leave after 12 months of full-time employment. Leave may not be converted into cash. Maternity (now parental leave) leave is four consecutive months, and paternity leave (now parental leave) is 10 days. Family responsibility leave of 3 days per year is allowed.
• Sick leave: 30 working days per 36-month cycle (3 year) is allowed (± 10 per year).
• Public holidays: Employees must be paid for public holidays falling on a working day. If they work on a public holiday, they must be paid at double the normal rate.
• Notice of termination of contract:1-week notice for employment of less than a month, 2 weeks for less than a year, and 4 weeks for 1 year or more.
• Deductions: Employers must deduct income tax and unemployment insurance contributions from employees’ wages, along with deductions for union fees and any other agreed amounts.
• Remuneration: The worker must be paid for any accrued annual leave. If the termination is due to retrenchment, then a severance pay is due (1 week for every year worked). An employer must receive a certificate of service indicating the time period of employment. Sectoral determination is the term used to refer to the minimum wage.

Employment Contract:

Must include the employer and employee’s names, addresses, and the workplace, date employment begins and job description, working hours, wage rates, overtime rates, and leave entitlements, period of notice required for termination, and must be signed by both parties.

Employment Equity Act (EEA) - 1998:

The Employment Equity Act aims to eliminate discrimination and promote fairness in employment by implementing affirmative action policies. It seeks to address the imbalances caused by apartheid-era policies. Employers with 50 or more employees must develop specific plans to address racial, gender, and disability imbalances in their workforce. The Act prohibits discrimination on grounds such as race, gender, disability, and religion.

Broad-based Black Economic Empowerment (BBBEE):

BBBEE promotes the economic participation of historically disadvantaged groups in business ownership, management, and economic development, encouraging the integration of Black South Africans into business management and ownership positions. It ensures businesses go beyond simply meeting the Employment Equity Act requirements and actively contribute to black economic empowerment.

Key Elements

• Ownership: Encouraging businesses to allow Black South Africans to own a meaningful share in businesses.
• Management: Promoting Black professionals into managerial roles.
• Skills Development: Encouraging companies to train and develop skills in the Black workforce.

4. Entrepreneurship

Who can be an entrepreneur?

Some entrepreneurs do it by choice: they are very creative and have good business ideas, or they just do not want to work for somebody else. Others do not have a choice: because they cannot find a job, they turn to entrepreneurship in order to feed their families and have at least some form of income.

Entrepreneurial Characteristics:

• Creative: Constantly coming up with new ideas and innovative solutions.
• Passionate: Drives entrepreneurs to push through challenges.
• Motivated: Self-driven and doesn't need others to push them.
• Optimistic: Remain hopeful and positive, focusing on opportunities rather than obstacles.
• Future-oriented: Focused on the future, setting clear goals and striving to achieve them.
• Persuasive: Often need to convince others to believe in their ideas — whether it's customers, investors, or potential employees.
• Flexible: Need to be adaptable, adjusting to changing market conditions or customer needs.
• Resourceful: Able to solve problems efficiently, making the most of available resources.
• Adventurous: Willing to step into the unknown with careful planning and foresight.
• Decisive: Make quick decisions. Procrastination is their enemy; they act fast and take the necessary steps to seize opportunities.

Intrapreneurs:

An intrapreneur is an employee who acts like an entrepreneur within an existing organization. While an intrapreneur does not own the business, they take on the innovative and entrepreneurial spirit of an entrepreneur, helping to create and drive new projects or innovations within a company.

Characteristics of an Intrapreneur:

• Innovative: Like entrepreneurs, intrapreneurs are creative thinkers and problem-solvers who introduce new ideas and improvements within the company.
• Committed: They are dedicated to the company's mission and goals, bringing a high level of energy and focus to their work.
• Hard-working: Intrapreneurs go the extra mile to make their ideas a reality, putting in significant effort to achieve success.
• Energetic: Like entrepreneurs, intrapreneurs exhibit a strong drive and passion for the work they do. They take initiative to solve problems and push for progress.

Differences between Entrepreneurs & Intrapreneurs:

Entrepreneurs:

• Own their business.
• Take on significant financial risk.
• Make decisions independently and directly influence the company’s direction.

Intrapreneurs:

• Work within an organization.
• Have limited risk since they don’t own the business.
• Innovate and push projects forward within the framework of the company, but their decisions are still influenced by management.

Sociopreneur:

This is a person that uses innovate business ideas to solve social (community) problems. This is a person who is willing to take business risk, to create a positive change and communicates through their business initiatives. The aim of these entrepreneurs is not to create a profit for themselves, but rather to use profits to achieve widespread social improvements.

Ecopreneur:

This person creates an entrepreneurial business by looking at ways to solve environmental problems. These entrepreneurs use innovation to create environmental products/services and processes that assist in solving environmental problems.

Tenderpreneur:

This person will develop an entrepreneurial business based around a tender he/she would like to apply. In some cases, the business already exists, but the business operations are adapted to meet the requirements of the tender.

Technopreneur:

A techno entrepreneur is a person, who using technology advancements/ developments creates a business venture. There are two types of techno entrepreneurs: Technology Developers and Technology Users.

• A Technology Developer is a person who develops a new unique technology concept that can drive a business.
• A Technology User is a person who can identify a new technology development and understands how the concept can best be applied to meet customers' needs/wants (market needs).