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 or individual may concentrate or specialize on the task he is skilled, talented or good at.

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.
• Alternative name is Extractive industry.

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.
• Alternative name is MPC Industry.

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.
• Alternative name is Distributive Industry.

Note: Production is completed only when goods reach point of consumption.

Location of Production Units

Agricultural Unit

1. 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.
2. Nature of land: A farmer must select land which is flat and fertile.
3. 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.
4. Labor: Without labor it would be very difficult to carry out the production.
5. Government policy: Government may favour the production of a particular crop at particular area by providing cheap land and giving other incentives.

Manufacturing Unit

1. Transport: Factory must be located where cheap and efficient transport facilities are available.
2. Power source: Factories are set up where there is cheap and adequate supply of electrical power.
3. Labor: Both skilled and unskilled labor should be present.
4. Nearness to market: Factory should be near its customers to avoid high transportations cost.
5. 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.

Factors of Production

Factor                        Reward

Capital                         Interest

Enterprise                   Profit/ Loss

Land                            Rent

Labour                         Wages/ Salaries.

These factors can be abbreviated as CELL.

Capital- Money or assets used to start a business e.g $10 000 or a grinding mill (interest)

Enterprise- Any form of a business unit that generates capital. This has to do with risk taking and the management skills. When one initiates a business unit he takes a risk and invest his capital in that enterprise, when he manages it properly the enterprise will yield profits for him, but if he fails he will run a loss. (Profit/loss).

Land- A natural resource, on land we can extract raw materials, build factories, house…. (Rent).

Labour- The effort applied by human beings, it can be physical or mental. (Wages/salaries)

Mass production

Mass production is the manufacturing of goods in surplus or in large quantities.

Advantages of Mass production

·         Creates employment.

·         Makes workers more skilled.

·         Brings in Specialisation.

·         Use of auto machines.

·         Goods will be readily available in the local markets.

·         Goods become cheap.

·         Improves the standard of living.

·         Results in the standardization of goods.

·         Leads to trade.

·         Brings in foreign currency.

·         Improves the relationships of countries.

 Factors Considered when locating an Industry.

·         Geographical condition

·         Nearness to the source of raw materials

·         Nearness to the Market

·         Accessibility of the area

·         Political stability

·         Economic stability

·         Governmental policies

·         Availability of water

·         Availability of electricity

·         Availability of labour