OBJECTIVES
PUBLIC FINANCE ​SPECIFIC OBJECTIVESBy the end of the topic, the learner should be able to:
COURSE OUTLINE
CONTENT
PUBLIC FINANCEPublic finance refers to the activities carried out by the government associated with raising of finances and the spending of the finances raised (it is the study of how government collects revenue and how it spends it) The components of public finance are;
Purpose of public finance
Sources of public financeThere are two major sources of public finance i.e.
This is the income that the government gets from its citizens. The main sources of public revenue are:
This refers to borrowing by government from firms and individuals within the country. This may be done through: Open market operation; the government sells its securities such as treasury bonds and treasury bills. This however has a disadvantage of causing ‘crowding out effect’ where the government leaves the private investors with little to borrow from. External borrowing
Classes of public (National debt)These are two classes of national debt:
This is borrowed money used to finance project(s) that can generate revenue. Such projects, once started may become self-sustaining and may contribute towards servicing/repaying the debt. E.g. money used to finance irrigation schemes, electricity production etc. Dead-weight debt This is borrowed money that is used to finance activities that do not generate any revenue. Examples are money used to finance recurrent expenditure e.g. payment of salaries or for famine relief etc. Dead-weight debt is a burden to members of the public since they are the ones who are expected to contribute towards its repayment. Factors to consider before the government decides whether to borrow internally or externally This refers to how the government spends the finances it has raised on behalf of its citizens. Categories of government expenditure
This refers to government spending that takes place regularly e.g. payments of salaries to civil servants, fuelling of government vehicles e.g. Every financial year, the government must allocate funds to meet such expenditure. Recurrent expenditure is also known as consumption expenditure. Development expenditure This is also referred to as capital expenditure .It is government spending on projects that facilitate economic development. Such projects includes construction of railway lines, roads, airports, rural electrification etc. Once completed expenditure on such projects ceases and may only require maintenance. Transfer payments This is expenditure on things/people who do not directly contribute to a country’s national income. Such expenditure include money spent on famine relief, pension, bursaries etc. Principles of Public/Government ExpenditureThese are the considerations that are necessary before any expenditure can be incurred by the government. They include:
TaxationTax: is a compulsory payment by either individuals or organizations to the government without any direct benefit to the payer. Taxation-refers to the process through which the government raises revenue by collecting taxes. Purposes/reasons for taxation
Principles of taxationDownload full PDF copy to continue reading ... learn about membership plans question & answer sessionDiscuss five principles of taxation
Outline five sources of non-tax public revenue
Explain five principles of public expenditure
Highlight five reasons for imposition of tax by the government
Discuss five characteristics of a good tax system
Outline five reasons why the Kenya government must impose tax
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MONEY AND BANKINGSPECIFIC OBJECTIVES
SPECIFIC OBJECTIVES
By the end of the topic, the learner should be able to:
Money and Banking
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CONTENTS
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NOTES
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Q & A
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FINANCIAL STATEMENTS - KCSE BUSINESS STUDIES NOTES, AUDIOVISUALS, QUESTION AND ANSWER
CONTENTS
- Financial Statements
- Trading account
- Profit and loss account
- Trading, profit and loss account
- Balance sheet
- Importance of the financial statements
- Concept of trading period
- Preparation of simple financial statements
- Types of capital
- Working capital
- Borrowed capital
- Capital owned
- Capital employed
- Calculating basic financial ratios e.g
- Margins and mark-ups
- Current ratio/ working capital ratio
- Rate of stock turn-over
- Return on capital
- Importance of financial ratios
SPECIFIC OBJECTIVES
By the end of the topic, the learner should be able to:
- identify the various financial statements
- explain the importance of each of the financial statements
- explain the concept of trading period
- prepare simple Financial Statements
- explain the various types of capital
- calculate basic ratios from financial statements
- explain the importance of each of the basic financial ratios.
Financial Statements
These are prepared at the end of a given trading period to determine the profit and losses of the business, and also to show the financial position of the business at a given time. They includes; trading account, profit and loss account, trading profit and loss account and the balance sheet. They are also referred to as the final statements.
The trading period is the duration through which the trading activities are carried out in the business before it decides to determines it performances in terms of profit or loss. It may be one week, month, six months or even a year depending on what the owner wants. Most of the business use one year as their trading period. It is also referred to as the accounting period.
At the end of the accounting period, the following takes place;
The trading period is the duration through which the trading activities are carried out in the business before it decides to determines it performances in terms of profit or loss. It may be one week, month, six months or even a year depending on what the owner wants. Most of the business use one year as their trading period. It is also referred to as the accounting period.
At the end of the accounting period, the following takes place;
- All the accounts are balanced off
- A trial balance is extracted
- Profit or loss is determined
- The balance sheet is prepared
Determining the profit or loss of a business
When a business sells its stock above the buying price/cost of acquiring the stock, it makes a profit, while if it sells below it makes a loss. The profit realized when the business sell it stock beyond the cost is what is referred to as the gross profit, while if it is a loss then it is referred to as a gross loss.
It is referred to as the gross profit /loss because it has not been used to cater for the expenses that may have been incurred in selling that stock, such as the salary of the salesman, rent for the premises, water bills, etc. it therefore implies that the businessman cannot take the whole gross profit for its personal use but must first deduct the total cost of all other expenses that may have been incurred.
The profit realized after the cost of all the expenses incurred has been deducted is what becomes the real profit for the owner of the business, and is referred to as Net profit. The net profit can be determined through calculation or preparation of profit and loss account.
In calculating the gross profit, the following adjustments are put in place
It is referred to as the gross profit /loss because it has not been used to cater for the expenses that may have been incurred in selling that stock, such as the salary of the salesman, rent for the premises, water bills, etc. it therefore implies that the businessman cannot take the whole gross profit for its personal use but must first deduct the total cost of all other expenses that may have been incurred.
The profit realized after the cost of all the expenses incurred has been deducted is what becomes the real profit for the owner of the business, and is referred to as Net profit. The net profit can be determined through calculation or preparation of profit and loss account.
In calculating the gross profit, the following adjustments are put in place
- Return inwards/Sales return: - these are goods that had been sold to the customers, but they have returned them to the business for one reason or the other. It therefore reduces the value of sales, and is therefore subtracted from sales to obtain the net sales
Therefore Net sales = Sales – Return inwards - Return outwards/purchases return: - these are goods that had been bought from the suppliers to the business and have been returned to them for one reason or another. It reduces the purchases and is therefore subtracted from the purchases to obtain the net purchases.
- Drawings: - this refers to goods that the owner of the business has taken from the business for his own use. It reduces the value of purchases, and is therefore subtracted from purchases when determining the net purchases. It is different from the other drawing in that it is purely goods and not money
- Carriage inwards/Carriage on purchases: - this is the cost incurred by the suppliers in transporting the goods from his premises to the customers’ business. It is treated as part of the purchases, and therefore increases the value of purchases. It is added to purchases to determine the actual value of purchases/Net purchases.
Therefore Net Purchases = Purchases + Carriage inwards – Return Outwards - Drawings - Carriage outwards/Carriage on sales: - this is the cost that the business has incurred in transporting goods from its premises to the customer’s premises. The cost reduces the business profit that would have been realized as a result of the sale, and is therefore treated as an expense and is subtracted from the gross profit, before determining the net profit.
- Opening stock is the stock of goods at the beginning of the trading period, while the closing stock is the stock of the goods at the end of the trading period
Gross profit is therefore calculated as follows;
Gross Profit = Sales – Return inwards – (Opening stock + Purchases + carriage inwards – Return outwards – Closing stock)
Or
Gross profit = Net sales – Cost of Goods Sold (COGS)
COGS = Opening Stock + Net Purchases – Closing stock
Net Profit = Gross profit – Total expenses
Trading Account
This is prepared by the business to determine the gross profit/loss during that trading period
It takes the following format
It takes the following format
The trading account is completed by the time the gross profit b/d is determined
For example
The following balances were obtained from the books of Ramera Traders for the year ending may 31st 2010
For example
The following balances were obtained from the books of Ramera Traders for the year ending may 31st 2010
- Sales 670 000
- Purchases 380 000
- Return inwards 40 000
- Carriage outwards 18 000
- Return outwards 20 000
- Carriage inwards 10 000
- During the year the owner took goods worth shs 5 000 for his family use
- The stock as at 1st June 2009 was shs 60 000, while the stock as at 31st May 2011 was shs 70 000
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THE LEDGER AND THE CASHBOOK - KCSE BUSINESS STUDIES NOTES, AUDIOVISUALS, QUESTION AND ANSWER
23/4/2018
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CONTENT
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NOTES
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Q & A
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THE LEDGER AND THE CASHBOOK
CONTENT
- Meaning and purpose of a ledger
- Concept of double entry
- Meaning and format of a ledger account
- Rules of posting of various ledger accounts
a) Assets accounts
b) Liability accounts
c) Expenses accounts
d) Revenue accounts
e) Capital accounts - Recording business transaction in the ledger accounts
- Balancing a ledger account
- The trial balance
- Purpose and limitations of a trial balance
- Classification of ledger accounts
- Types of ledgers.
THE CASH BOOK
- Meaning and purpose of a cash book
- Basic types of cash books
- Contra entry
- Preparation of a cash book
a) Single - column
b) Two - column
c) Three - column
THE CASH BOOKS AND THE LEDGER
The cash book
This is a special ledger which is used to record cash and cheque transactions.
It contains only the cash in hand and cash at bank (i.e. cash and bank) accounts
Nominal ledger
This ledger is used to record business expenses and incomes (gains). It contains all the nominal accounts.
Private ledger
This ledger is used in recording private accounts i.e. confidential and valuable fixed assets and the personal accounts of the proprietors such as capital accounts and drawing accounts.
The general ledger
The general ledger contains all other accounts that are not kept in any other ledger e.g. buildings, furniture and stock accounts.
This is a special ledger which is used to record cash and cheque transactions.
It contains only the cash in hand and cash at bank (i.e. cash and bank) accounts
Nominal ledger
This ledger is used to record business expenses and incomes (gains). It contains all the nominal accounts.
Private ledger
This ledger is used in recording private accounts i.e. confidential and valuable fixed assets and the personal accounts of the proprietors such as capital accounts and drawing accounts.
The general ledger
The general ledger contains all other accounts that are not kept in any other ledger e.g. buildings, furniture and stock accounts.
- Personal accounts of debtors or creditors who do not arise out of sale or purchase of goods on credit are found in the general ledger e.g. debtors as a result of sale of fixed asset on credit and expense creditors.
- Private accounts
these are accounts that the business considers to be confidential and are not availed to everybody except the management and the owners.
These accounts may be personal or impersonal.
They include capital account, drawings accounts, trading, profit and loss accounts.
Types of ledgers
The following are the main types of ledgers that are used to keep the various accounts
The sales ledger (Debtors ledger)
The purchases ledger contains accounts of creditors i.e. contains the records of the value of goods bought on credit and the suppliers of such goods.
It is a record of the debts payable by the business due to credit purchases.
An account is kept for each creditor to the credit side of which is posted the value of.
Impersonal accounts
This category of ledger accounts includes all other accounts that are not personal in nature e.g. buildings, purchases, rent, sales and discounts received.
Impersonal accounts fall into two types
These are accounts of tangible assets or property e.g. buildings, land, furniture, fittings, machinery, stock, cash (at bank and in hand) etc.
These accounts are also used to draw up the balance sheet.
Nominal account:
These are accounts of items that relate to gains and losses and whose balances at the end of the accounting period.
All expenses, revenues, sales and purchases are hence nominal accounts.
The main business expenses include:
purchases, sales, returns, insurance, stationary, repairs, depreciation, heating, discount allowed, lighting interests, printing, wages, rent, rates and advertising.
The value of losses is included in the same side as the expenses when drawing up the final accounts though it is not an expense.
The income (revenues) include sales, returns, claims out, interest receivable, dividends receivable and commission receivable. Profit is usually categorised together with these incomes when drawing up the final accounts.
The sales ledger (Debtors ledger)
- This is the ledger in which accounts of individual debtors are kept.
- It is used to record the value of goods sold on credit and the customers to whom the credit sales are made, hence contains the personal names of the debtors.
- It is called a sales ledger because the accounts of debtors kept herein are as a result of sale of goods on credit. An account is kept for each customer to which is debited the value of credit sale. Payment made by the debtor are credited to the account and debited in the cash book.
The purchases ledger contains accounts of creditors i.e. contains the records of the value of goods bought on credit and the suppliers of such goods.
It is a record of the debts payable by the business due to credit purchases.
An account is kept for each creditor to the credit side of which is posted the value of.
Impersonal accounts
This category of ledger accounts includes all other accounts that are not personal in nature e.g. buildings, purchases, rent, sales and discounts received.
Impersonal accounts fall into two types
- Real accounts
- Nominal accounts
These are accounts of tangible assets or property e.g. buildings, land, furniture, fittings, machinery, stock, cash (at bank and in hand) etc.
These accounts are also used to draw up the balance sheet.
Nominal account:
These are accounts of items that relate to gains and losses and whose balances at the end of the accounting period.
All expenses, revenues, sales and purchases are hence nominal accounts.
The main business expenses include:
purchases, sales, returns, insurance, stationary, repairs, depreciation, heating, discount allowed, lighting interests, printing, wages, rent, rates and advertising.
The value of losses is included in the same side as the expenses when drawing up the final accounts though it is not an expense.
The income (revenues) include sales, returns, claims out, interest receivable, dividends receivable and commission receivable. Profit is usually categorised together with these incomes when drawing up the final accounts.
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Classification of ledger accounts
Many businesses handle few transactions, hence they have few records to keep. Their accounts can thus be kept in a single ledger referred to as the general ledger
As a business grows the volume of transactions increases. This single ledger, therefore, becomes very bulky with accounts and it becomes difficult to make reference to it.
In order to simplify the recording of transactions and facilitate reference to the accounts, ledger accounts are usually classified and each category kept in a special ledger.
NOTE
(i) Since many transactions are cash transactions which are normally recorded in the bank and cash accounts a need arises to remove them from the main/general ledger to a separate ledger called the cash book.
(ii) The number of ledgers kept depends on the size of the business.
Classes of accounts
All accounts can be classified into either personal or impersonal accounts.
Personal accounts
The account balances of these accounts are used to draw up the balance sheet.
In the ledger, the trial balance total is not affected.
Purpose of a trial balance
The purpose of a trial balance include:
As a business grows the volume of transactions increases. This single ledger, therefore, becomes very bulky with accounts and it becomes difficult to make reference to it.
In order to simplify the recording of transactions and facilitate reference to the accounts, ledger accounts are usually classified and each category kept in a special ledger.
NOTE
(i) Since many transactions are cash transactions which are normally recorded in the bank and cash accounts a need arises to remove them from the main/general ledger to a separate ledger called the cash book.
(ii) The number of ledgers kept depends on the size of the business.
Classes of accounts
All accounts can be classified into either personal or impersonal accounts.
Personal accounts
- These are account of persons
- They relate to personal, companies or associations.
- They are mainly accounts of debtors and creditors.
The account balances of these accounts are used to draw up the balance sheet.
In the ledger, the trial balance total is not affected.
Purpose of a trial balance
The purpose of a trial balance include:
- Checking the accuracy in the ledger accounts as to whether;
- The rule of double entry has been adhered to or observed/ complied with.
- There are arithmetical errors in the ledger accounts
- Gives a summary of the ledger i.e. summary of the transactions which have taken place during a given period
- Provide information (account balances) for preparing final accounts such as the trading account, profit and loss account and the balance sheet.
- Test whether the ledger account balances have been posted to the right side of the trial balance.
Limitations of a trial balance
Even when the trial balance totals are equal, it does not mean that there are no errors made in the ledgers. This is because there are some errors that do not affect the trial balance.
A trial balance only assures the book keeper that the total of debit entries is equal to total credit entries.
The errors that do not affect the trial balances are:
A trial balance only assures the book keeper that the total of debit entries is equal to total credit entries.
The errors that do not affect the trial balances are:
- Error of total omission; This occurs when a transaction takes place and nothing about it is recorded in the books of accounts i.e. it is completely omitted such that neither a credit nor a debit entry is made in the ledgers.
- Error of original entry; this occurs where both the debit and credit entries are made using similar but erroneous figures. As the wrong amount is recorded in the two accounts.
- Error of commission; This occurs where double entry is completed but in the wrong persons accounts especially due to a confusion in names e.g. a debit entry of shs.2000 was made in Otieno’s account instead of Atieno’s account.
- Compensating errors; these are errors whose effects cancel out e.g. over debiting debtors account by sh.300 and under debiting cash account by sh.300.
- Complete reversal of entries; This occurs where the account to be debited is credited and the account to be credited is debited e.g. the sale of goods to Lydia on credit may be recorded as follows;
Dr.sales a/c
Cr.Lydius a/c
Instead of;
Dr.Lydius a/c
Cr.sales a/c - Error of principle; this is where a transaction is recorded in the wrong account of a different class from the correct one e.g. repairs of machinery was debited in the machinery instead of debiting the repairs account.
Trial Balance
A trial balance is a statement prepared at a particular date showing all the debit balances on one column and all the credit balances on another column.
NOTE: A trial balance is not an account but merely a list of assets, expenses and losses on the left and capital liabilities and incomes (including profits) on the right.
The totals of a trial balance should agree if the double entry has been carried out correctly and there are no arithmetic errors both in the ledger as well as in the trial balance itself.
If the two sides of a trial balance are not equal, it means there is an error or errors either in the trial balance or in the ledger accounts or in both.
NOTE: A trial balance is not an account but merely a list of assets, expenses and losses on the left and capital liabilities and incomes (including profits) on the right.
The totals of a trial balance should agree if the double entry has been carried out correctly and there are no arithmetic errors both in the ledger as well as in the trial balance itself.
If the two sides of a trial balance are not equal, it means there is an error or errors either in the trial balance or in the ledger accounts or in both.
Errors that may cause a trial balance not to balance
- Partial omission: A transaction was recorded on only one account i.e. a debit or a credit entry might have been omitted in one of the affected accounts.
- Transferring (posting): a wrong balance to a trial balance.
- Different amounts for the same transaction might have been entered in the accounts
- Failure to post a balance to the trial balance (omission of a balance from the trial balance
- Posting a balance to the wrong side of the trial balance
- Recording a transaction on the same side of the affected accounts(partial reversal entry)
- Arithmetic mistakes might have been made when balancing the ledger accounts
- Arithmetic errors in balancing the trial balance
QUESTIONS AND ANSWERS
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OBJECTIVES
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NOTES
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Q & A
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NATIONAL INCOME
NATIONAL INCOME CONTENT
- Meaning of national income
- The circular flow of income
- Methods of measuring national income
- Problems encountered in measuring national income
- Uses of national income statistics
- Factors which influence the level of national income
NATIONAL INCOME SPECIFIC OBJECTIVES
By the end of the topic, the learner should be able to:
- explain the meaning of national income
- describe the circular flow of income
- explain the methods of measuring national income
- explain the problems encountered in measuring national income
- discuss the uses of national income statistics
- discuss the factors that influence the level of national income.
NATIONAL INCOME
This is the total income received by the providers/owners of the factors of production in a given country over a given time period.
Terms used in national income
Terms used in national income
- Gross Domestic Product (GDP). This is the total monetary value of all goods and services produced in a country during a particular year. Such goods and services must have been produced within the country.
- Net Domestic Product (NDP). This is the GDP less depreciation. Depreciation is the loss in value of the assets such as machines used in the production of goods and services.
- Gross National Product (GNP). This measures the total monetary value of all the goods and services produced by the people of a country regardless of whether they in or outside the country. It takes into account exports and imports. The difference between exports and imports is called net Factor Income from abroad. GNP therefore is the sum of GDP and net factor income from abroad.
- Net National Product (NNP). This recognizes the loss in value of the capital used in the production of goods. Capital here refers to capital goods. NNP is the difference between GNP and the depreciation.
- Per capita income. This is the average income per head per year in a given country. It is also the national income divided by the population of the country.
Circular Flow of Income
- This is the continuous movement of income between the households (providers of factors of production) and the firms (producers of goods and services).
- The factors of production are received from households.
- The firms pay the rewards of such factors to the households (expenditure to the firms and income to the households).
- The households in turn use the income to buy the goods and services produced by the firms (expenditure to households and income to firms).
- Existence of two sectors only. It is assumed that the economy has only two sectors that is households and firms. The households provide the factors of production while firms are involved in the production of goods and services.
- Total spending by households. It is assumed that the households spend all their income on the goods and services produced by the firms i.e. no savings.
- Total spending by the firms. It is assumed that the firms spend the money received from the sale of goods and services to pay for the rewards of production factors.
- Lack of government intervention. The government does not influence how the firms and households carry out their activities. Such interventions are in the form of taxes, price controls among others.
- Closed economy. Exports and imports do not exist in such an economy.
- The factors can either lead to increase in income and expenditure (injections) or lead to a reduction in the volume of flow (withdrawals).
- Savings. This takes place when the households do not spend all their income on the purchase of goods and services. This reduces the income to be received by firms hence savings is a withdrawal from the circular flow of income.
- Taxation. Taxation reduces the amount of money available for spending therefore it is a withdrawal/leakage from the circular flow of income.
- Government expenditure. The government may buy goods from the firms or provide subsidies. This will translate in to an injection into the circular flow of income.
- Investments. When firms put more capital into the production, output will increase hence an increase in income (injection).
- Imports. When goods and services are bought from other countries, money will be spent hence a reduction in the circular flow of income (withdrawal).
- Exports. Through exports, a country is able to receive money from other countries (injections)
- Investments
- Government spending
- Exports
- Savings
- Taxation
- Imports
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Geography Notes, Q & A
Approaches Used In Measuring National Income
Expenditure Approach
National income is arrived at summing expenditure on all final goods and services (that have reached the final stage of production). Such expenditure is divided into:
Problems associated with expenditure approach
National income is arrived at summing expenditure on all final goods and services (that have reached the final stage of production). Such expenditure is divided into:
- Expenditure on consumer goods ( C)
- Expenditure on capital goods (I)
- Expenditure by government (G)
- Expenditure on net exports (X – M)
Problems associated with expenditure approach
- Lack of accurate records particularly in the private sector
- Approximation of expenditure of the subsistence sector
- Difficulty in differentiating between final expenditure and intermediate expenditure
- Double counting may exist
- Fluctuating exchange rates may cause problems in the valuation of imports and exports.
- In this method, the national income is arrived at by summing all the money received by those who participate in the production of goods and services.
- Such incomes are in the form of rewards to the production factors (wages, rent, interest and profits).
- Public income is also taken into account i.e. it is the income received by the government from its investments (Parastatals, joint ventures).
- Transfer payments are excluded since they represent a redistribution of incomes from those who have earned them to the recipient’s e.g. National insurance schemes.
- Determination of what proportion of transfer payments constitute in the income of a country.
- Inaccurate data may exist since business people may not tell the truth about their income in order to evade tax.
- Price fluctuations may make national income determination difficult.
- Income from illegal activities is not captured.
- Valuation of income from subsistence economy may be difficult e.g. housewives.
Uses of National Income Statistics
- Indicators of standards of living. If the national income is equitably distributed, then the standards of living will be high.
- Measuring economic growth. The statistics of one year are compared with previous year to show whether there is improvement or not.
- Inter country comparison. They are used to compare the economic welfare among countries hence knowing which country is better off and by how much. However, the following challenges may be faced when carrying the comparisons: different in currencies, different goods and services, disparity in income distribution and difference in tastes and preferences.
- Investment decisions. They assist the government and other investors to know the sectors to put their money. The statistics provide relevant information concerning the performance of each sector.
- Basis of equitable distribution of income. The statistics can be used to spread income to the hands of majority of the citizens in case a few individuals control the economy.
- Planning purposes. The statistics will show the contribution of each sector thus helping the government in allocating the funds to the various sectors.
- Quantity and quality of production. If the factors are more in terms of quantity of good quality, the output will be high hence increasing in national income.
- State of technology. A country with high level of technology will produce goods in large volumes hence high national income.
- Political stability. Countries which are relatively stable politically experience high production hence high national income level.
- Accuracy of accounting systems. If the methods used to gather data are accurate, then the overall statistical figures will the accurate hence reliable.
- Proportion of the subsistence sector. Subsistence sector’s output is not normally included in the statistical figures. If it represents a large proportion, therefore the national income level will be low.
- Statistical problems. The collection of the national income data may be inaccurate meaning that the national income figures might be incorrect hence wrong per capita income.
- Changes in money value. If the currency has been devalued, there can be change in the value of money without necessarily representing any changes in the welfare of the people.
- Income distribution. The per capita may be high even though the income is in the hands of very few people thus it is not a representative of the majority.
- Nature of products. If the products are not meant to satisfy immediate wants of the people, then an increase in per capita income may not lead to a higher economic welfare.
- Peoples’ hard work and attitude. Increased national income may mean less sleep and more worries. People have no time to enjoy what they produce and their welfare may be low despite the rise in national income.
- Social costs. People may migrate from rural areas to urban areas straining family relationships while an increase in industries may create pollution, congestion and other environmental disruptions.
questions and answers session
- Outline four reasons why an increase in per capita income may not necessarily lead to a rise in the standard of living of the citizens
- State four factors that affect the circular flow of income in an economy
- Identify four factors that may be contributing to income disparity between the rich and poor citizens in Kenya
- Account for the difference between the gross National Income figures between Kenya and Uganda
- Name three approaches for measuring national income
- Highlight four problems associated with income approach
- Highlight four problems associated with the output approach in computation of National income
- Highlight four uses of National Income statistics in any given country
- Outline four circumstances under which per capita income would be a good indicator
answers
QUESTION 1
- Collection of data of the national income may be inaccurate.
- Changes in per capita income may be due to change in the value of money.
- Income may be in the hands of only a few.
- The products produces may not satisfy immediate wants of the people.
- Increased national income may mean less sleep and more worries.
QUESTION 2
- Savings
- Investments
- Foreign trade
- Taxation (government interference)
QUESTION 3
- Individual talents and personal endowment
- Inheritance from parents
QUESTION 4
- Differences in natural resource endowment
- Difference in stock capital equipment
- Differences in entrepreneurial cultures in the two countries
- Differences in stock of man power
- Differences in general attitude of people towards work
- Availability and states of technology
QUESTION 5
- Income approach
- Output approach
- Expenditure approach
QUESTION 6
- Problem of inaccurate data
- Price fluctuations make it difficult to calculate national income
- Problem of handling illegal and unrecorded yield income to recipients
- Transfer payments pose a problem
- Income disclosures aren’t true because people and firms like evading tax
QUESTION 7
- Problems of valuation due to unavailability/inaccuracy of output figure especially in the private section
- Problem of deciding on the goods/services to include eg. Whether the output of a house wife should be included or not
- The problem of valuing output in the subsistence sector
- Problem of frequent changing process
- Problem of valuing government output since many of its services are not sold in the market
- Problems of differentiating primary inputs from intermediate inputs
- Valuing illegal activities like drug trafficking.
QUESTION 8
- It shows average standards of living of the people
- It determines the economic development of a country
- It shows the country’s network or actual income
- It is used for economic planning
- Helps to know the contribution of different sectors of the economy
- Used to compare economic performance of different countries- Used to compare economic performance of a country over the years
QUESTION 9
- When the national income is equitably distributed among the people
- When statistics obtained consider price changes in the economy
- When population size of the country is real and not more projections
- When statistics of output is based essential commodities consumed by the messes/large number of people
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CONTENT
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NOTES
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Q & A
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CHAIN OF DISTRIBUTION
SPECIFIC OBJECTIVES
By the end of the topic, the learner should be able to:
- explain the meaning of distribution
- describe the various channels of distribution
- discuss the role of intermediaries in the distribution chain
- discuss the factors which may influence choice of a distribution channel.
CONTENT
- Meaning o f distribution
- Channels of distribution
- Intermediaries in the distribution chain
- Distribution of various products
- Choosing a distribution channel
Introduction
Channels of distribution are the paths that goods and or services follow from the producers to the final users.
The persons involved in the distribution of goods from the producer to consumer are called middlemen or intermediaries.
There are different channels that different products follow. Some of the channels include the following:
The persons involved in the distribution of goods from the producer to consumer are called middlemen or intermediaries.
There are different channels that different products follow. Some of the channels include the following:
- Producer to agent to wholesaler to retailer to consumer.
- Producer to co – operative society to marketing board to wholesaler to retailer to consumer.
- Producer to marketing board to wholesaler to retailer to consumer.
- Producer to wholesaler to retailer to consumer.
- Producer to wholesaler to consumer
- Producer to retailer to consumer
- Producer to consumer
Costs incurred by middlemen while distributing goods
- Buying costs. They incur this cost by paying for them from the producers or other middlemen.
- Transport cost. Some middlemen do transport goods from the producer to other middlemen or to the final users.
- Storage costs. Middlemen do keep the goods until their demand arises. This will therefore require them to hire or construct their own warehouses.
- Advertising or marketing costs. Some middlemen do carry out marketing of goods on behalf of the producers and other middlemen. In the process, they pay for such services.
- Insurance costs. Middlemen do insure the goods they are trading in to ensure compensation in the event of loss.
- Operation costs. Middlemen just like other businesses do incur operating costs such as salaries to employees, electricity, maintenance among others.
- Preparation costs. Some middlemen to prepare goods before they are sold to the consumers. Such activities include packing, assembling and blending. They have to meet such costs on behalf the producer, other middlemen and consumers.
Roles of Middlemen
The following are some the roles performed by middlemen in the chain of distribution
- Bulk accumulation (assembling). They similar goods from different producers in small quantities and then offering the large amount gathered to buyers who may want to buy in large volumes.
- Reducing transactions. The interactions between the producers and the consumers will be reduced since the middlemen are the ones who will be communicating to the consumers.
- Bulk breaking. They buy in large quantities and then sell in small quantities as desired by the consumers.
- Risk taking. They assume all the risks related with the movement of goods from the producers to the consumers. Such risks include theft, damages, loss due to bad debts.
- Finance provision. Middlemen provide finance to the producers by buying goods in large quantities and paying for them in time.
- Provision of information. Middlemen gather market information from the consumers then pass to the producers who in turn produce goods in line with the tastes of consumers.
- Marketing/product promotion. Middlemen are involved in marketing of goods hence stimulating the interest of consumers.
- Provision of transport. Middlemen do transport goods from the producers up to the where the consumers can access them. Both the producers and consumers are hence relieved of transport costs.
- Storage
- Variety provision
- Availing goods to consumers
Factors to Consider Before Selecting a Distribution Channel
Factors that influence the choice of a distribution channel include the following:
- Product nature. Perishable products should be sold directly to the consumers because delays may result to losses since they go bad fast. In addition, bulky products need direct selling in order to reduce transportation and stock handling costs.
- Nature of the market. Where the market is concentrated in one area, direct selling is appropriate. A longer channel of distribution is preferred where the market is widely spread.
- Role of intermediary. The channel chosen should be able to perform the services related to the product being sold e.g. for technical goods, the middleman should be able to offer technical support to the customers.
- Resources and size of the firm/producer. If the producer is small, then direct selling would be appropriate. Large firms with sufficient financial resources can opt for long channels of distribution.
- Channels used by competitors. If a firm wants its products to compete with those of the competitors, then is it prudent to use similar channels. A firm that wants to avoid competition should use a different channel of distribution.
- Government policy. The channel chosen should be able to meet government regulations such as all middlemen distributing pharmaceutical products must be recognized by the relevant government bodies (Pharmacy and Poisons Board).
- Marketing risks. In the event the firm wants to avoid risks related to distribution, it will opt for middlemen.
- Questions
Question and Answer
- 1. Identify the type of utility created in the following circumstances
- 2. State four roles played by intermediaries in the chain of distribution
- 3. Highlight four consequences of eliminating a wholesaler from a chain of distribution
- 4. Outline four factors used to determine the distribution of Omo, as a common household detergent in Kenya
- 5. State four circumstances under which it would be advisable for a manufacturer to sell directly to consumers
- 6. Dady a traders at Kibigori trading centre wishes to import goods from Brand kamp , a Germany. Describe four channels of distribution that Dady’s goods are likely to take to reach his consumers at Kibgori
- 7. Kenya co-operative creameries (KCC) sell its dairy products directly to retailers. Highlight four factors that were considered in the choice of this channel of Distribution
aNSWERS
QUESTION 1
ACTIVITY |
UTILITY |
Carpentry |
Form |
Selling bread to students |
Possession |
Warehousing of goods imported |
Time |
Carriage of cargo to the market |
Place |
QUESTION 2
- Reducing transaction between producers and consumers
- Breaking bulk
- Accumulating bulk
- Taking of holding goods
- Providing finance to producers
- Product promotion
- Transporting goods
- Storage goods
QUESTION 3
- Reduces the range of goods offered to the retailers
- Reduces the cost of goods acquired by retailers
- Lowers the price of goods because of reduction in the length of distribution
QUESTION 4
- Preparing to meet customers/locating prospective customers
- Opening sale/presenting the product
- Handling objections
- Closing of sales
QUESTION 5
- Where the commodity is perishable
- Where the commodity is a service
- Where the use of the commodity requires demonstration
- Where the quantity of the commodity is small
- Where technical advice is required
- Where immediate feed back is required
- Where the law requires to be done so
QUESTION 6
- Brand Kamp/ Exporter - Consumer
- Exporter / Brand Kamp-Government agent –Wholesaler- Consumer
- Exporter/ Brand Kamp-Government Agent – Wholesaler- Retail – Consumer
- Exporter / Brand Kamp-Wholesaler- Consumer
- Exporter / Brand Kamp- Import agent – Consumer
QUESTION 7
- Nature of products - perishable
- Availability of the channel
- The cost of the channel
- Channels used by competitors
- Market concentration not in use area
- Spread of the risk
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CONTENTS AND OBJECTIVES
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NOTES
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Q & A
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PRODUCT MARKETS - KCSE BUSINESS STUDIES NOTES, AUDIOVISUALS, QUESTION AND ANSWER
SPECIFIC OBJECTIVES
By the end of this topic the learner should be able to:
- explain the meaning of a market
- explain the meaning of product market
- discuss the features of various types of product markets.
cONTENTS
- Meaning of a market
- Meaning of product market
- Features of various types of product markets
PRODUCT MARKET
The term ‘market’ is usually used to mean the place where buyers and sellers meet to transact business. In Business studies, however, the term ‘market’ is used to refer to the interaction of buyers and sellers where there is an exchange of goods and services for a consideration.
NOTE: The contact between sellers and buyers may be physical or otherwise hence a market is not necessarily a place, but any situation in which buying and selling takes place. A market exists whenever opportunities for exchange of goods and services are available, made known and used regularly.
NOTE: The contact between sellers and buyers may be physical or otherwise hence a market is not necessarily a place, but any situation in which buying and selling takes place. A market exists whenever opportunities for exchange of goods and services are available, made known and used regularly.
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Definition of Product market
It is a particular market in which specific goods and services are sold and with particular features that distinguish it from the other markets. The features are mainly in terms of the number of sellers and buyers and whether the goods sold are homogeneous or heterogeneous. Product market is also referred to as market structure. Markets may be classified according to the number of firms in the industry or the type of products sold in them.
TYPES OF PRODUCT MARKET
The number of firms operating in a particular market will determine the degree of competition that will exist in a given industry. In some markets there are many sellers meaning that the degree of competition is very high, where as in other markets there is no competition because only one firm exists.
When markets are classified according to the degree of competition, there are four main types, these are;
When markets are classified according to the degree of competition, there are four main types, these are;
- Perfect competition
- Pure monopoly (monopoly)
- Monopolistic competition
- Oligopoly
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QUESTIONS ON PRODUCT MARKETS
- Explain five characteristic of a monopolistic market.
- By use of a diagram, explain how price and output are determined in a collusive oligopoly (centralized cartel) market situation
- Highlight five differences between perfect competition and monopolistic competition
- Using a well labeled diagram, explain how a monopolist enjoy a supernormal profit in both short and long run
- With the aid of a diagram, explain how a firm under monopolistic competition is at equilibrium in the short run
- With the aid of a diagram, explain the difference between perfect competition and monopoly revenue curves
ANSWERS
QUESTION 1
- To check on the quality of goods produced by monopoly.
- Ensure there are a variety of goods in the market.
- Monopolist may resist emergence of new ideas or technology due to lack of competition.
- Monopolies tend to be inefficient in their operation due to lack of competition.
- The consumers may not enjoy quality goods and services because they can only consume what his monopolis produces.
- To control the prices charges by the monopolies
- Make sure monopolies operate at optimum capacity so as not to charge high prices.
QUESTION 3
PERFECT COMPETITION
- Sellers deal in homogeneous products
- Are not involved in promotion of products.
- It’s a price taker
- Large number of sellers
- Activities of one firm does not influence the activities of other firms
- Sellers deal in differentiated products
- incur heavy expenses in promotion of products
- it’s a price setter /giver
- Large number of sellers operating independently.
- Activities of one firm are closely monitored by the rest in the industry.
QUESTION 4
- When the product is a necessity
- When the product is the only one in the market
- When the consumers are not aware of the market changes
- When the price of the product makes an insignificant figure of the consumers income
QUESTION 5.1
QUESTION 5.2
THEORY OF THE FIRM - KCSE BUSINESS STUDIES NOTES, SCHEMES OF WORK, OBJECTIVES, QUESTIONS AND ANSWERS
31/3/2018
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OBJECTIVES
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NOTES
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OTHER RESOURCES
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THE THEORY OF THE FIRM
At the end of this topic, the learner should be able to:
- Describe the meaning and distinction between firm and industry;.
- Discuss factors that influence the decision on what to produce.
- Discuss the various costs of production and their derivation.
- Differentiate between small and large firms
- Discuss the various factors influencing location of firms; reasons for localization and delocalization.
- Explain meaning of economies and diseconomies of scale and how they influence production decisions of the firm.
- Explain the reasons for continued existence of small firms despite economies enjoyed by large scale firms.
- Discuss environmental implications on production activities.
THE THEORY OF THE FIRM COURSE OUTLINE
- The concepts of a firm and industry
- Decision on what goods and serves to produce
- Costs of production:
Fixed costs and variable costs, Direct costs and indirect costs, Total costs, average costs and maral costs, - Determining the size of a firm
- Location of a firm
- Economies and diseconomies of scale
- Localization and delocalization of firms in an economy.
- Existence of small firms in an economy
- Implications of production activities on the environment and community health
THEORY OF THE FIRM Definition:
(i)A firm;
This refers to all those firms producing the same product for a specific market/a group of related firms that compete with one another i.e.
- This is a single unit of business organization that brings together the factors of production to produce any given commodity.
- A firm may also be defined as a business enterprise under one management and control.
- Firms may be sole proprietorship, partnerships or companies. They may therefore be small e.g. an artisan or mechanic working in her/his garage or large like a multinational limited company producing many different products e.g. coca-cola company.
- A firm even though under one management and control may have several branches/plants.
This refers to all those firms producing the same product for a specific market/a group of related firms that compete with one another i.e.
- Firms that produce the same product e.g. the firms operating as sugar manufactures as Mumias Sugar Company, Sony Sugar Company and Miwani Sugar Company.
- Firms that extract the same raw materials e.g. the salt mining firms, Magadi Soda Company and other firms which mine salt at the North coast Region near Malindi.
- Firms that provide similar services e.g. the transport industry such as Akamba Bus service, coast Bus Company and Easy Coach Company.
- All firms are profit-maximisers i.e. they seek to make as much profit as possible.
- Each firm can be regarded as a single consistent decision making unit.
DECISION ON WHAT GOODS AND SERVICES TO PRODUCE
A firm makes a number of important production decisions. Some of the decision may involve;
- What to produce
- How production is to take place e.g. what raw materials and machinery should be utilized
- Where a production plant should be located
- When to produce
- The scale of production e.g. how big should the factory
- When and where to invest
- How the production can be improved and controlled
- What type of business activity to engage in
- For a firm to decide on what goods and services to produce, market research to evaluate the likely success of the product is necessary.
- After establishing the viability of the product in the market, other activities like product design are carried out (the firm may consider redesigning existing products, introducing a product similar to the one in the market or developing a completely new product.
- production may then follow
Factors that influence decisions on what goods and services to produce
Certain factors have to be considered before committing a firm into production of either a new product, adopting or redesigning the existing product.
These factors include;
Whether the firm is product-oriented or market-oriented
Product oriented firms: This is when the nature of the product itself (its functions and unique qualities) are enough to make sure that the product sells e.g. when cars were first developed, its uniqueness sold it
Market oriented firms; these are firms that produce products that are meant to meet the consumer needs e.g. over time cars are being developed to suit consumer needs.
Level of competition
In order to survive in a competitive market, firms must come up with products that consumers prefer.
Firms may therefore develop products which are not currently available or copy rivals ideas and improve on them
Level of available technology
The level of technology has a strong influence on the product that a firm produces
New inventions and innovations often result in new products or improved products
Improved technology may also reduce the costs of production. This means the same output maybe produced using less factors of production or more output may be produced using the same factors of production.
Management role
Senior management have the sole responsibility of deciding on what product to produce. A wrong decision may ruin rather than bailed the enterprise. The manager’s ability to design a viable product is therefore a vital factor in product development
Financial viability
In order to determine whether a product will be viable or not, the cost of production and the expected returns should be considered. Funds may only be approved for the product that promises long term benefits to the firm. So if the benefits of the product outweigh the costs, then such product will be developed and if not so, it will be dropped.
Amount and type of capital in the firm
Capital refers to machines, equipment, factories, plants and other human made aids to production.
Both financial and physical capital facilitates the production process. The amount of capital in a business will therefore influence what goods it can produce and in what qualities i.e. a firm with physical capital that is very specific may not be able to produce other type of products e.g. a clothing factory may not be able to produce any other goods such as cement.
Other factors may include;
These factors include;
Whether the firm is product-oriented or market-oriented
Product oriented firms: This is when the nature of the product itself (its functions and unique qualities) are enough to make sure that the product sells e.g. when cars were first developed, its uniqueness sold it
Market oriented firms; these are firms that produce products that are meant to meet the consumer needs e.g. over time cars are being developed to suit consumer needs.
Level of competition
In order to survive in a competitive market, firms must come up with products that consumers prefer.
Firms may therefore develop products which are not currently available or copy rivals ideas and improve on them
Level of available technology
The level of technology has a strong influence on the product that a firm produces
New inventions and innovations often result in new products or improved products
Improved technology may also reduce the costs of production. This means the same output maybe produced using less factors of production or more output may be produced using the same factors of production.
Management role
Senior management have the sole responsibility of deciding on what product to produce. A wrong decision may ruin rather than bailed the enterprise. The manager’s ability to design a viable product is therefore a vital factor in product development
Financial viability
In order to determine whether a product will be viable or not, the cost of production and the expected returns should be considered. Funds may only be approved for the product that promises long term benefits to the firm. So if the benefits of the product outweigh the costs, then such product will be developed and if not so, it will be dropped.
Amount and type of capital in the firm
Capital refers to machines, equipment, factories, plants and other human made aids to production.
Both financial and physical capital facilitates the production process. The amount of capital in a business will therefore influence what goods it can produce and in what qualities i.e. a firm with physical capital that is very specific may not be able to produce other type of products e.g. a clothing factory may not be able to produce any other goods such as cement.
Other factors may include;
- Need of the consumers
- Need for better quality or more fashionable product
- Need for an easier to market product
- Unmet needs
- Need for a product for which factors of production and technology are easily available
COST OF PRODUCTION
Cost:
This is a payment made to the factors of production for their services. Production costs thus refers to the expenses incurred in acquiring factors of production (inputs) The sum total of all payments to the factors of production engaged in its production.
Types of production costs:
Opportunity costs;
These are values of any alternatives forgone. The cost forgone when the choice of one thing requires the next best alternative to be abandoned
Example:
A student with only sh.50 may have to decide on whether to buy a textbook or a pair of shoes. If she decides to buy a textbook, the pair of shoes will have to be forgone because it’s not possible to buy both with only sh.500.
The opportunity cost of buying a text book in this case is the cost of the pair of shoes which was abandoned.
Fixed and variable costs
Costs may be classified according to their behavior in relation to various levels of output as follows:
These are expenses which do not change with changes in levels of output/quantity of output. These costs therefore remain the same whether the firm is producing anything or not i.e. whether production is maximum or zero.
Examples:
This is a payment made to the factors of production for their services. Production costs thus refers to the expenses incurred in acquiring factors of production (inputs) The sum total of all payments to the factors of production engaged in its production.
Types of production costs:
Opportunity costs;
These are values of any alternatives forgone. The cost forgone when the choice of one thing requires the next best alternative to be abandoned
Example:
A student with only sh.50 may have to decide on whether to buy a textbook or a pair of shoes. If she decides to buy a textbook, the pair of shoes will have to be forgone because it’s not possible to buy both with only sh.500.
The opportunity cost of buying a text book in this case is the cost of the pair of shoes which was abandoned.
Fixed and variable costs
Costs may be classified according to their behavior in relation to various levels of output as follows:
- Fixed costs
- Variable costs
- Semi-variable costs
These are expenses which do not change with changes in levels of output/quantity of output. These costs therefore remain the same whether the firm is producing anything or not i.e. whether production is maximum or zero.
Examples:
- Rent for premises/buildings
- Depreciation charge on physical facilities
- Salary of administrative staff
- Interest paid on loans (borrowed capital)
- Licence fees etc.
OUTPUT |
FIXED COST (SH) |
100 |
200 |
299 |
200 |
300 |
200 |
400 |
200 |
500 |
200 |
This may be represented graphically as:
the theory of the firm questions on topic
- Highlight five reasons why a firm may be located near the market for its products
- Explain five reasons why the government may adopt the delocalization policy of locating
- Discuss five factors that may account for the existence of small firms in an economy
- Explain five factors that determine the size of a firm
- Explain five factors that determine the decision of a firm on what goods and services to produce
- Explain five circumstances under which a firm may be located near the source of raw Materials
- Outline any five reasons that account for the popularity of small scale retails in Kenya
- Explain five factors that may account for the survival of small firms in an industry.
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PRODUCT PROMOTION - KCSE BUSINESS STUDIES NOTES, SCHEMES OF WORK, OBJECTIVES, QUESTIONS AND ANSWERS
5/12/2017
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OBJECTIVES
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NOTES
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QUESTIONS
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PRINTABLES
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PRODUCT PROMOTION (12 LESSONS)
TOPIC/ SUB-TOPIC OUTLINES
- Meaning of a product
- Meaning and importance of product promotion
- Methods of product promotion
- Advantages and disadvantages of each method of product promotion
- Choice of promotion method
- Ethical issues in product promotion
- Trends in product promotion
SPECIFIC OBJECTIVES
By the end of the topic, the learner should be able to:
- explain the meaning of a product
- explain the meaning and importance of product promotion
- explain the various methods of product promotion
- explain the advantages and disadvantages of each method of product promotion
- discuss factors which influence choice of promotion method
- recognize the need for ethical practices in product promotion
- discuss trends in product promotion.
introduction to Product Promotion.
Product is an item or service offered to the consumers at a price. Therefore, product promotion is the communication or any activity undertaken to inform the consumers, persuade and remind them to buy the product from the market.
The purpose/Importance of product promotion
- It informs the customer of the availability, price, and where to obtain the product to satisfy their wants
- It persuade the buyer to buy their products a head of their competitors’ products in the market
- It reminds the customers of the continued existence of a given product in the market
- It educate the consumers of the usage of the product to satisfy their needs fully
- It informs them on any improvement that has been made on the product
- It stimulates the demand of the product being promoted in the market
- It brings out the positive features of the product
- It opens new market for the product in the environment
Methods of product promotion
Product promotion may be carried out in the following ways:
- Personal selling
- Advertising
- Sales promotion
- Publicity
1. Personal selling
This is a method of promotion where there is an oral presentation in the conversation with the prospective customer. It is done by with the use of salesmen who informs the prospective buyer of all the aspects of the product
Methods of personal selling
Personal selling can be carried out in the following ways;
Through sales person approaching the customers
A case where the sales person approaches the prospective customers after drawing their attention, explaining details of the product and even demonstrating how the product works in order to persuade the customer to buy.
Through sales person approaching the customers
A case where the sales person approaches the prospective customers after drawing their attention, explaining details of the product and even demonstrating how the product works in order to persuade the customer to buy.
Steps involved in personal selling through sales person
- Identify prospective customers who could possibly require the product
- Preparing the presentation by gathering all the possible information about the product , as well as designing an appropriate methods that he will be used to present to the customer
- Establishing the customers contact, as well as choosing an appropriate time to meet the customer to be. That is the time when the customer may receive him
- Arousing the consumers interest in the product by attracting his/her attention through approach and languages, as well as making the prospective customer develop interest in the product
- Dealing with the objections on the product which may have been brought about by the customer to be
- Closing the sale by inquiring whether the prospective customer will be interested in the product or not. This should be done in a polite manner
- Offering after sale service to the customer on the product that has been sold
Shows, trade fairs and exhibitions
This is where the manufacturer of a given product gets a chance to display publicly to the prospective customer to inform them about the product. The prospective customers’ attention is then drawn to the product and more information is given to him about the product at the point where it is displayed.
Advantages of shows, trade fair and exhibitions
- It gives the customer an opportunity to compare various products before making a decision on what to buy
- It gives the sales person an opportunity to explain in fine details the features of the product to the prospective customers
- The manufacturers of the product gets a chance to receive immediate feedback from their customers through interactions during the shows
- The number of people visiting their stall to assess their products will help them determine their potential market size for the product
Disadvantages of shows, trade fairs and exhibitions
- It is expensive to hire a stall for the exhibition of the product
- The sales person may have to explain over and over again for the prospective customers as they may not enter into the stall at the same time
- The trade fairs are not frequently organized, therefore an organization rely on it as the only means of product promotion may not succeed
Showrooms
These are large rooms where goods are displayed, especially bulky and durable goods like cars, furniture’s, etc. for the customer to see and be informed about them to stimulate their interest in them
The room allows the customer to get more information about the product from the sales person in the showroom
The room allows the customer to get more information about the product from the sales person in the showroom
Advantages of showrooms
- They enables the seller to get immediate feedback on the product
- They enable the customers to get clarification on the product they need to purchase
- It is a cheap method of production
- It provides an opportunity for the usage of goods to be demonstrated
- The information the prospective customer get from the show room is more reliable
Disadvantages of showrooms
- They are usually located away from the town centers, making them not be accessible by many
- It is expensive to hire showrooms
- They require security to protect the goods inside them which may be very expensive
- Some prospective customers may tamper with goods in the room while trying to operate them
Free Gifts
A gift is an item given to the customer free of charge after buying a product which it is pegged on or buying products of a given value. The gift may not necessarily be the same as the product bought, but they are meant to encourage the customer to buy more or give the customer opportunity to explore the product given as a gift.
Advantages of free gifts
- It enable the customer to enjoy the product given as a gift without paying for it
- It persuades the customer to buy more of the product in order to get the gift
- It is an additional product, and therefore increases the customers satisfaction
- It may help in creating loyalty in the product being promoted
Disadvantages of free gifts
- It makes the customer buy including products they didn’t require in order to the said gift
- The cost of the product may be very expensive for he customer
- Some middlemen may remove the gift and keep or even sell to the customer to maximize profit
Free Sample
This is a product on trial given to the customers freely to influence their demand towards the product. It mainly used when the product is new and the customer may have not known about the existence of the product
Advantages of free sample
- It enables the customer try the product before making a decision to buy it
- The customer is able to enjoy the product that otherwise he may have not enjoyed
- The organization is able to get immediate feedback from the customer about their new product
- It enables the organization to acquire more customers for their product
Disadvantages of free sample
- Some of those receiving the sample may not come back to buy
- It may be an expensive method of promotion especially where many samples are to be given
- Goods given for free may reduce the value of goods that may have been sold to earn profit
- It is not suitable for expensive products
Circumstances under which personal selling is appropriate
- When launching a new product in the market which requires a lot of awareness to the prospective customers to enable them make a choice
- When a product is tailored to meet the customer’s needs, as different consumers have different needs, taste and preferences to be addressed.
- When demonstration is required on how the product works, especially the technical products
- When the organization has the capacity to finance the sales force carrying out the personal selling.
- Where the market is concentrated within a given region that can easily be accessible by the task force.
Advantages of personal selling
- It is more flexible than any other method for the marketer is able to meet the needs of different people
- It enable the prospective customer to know more details about the product before making a decision
- The sales person is able to demonstrate the use of the product
- The seller is able to get immediate feedback on the product
- The seller is able to obtain the personal contact of the prospective buyer
- It gives the buyer an opportunity to negotiate the terms of purchase
- It takes care of both literate and illiterate prospective customer
- The seller is able to persuade the prospective buyer to buy the product
Disadvantages of personal selling
- It is labour intensive and therefore very expensive when the area to be covered is wide method
- It is time consuming as it involves explanation and demonstration
- It may only target a particular group of people
- The seller has to meet the travelling and other expenses involved which may be very expensive
- Salespersons may misuse the resources allocated for them, making the target not to be achieved
- The process may inconvenience the prospective buyer’s program
- It may only cover a given region which may not be wide enough
1. Advertising
This is the presentation of information about a product through public media such as newspapers, radios, billboards, etc.
Types of Advertising
- Product advertising: - this is a form of advertisement meant to promote a given product or a particular brand of product
- Institutional advertising: - this is a form of advertisement meant to improve the image of the institution or organization and not a particular product. It is meant to create confidence in the customers about the institution
- Primary demand advertising: - a form of advertisement meant to a new product that has been introduced in the market for the first time. It is mainly to create awareness of the existence of that particular product
- Celebrity advertising: - a form of advertisement where a famous/popular person is used to promote a particular product. It is meant to convince those who identify themselves with that personality to buy the product
- Informative advertising: - a form of advertisement meant to give the customer more information about the product to enable them make an informed decision
- Competitive/persuasive advertising: - a form of advertisement carried out with organizations producing similar product to persuade the customers to buy their products ahead of their competitors
- Corrective advertising: - a form of advertising meant to correct a misleading information that may have been given out about the product
- Reminder advertising: - a form of advertising meant to remind the customers that the product still exists in the market and is still capable of satisfying their needs.
Advantages/Importance of advertising to the business
- It maintain the sales of an already existing product
- It create awareness in the customers about a new product in the market
- It informs the customers about the changes that may have been made in the product
- It helps in building image or reputation of the selling organization
- It may increase the volume of the existing sales of a product
- It reaches peoples who may have not been reached by the sales person
- It complements the effort of the sales person to enable them achieve their sales objectives
- It clears the customers misconception and prejudice about the product
- It opens up new markets for the products.
Disadvantages of advertising to the business
- It may be costly to the business in terms of money and other resources
- It leads to increase in cost of production if at all it has to be done frequently
- The cost of the advertisement will always reduce the profit margin of the business
- Poorly planned advertisement may negatively affect the business
- Misleading advertisement may reduce the level of business operation
Advantages of advertising to the customer
- They educate them on the usage of the product
- They inform them on the products availability
- They guide them on where to get the product
- The outlines all the features about the product including prices to the customer
- Competitive advertisement may lead to improved quality of goods to benefit the customer
- Information on different prices through competitive advertisement makes the customer to benefit from the reduced prices
Disadvantages of advertising to the consumer
- The advertisement may not disclose the side effect of the product
- The advertising cost may be passed to the consumers through increased price
- Some advertisement may persuade customers to buy what they do not require leading to impulse buying
- Some customers may buy substandard goods due to misleading advertisement
Advertising media
These are channels or agents through which an advertisement message is conveyed to the target group. They includes both the print and electronic media which includes; newspapers, journals, magazines, posters, billboards, brochures’, radio, television, neon signs, etc.
Newspaper
These are daily or regularly publications which contains advertisement. They includes, Daily nation, Standard, Taifa Leo, citizen, star, etc.
Advantages of newspaper
- The can reach areas that other means may not reach
- Many people can afford them as they are relatively cheap
- They cover a wider geographical area, leading to a wider market
- The message on the newspaper can last for a longer period of time, making it to reach more customers
- The advertisement appearing in the newspaper is readily acceptable by the reader
- Colored print makes the advertisement to be more attractive to the reader who in turn gets the information
Disadvantages of the newspaper
- Many of them are written in English or Kiswahili, making them to only target those who can read and understand the language
- It discriminate against the illiterate group who cannot read the information
- They have short lifespan as they may be read only on the day it is circulated
- It cannot be used to focus on a specific target as they are read by almost everybody
- Some of the prospective customers are always in a hurry to read the newspaper and may not pay attention to the advertisement
Magazines and Journals
These are periodic publications meant to target a particular class or group of people. They may be published monthly, quarterly, annually, etc. The information reaches the targeted group as they read them
Advantages of magazines and Journals
- The specific information for the targeted people can be published
- They can be read and re-read before the next publication may the information to last longer and plead with the prospective customer
- Their publication is of high quality and colourful, making them to draw the attention of their targeted group easier and passing the information to them
- The quality material they are made of makes them to last longer and can be accessed even by those who may have not been around during their publication
Disadvantages of magazines and journals
- If the time gap between the publication time and circulation time is wide, the advertisement may fail
- They are a bit expensive which makes some of the potential customers not to afford them
- The cost of advertising on them may be expensive for the organization
- Their circulations may be limited to a small geographical region
- The publications may not be available in the vernacular language to reach those who are not able to read either English or Kiswahili
Posters and Billboards
A form of advertising that may contain the information about the product either in words, pictures or both for the customer to see and read.
Advantages of posters and billboards
- They are able to convey the information to the large audience, as they are placed in strategic position
- Posters are cheap and easy to prepare
- The use of different colors makes them to be more attractive and appealing to more audience
- It can be used by both literate and illiterate group
- The message may last for a longer period of time
- Billboards are conspicuous and hence attractive to the audience
Disadvantages of posters and billboards
- May be affected by adverse weather condition, especially rain
- If not placed strategically, it may not reach the targeted group
- Incase destroyed by the passersby, the information may not meet the targeted group
- Bill boards are expensive to make and maintain
Transit/transport advertising
A form of advertisement whereby vehicles such as trailers, matatus, buses, etc are used to carry and convey the advertisement message.
Advantages of transit advertisement
- The message reaches most of the people in the environment
- They message last long as the paints always last on the vehicle
- Transit vehicles may carry the message a long way to their final destination
- It is captivating to the members of the public especially the promotion convoy, hence can easily reach the target
Disadvantages of transit advertisement
- During the rush hour, the crowd may hinder some from getting the information
- It mainly relay the information to those served by the vehicles
- The noise produced by the promotion convoy may be a nuisance to some members of the public
Brochures
These are small pamphlets carrying message and pictures about product being advertised.
Advantages of Brochures
- They are easy to carry around as they are small in size
- They are effective in meeting the targeted group
- Their cost of production is not very high
- They can be distributed at different places to meet the targeted group
- Can be made attractive by the use of different colours
- They have a long life and therefore can be used repeatedly
- They can be used to direct others on where to get the product
Disadvantages of Brochures
- The information may not reach the illiterate group
- They may be ignored by the intended users
- They may require frequent updating if many changes are made on the product making it expensive
Radio
This is a channel that allows for the advertised messages to be conveyed through sound to the listeners, with some background music accompanying the message
Advantages of Radio
- Different languages may be used to reach different people
- It is accessible even to the remote areas that is not covered by other media
- One can choose the time to advertise to reach the targeted group
- Able to serve many people at the same time
- It can be used for both literate and illiterate members of the group
- The advertisement can be repeated over and over again according to the advertisers needs
- The music accompaniment may attract many people to listen to the information
- Can reach even the blind as they are able to hear
- The message can be conveyed in different languages
Disadvantages of Radio
- Their advertisement does not have any reference
- It may be more expensive than the print media
- Poor timing may make the message no to reach the targeted group
- It may interrupt some programmes to the annoyance of the listener
- It short and brief advertisement may be missed by the listeners
- It is difficult for the listener to visualize the product
Television (T.V) and Cinema
Television is a form of media advertisement where the written words are combined with motion pictures and sound to pass the information
Cinema is where the advertised messaged is conveyed during film shows in the cinema halls. It may be before or after the movie.
Cinema is where the advertised messaged is conveyed during film shows in the cinema halls. It may be before or after the movie.
Advantages of Television (T.V) and Cinema
- It appeals to most people as it is entertaining
- It makes it possible for the demonstration of the use of the product
- It is able to reach both the literate and illiterate viewers
- The advertisement can be aired over and over again to meet the targeted group
- The advertisement may be modified when need arise
- It has wide appeal to many people
- The message can be conveyed in different languages
Disadvantages of Television (T.V) and Cinema
- The cost of advertising through this media is high
- The television sets are expensive to acquire, hence many people may not have them
- Their uses are limited to places with electricity
- The advertisement may not last longer
- The time for airing the information may not suit the targeted audience
Neon Signs
This is a form of advertisement where the message is passed to the public through the use of electrical signals transmitted through neon lights. They are usually common in the banks, airlines, jewel shops, etc.
Advantages of Neon Signs
- The use of different colours makes them very attractive and catch attention of different people
- They can be put strategically making them to be visible to many people
- Can be used both at night and day
- They direct the customer on where the goods are to be found
Disadvantages of Neon Signs
- Can only be used where there is electricity
- They are expensive to buy and maintain
- The message may not easily reach the illiterate
Advertising Agencies
These are businesses that specialize in advertising work and are hired to carry out the functions for other businesses. They are paid a commission for this
Functions of Advertising Agencies
- They help the organizations in designing their trademarks, logos and advertising materials
- They book space and airtime for their clients in various media
- They offer advisory services to their client on selling techniques
- They advertise on behalf of their clients
- They choose on behalf of their clients the appropriate media to be used
3. Publicity
This is the mentioning of the product or the organization in the mass media to make it be known to many people. There two types of publicity, that is free publicity (where the payment is not required) and Special featured publicity (where there is payment, for example sponsoring an event in the public)
Advantages of Publicity
- It saves the organization money in case of free publicity
- It is likely to cover a wider region as the publicity is in the media
- The organization may earn credibility due to positive publicity
- The information may be received positively by the customers as the message is likely to be more objective
- It may improve the competitiveness of the firm
Disadvantages of Publicity
- Unfavourable information about the organization may reach the public especially in free publicity
- It is irregular and short lived
- Might require special occasion or event in order to attract the mass media
- The firm does not have control on how the information will appear in the media and the extend of the coverage
4. Public relations
A process of passing information with an intention of creating, promoting, or maintaining good will and a favourable image of the organization in the public. It involves informing the public about the firm’s achievement and how it is contributing to the community welfare and development, to get more approval of the public
product promotion topical questions
1. 1995 P1
The following are types of advertising
Description Type
a) Create awareness about a product
b) Promotes the name of the manufacturer
c) Persuades a particular brand of a product
d) Promotes a particular brand of a product
2. 1995 P2
Abdullah, a manufacturer, exhibited his goods in a local trade shows. However his sales did not increase significantly thereafter. Outline five reasons that may have led to lack of significant sales increase. (10 marks)
3. 1996 P1
State four ways in which consumers benefit from advertising by business people. (4 marks)
4. 1996 P2
Describe the procedures involved in personal selling methods of sales promotion. (10 marks)
5. 1997 P1
Give three reasons why manufacturer may offer after sales services to his customers (3 marks)
6. 1997 P2
Outline five ways of attracting customers that traders may put into use. (10 marks)
7. 1998 P1
Outline four steps involved in personal selling process. (4 marks)
8. 1998 P2
Explain five benefits that a trader would get by advertising his goods through the radio. (10 marks)
9. 1999 P1
State four circumstances under which a trader would advertise his products over the radio instead of the television. (4 marks)
10. 1999 P2
Explain the reasons why the firms with popular products find it necessary to continually advertise the same products. (10 marks)
11. 2000 P1
Identify four disadvantages of advertising through television in Kenya. (4 marks)
12. 2000 P1
List four disadvantages of advertising through television in Kenya. (4 marks)
13. 2000 P2
A multinational company is planning to launch its products in the local Kenyan market. Highlight the factors that should be considered by the company when choosing the appropriate media through which to advertise the products. (10 marks)
14. 2001 P1
Highlight four limitations of after sales services as a method of promoting products.
15. 2001 P2
Explain the role of a sales department in a business firm (10 marks)
16. 2001 P2
What are the benefits accruing to a seller who uses personal selling methods to promote her products. (10 marks)
17. 2002 P1
Outline the advantages of after sales services as a method of sales promotion to a customer. (4 marks)
18. 2003 P1
Highlight three reasons why traders may engage in sales promotion. (3 marks)
19. 2004 P1
State four advantages of personal selling method of promoting sales. (4 marks)
20. 2004 P2
Advertising in the newspaper is one way of promoting sales of goods. Highlight five limitations of advertising goods in newspapers. (10 marks)
21. 2006 Q6 P1
What are the advantages of personal selling as a method of sales promotion? (4 marks)
22. 2007 Q4 P1
A firm wishes to introduce a new product into the market. Outline four factors that should be considered in choosing an appropriate medium for promotion.
23. 2008 Q15 P1
State four reasons why ethical practice is necessary in Product promotion (4 marks)
24. 2009 Q3 P1
Amboseli Enterprises has been spending heavily on promotion of its products though its sales have consistently declined. Outline four measurers that the company may take to reverse the trend. (4 marks)
25. 2012 Q22 P1
Highlight four advantages of promoting sales through the internet. (4 marks)
The following are types of advertising
- Product advertising
- Competitive advertising
- Information advertising
- Institutional advertising
Description Type
a) Create awareness about a product
b) Promotes the name of the manufacturer
c) Persuades a particular brand of a product
d) Promotes a particular brand of a product
2. 1995 P2
Abdullah, a manufacturer, exhibited his goods in a local trade shows. However his sales did not increase significantly thereafter. Outline five reasons that may have led to lack of significant sales increase. (10 marks)
3. 1996 P1
State four ways in which consumers benefit from advertising by business people. (4 marks)
4. 1996 P2
Describe the procedures involved in personal selling methods of sales promotion. (10 marks)
5. 1997 P1
Give three reasons why manufacturer may offer after sales services to his customers (3 marks)
6. 1997 P2
Outline five ways of attracting customers that traders may put into use. (10 marks)
7. 1998 P1
Outline four steps involved in personal selling process. (4 marks)
8. 1998 P2
Explain five benefits that a trader would get by advertising his goods through the radio. (10 marks)
9. 1999 P1
State four circumstances under which a trader would advertise his products over the radio instead of the television. (4 marks)
10. 1999 P2
Explain the reasons why the firms with popular products find it necessary to continually advertise the same products. (10 marks)
11. 2000 P1
Identify four disadvantages of advertising through television in Kenya. (4 marks)
12. 2000 P1
List four disadvantages of advertising through television in Kenya. (4 marks)
13. 2000 P2
A multinational company is planning to launch its products in the local Kenyan market. Highlight the factors that should be considered by the company when choosing the appropriate media through which to advertise the products. (10 marks)
14. 2001 P1
Highlight four limitations of after sales services as a method of promoting products.
15. 2001 P2
Explain the role of a sales department in a business firm (10 marks)
16. 2001 P2
What are the benefits accruing to a seller who uses personal selling methods to promote her products. (10 marks)
17. 2002 P1
Outline the advantages of after sales services as a method of sales promotion to a customer. (4 marks)
18. 2003 P1
Highlight three reasons why traders may engage in sales promotion. (3 marks)
19. 2004 P1
State four advantages of personal selling method of promoting sales. (4 marks)
20. 2004 P2
Advertising in the newspaper is one way of promoting sales of goods. Highlight five limitations of advertising goods in newspapers. (10 marks)
21. 2006 Q6 P1
What are the advantages of personal selling as a method of sales promotion? (4 marks)
22. 2007 Q4 P1
A firm wishes to introduce a new product into the market. Outline four factors that should be considered in choosing an appropriate medium for promotion.
23. 2008 Q15 P1
State four reasons why ethical practice is necessary in Product promotion (4 marks)
24. 2009 Q3 P1
Amboseli Enterprises has been spending heavily on promotion of its products though its sales have consistently declined. Outline four measurers that the company may take to reverse the trend. (4 marks)
25. 2012 Q22 P1
Highlight four advantages of promoting sales through the internet. (4 marks)
INSURANCE - KCSE BUSINESS STUDIES NOTES, SCHEMES OF WORK, QUESTIONS, ANSWERS AND OBJECTIVES
4/12/2017
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OBJECTIVES
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NOTES
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QUESTIONS
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PRINTABLES
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INSURANCE (12 LESSONS)
TOPICS / SUB-TOPICS OUTLINES
- Meaning and concept of insurance
- Importance of insurance
- Terms used in insurance
- Principles of insurance
- Classes of insurance
- Re-insurance and co-insurance
- Obtaining an insurance policy
- Making an insurance claim
SPECIFIC OBJECTIVES
By the end of the topic, the learner should be able to:
- explain meaning and concept of insurance
- discuss the meaning and importance of insurance
- explain terms used in insurance
- explain the principles of insurance
- distinguish between the classes of insurance
- explain the meaning of reinsurance and coinsurance
- describe procedures of obtaining an insurance policy
- describe the procedure of making an insurance claim.
Definition of Insurance
Insurance is an undertaking or contract between an individual or business and an insurance on occurrence of risk(s) (i.e. against events whose occurrences are unforeseen but causes financial losses or suffering to the affected parties.
Risks are also referred to as contingencies, hazards or perils and include:
Risks are also referred to as contingencies, hazards or perils and include:
- Fire outbreak
- Accidents
- Thefts
- Deaths
- Disabilities
Importance of insurance
1. Continuity of business
Every business enterprise is exposed to a variety of risks e.g. fire, theft etc. The occurrence of such risks often result in financial losses to the business. Insurance provides adequate protection against such risks in that, if a trader suffers losses as a result of insured risk, she/he is compensated, thus he/she is able to continue with business operations.
2. Investment projects
Insurance enables investors to invest in profitable yet risky business projects that would otherwise avoided.
Not all the money received as premiums (by the insurance companies) is used up for compensation to those who have been exposed to risk and suffered losses. The rest of the money is invested in other businesses to earn profits.
3. Creation of employment
Insurance does provide employment opportunities to members of the public.
4. Government policy
The profits earned are a source of revenue for the government i.e. insurance companies are profit-making organizations which generate revenue to the government through payments of taxes
5. Credit facilities
The insurance industry have also established credit or lending facilities which the business community uses by borrowing. Loans are made available to the public for different investment projects in different sectors of the economy and also for personal requirements.
6. Development of infrastructures
The insurance industry plays a crucial role in the development of urban facilities in major towns. Both residential and office buildings have been developed by insurance firms. The firms also participate in development projects in the areas where they operate. They contribute to development of a region by constructing and infrastructural facilities
Every business enterprise is exposed to a variety of risks e.g. fire, theft etc. The occurrence of such risks often result in financial losses to the business. Insurance provides adequate protection against such risks in that, if a trader suffers losses as a result of insured risk, she/he is compensated, thus he/she is able to continue with business operations.
2. Investment projects
Insurance enables investors to invest in profitable yet risky business projects that would otherwise avoided.
Not all the money received as premiums (by the insurance companies) is used up for compensation to those who have been exposed to risk and suffered losses. The rest of the money is invested in other businesses to earn profits.
3. Creation of employment
Insurance does provide employment opportunities to members of the public.
4. Government policy
The profits earned are a source of revenue for the government i.e. insurance companies are profit-making organizations which generate revenue to the government through payments of taxes
5. Credit facilities
The insurance industry have also established credit or lending facilities which the business community uses by borrowing. Loans are made available to the public for different investment projects in different sectors of the economy and also for personal requirements.
6. Development of infrastructures
The insurance industry plays a crucial role in the development of urban facilities in major towns. Both residential and office buildings have been developed by insurance firms. The firms also participate in development projects in the areas where they operate. They contribute to development of a region by constructing and infrastructural facilities
- Life policies can be used as security for loans from either the insurance company or other financial institutions.
- Provision of life and general insurance policies encourages Kenyans to plan ahead for their dependents thereby reducing the number of needy future students.
- Loss prevention-The insurance companies encourage the insured not to cause accidents thus channeling the unclaimed resources into the economy.
The Theory of Insurance
The insurance business relies on the law of large numbers in its operations. According to this law, there should be a large group of people faced with similar risks and these risks spread over a certain given geographical area.
Every person in the group contributes at regular intervals, small amounts of money called premium into a “common pool”. The pool is administered and controlled by the insurance company.
Every person in the group contributes at regular intervals, small amounts of money called premium into a “common pool”. The pool is administered and controlled by the insurance company.
- The fact that risks are geographically spread ensures that insurance does not have a concentration of risks in one particular area.
- The law of large numbers enables the insurance to accurately estimate the future probably losses and the number of people who are likely to apply for insurance. This is done in order to determine the appropriate premiums to be paid by the person taking out insurance.
Pooling of risks
The insurance operation is based on the theory that just a few people out of a given lot may suffer a loss. There is therefore a “pooling of risks” i.e. the loss of the unfortunate few is spread over all the contributors of the group, each bearing a small portion of the total loss. This is why the burden of loss is not felt by the individuals because it is “shared” by a large group.
Benefits of the “pooling of Risks” to insurance company
- Pooling of risks enables an insurance company to create a common pool of funds from the regular premiums from different risks.
- It enables the insurance company to compensate those who suffer loss when the risks occur
- The insurance company is able to spread risks over a large number of insured people
- Surplus funds can be invested in for example, giving out loans or buying shares in real estates
- It enables the insurance company to meet its operating costs by using the pool funds
- It enables the insurance company to calculate to be paid by each client
- It enables the company to re-insure itself with another insurance company.
Terms used in Insurance
Insurance
This is a written contract that transfers to an insurer the financial responsibility for losses arising from insured risk.
Premium
This is the specified amount of money paid at regular intervals by the insured to the insurer for coverage against losses arising from a particular risk.
Risk
These are perils or events against which an insurance cover is taken. It is the calamity or problem a person or business faces and results into losses.
Note: The calculation of premiums depends upon the type of risk insured against. The higher the probability of the risk occurring, the higher the premium. The more the risks the business or person is exposed to the more the premiums payable.
Pure risk
This is a risk which results in a loss if it occurs and results in no gains if it does not occur. For example, if a car is involved in an accident, there will be a loss and if the accident does not occur there will be no gain or loss
Speculative risk
This is a risk which when it occurs, may result in a loss or a profit. For example, a person may buy shares at ksh.50 each, one year later the shares may be valued at ksh40 each meaning a loss of ksh.10
Alternatively, their value might not have changed or might have increased to ksh.45 each. Speculative risk lures people to venture into business in the first place.
Insured
This is the individual or the business that takes out the insurance cover and therefore becomes the policy holder
The insured pays premiums to the insurance company to be compensated should the risk insured against occur or cause loss.
Insurer
This is the business company that undertakes to provide cover or protection to the people who suffer loss as a result of occurrence of risks
Actuaries
These are people employed by an insurance company to complete expected losses and calculate the value of premiums.
Claim
This is a demand by the insured for payment from the insurer due to some loss arising from an insured risk.
Policy
This is a document that contains the terms and conditions of the contract between the insurer and the insured. It’s issued upon payment of the first premium.
Information contained in a policy includes;
This is a written contract that transfers to an insurer the financial responsibility for losses arising from insured risk.
Premium
This is the specified amount of money paid at regular intervals by the insured to the insurer for coverage against losses arising from a particular risk.
Risk
These are perils or events against which an insurance cover is taken. It is the calamity or problem a person or business faces and results into losses.
Note: The calculation of premiums depends upon the type of risk insured against. The higher the probability of the risk occurring, the higher the premium. The more the risks the business or person is exposed to the more the premiums payable.
Pure risk
This is a risk which results in a loss if it occurs and results in no gains if it does not occur. For example, if a car is involved in an accident, there will be a loss and if the accident does not occur there will be no gain or loss
Speculative risk
This is a risk which when it occurs, may result in a loss or a profit. For example, a person may buy shares at ksh.50 each, one year later the shares may be valued at ksh40 each meaning a loss of ksh.10
Alternatively, their value might not have changed or might have increased to ksh.45 each. Speculative risk lures people to venture into business in the first place.
Insured
This is the individual or the business that takes out the insurance cover and therefore becomes the policy holder
The insured pays premiums to the insurance company to be compensated should the risk insured against occur or cause loss.
Insurer
This is the business company that undertakes to provide cover or protection to the people who suffer loss as a result of occurrence of risks
Actuaries
These are people employed by an insurance company to complete expected losses and calculate the value of premiums.
Claim
This is a demand by the insured for payment from the insurer due to some loss arising from an insured risk.
Policy
This is a document that contains the terms and conditions of the contract between the insurer and the insured. It’s issued upon payment of the first premium.
Information contained in a policy includes;
- Name, address and occupation
- Policy number of the insured
- Details of risks insured
- Value of property insured
- Premiums payable
- Other special conditions of the insurance, for example nominees
Actual value
This is the true value of the property insured
Sum insured
This is the value for which property is insured, as stated by the insured at the time of taking the policy.
Surrender value
This is the amount of money that is refunded to the insured by the insurer in case the former (i.e. the insured) terminates payment of the premiums before the insurance contract matures. The policy holder is paid an amount less than the total amount of the premium paid.
Grace period
This is term allowed between the date of signing the contract and the date of payment of the first premium. During this period the insurance contract remains valid. This period is usually a maximum of thirty (30) days.
Proposer
This is a person wishing to take out an insurance cover (prospective insured)
Cover note (Binder)
This is a document given by the insurance company to an insured on payment of the first premium while awaiting for the policy to be processed. It is proof of evidence that the insurer has accepted to cover a proposed risk.
Annuity
This is a fixed amount of money that an insurer agrees to pay the insured annually until the latter’s death. It occurs when a person saves a lump sum amount of money with an insurer in return for a guaranteed payment which will continue until he/she dies.
Consequential loss
This is loss incurred by a business as a result of disruption of business in the event of the insured risk occurring.
Assignment
This is the transfer of an insurance policy by an insured to another person. Any claims arising from the transferred policy passes to the new policy holder called an assignee
Beneficiaries
These are people named in a life assurance policy who are to be paid by the insurer in the event of the insured
Nomination
This is the act of designing one or more people who would be the beneficiaries in the event of death of the insured. These people are called nominees
This is the true value of the property insured
Sum insured
This is the value for which property is insured, as stated by the insured at the time of taking the policy.
Surrender value
This is the amount of money that is refunded to the insured by the insurer in case the former (i.e. the insured) terminates payment of the premiums before the insurance contract matures. The policy holder is paid an amount less than the total amount of the premium paid.
Grace period
This is term allowed between the date of signing the contract and the date of payment of the first premium. During this period the insurance contract remains valid. This period is usually a maximum of thirty (30) days.
Proposer
This is a person wishing to take out an insurance cover (prospective insured)
Cover note (Binder)
This is a document given by the insurance company to an insured on payment of the first premium while awaiting for the policy to be processed. It is proof of evidence that the insurer has accepted to cover a proposed risk.
Annuity
This is a fixed amount of money that an insurer agrees to pay the insured annually until the latter’s death. It occurs when a person saves a lump sum amount of money with an insurer in return for a guaranteed payment which will continue until he/she dies.
Consequential loss
This is loss incurred by a business as a result of disruption of business in the event of the insured risk occurring.
Assignment
This is the transfer of an insurance policy by an insured to another person. Any claims arising from the transferred policy passes to the new policy holder called an assignee
Beneficiaries
These are people named in a life assurance policy who are to be paid by the insurer in the event of the insured
Nomination
This is the act of designing one or more people who would be the beneficiaries in the event of death of the insured. These people are called nominees
Average clause
This clause is usually included in policies to discourage under-insurance. The clause provides that the insured can only recover such proportions of the loss as the value of the policy bears on the property insured. It is usually included in marine or fire insurance policies.
The amounts recoverable are arrived at using the following formulae:
This clause is usually included in policies to discourage under-insurance. The clause provides that the insured can only recover such proportions of the loss as the value of the policy bears on the property insured. It is usually included in marine or fire insurance policies.
The amounts recoverable are arrived at using the following formulae:
Example:
If a house worth kshs.800,000 and insured against fire for kshs.600,000 was damaged by fire to the tune of kshs.400,000,the insured would be compensated;
If a house worth kshs.800,000 and insured against fire for kshs.600,000 was damaged by fire to the tune of kshs.400,000,the insured would be compensated;
Double insurance
This is taking of insurance policies with more than one company in respect to the same subject matter and the risk. It is significant because if one of the insurers is insolvent at the time the claim arises the insured can enforce his/her claim against the solvent insurer or if both insurers are solvent then they share compensation.
(Insolvency is a state where a business is not able to pay all its liabilities from its existing assets)
Co-insurance
This is an undertaking by more than one insurance company to provide insurance cover for the same risk for an insured. This will usually occur for properties that have great value and face great risk exposures that an insurer cannot successfully make compensation for e.g. value of aeroplanes, ships etc.
Co-insurance help spread risks to several insurers, each insurer covering only a certain proportion of the total value. The insurance company with the largest share is called the “leader” and acts on behalf of all the participating insurance companies’ e.g. in collecting premiums from the insured and carrying out documentation work, making claim after collecting each insurers premium contribution etc.
Note: Co-insurance is different from double-insurance in that in co-insurance company approaches another insurance company to help in covering the insured property while in double-insurance; it’s the insured who decides to approach different insurance companies to insure the same property against the same risk.
Re-insurance
‘Re-insurance’ means insuring again. This is a situation where an insurance company insures itself with a bigger insurance company called re-insurer for all or part of the risks insured with it by members of the public
Re-insurance indirectly insure an individual’s risks. Re-insurance helps to reduce the burden on an insurance company when the loss is too high for a single insurer. When such losses occurs, the claim is met by both the insurer and re-insurer(s) proportionately (according to agreed percentages)
Note: Re-insurance deal with the protection of insurance companies only, while insurance companies protect individuals and business organizations.
This is taking of insurance policies with more than one company in respect to the same subject matter and the risk. It is significant because if one of the insurers is insolvent at the time the claim arises the insured can enforce his/her claim against the solvent insurer or if both insurers are solvent then they share compensation.
(Insolvency is a state where a business is not able to pay all its liabilities from its existing assets)
Co-insurance
This is an undertaking by more than one insurance company to provide insurance cover for the same risk for an insured. This will usually occur for properties that have great value and face great risk exposures that an insurer cannot successfully make compensation for e.g. value of aeroplanes, ships etc.
Co-insurance help spread risks to several insurers, each insurer covering only a certain proportion of the total value. The insurance company with the largest share is called the “leader” and acts on behalf of all the participating insurance companies’ e.g. in collecting premiums from the insured and carrying out documentation work, making claim after collecting each insurers premium contribution etc.
Note: Co-insurance is different from double-insurance in that in co-insurance company approaches another insurance company to help in covering the insured property while in double-insurance; it’s the insured who decides to approach different insurance companies to insure the same property against the same risk.
Re-insurance
‘Re-insurance’ means insuring again. This is a situation where an insurance company insures itself with a bigger insurance company called re-insurer for all or part of the risks insured with it by members of the public
Re-insurance indirectly insure an individual’s risks. Re-insurance helps to reduce the burden on an insurance company when the loss is too high for a single insurer. When such losses occurs, the claim is met by both the insurer and re-insurer(s) proportionately (according to agreed percentages)
Note: Re-insurance deal with the protection of insurance companies only, while insurance companies protect individuals and business organizations.
Factors that may make it necessary for an insurance company to Re-insure
- Value of property - When the value of property is great, such as ship, the risk is too high to be borne by a single insurer
- High risk of loss - When chances of loss through the insured risks are high, it becomes necessary to re-insure.
- Number of risks covered - When the insurance company has insured many different risks, it would be too costly to compensate many claims at once, hence the need for re-insurance
- Need to spread the risk - When the insurance company wishes to share liability in the event of a major loss occurring
- Government policy - The government may make a legal requirement for an insurance company to re-insure
Under-insurance
This occurs when the sum insured as contained in the policy is less than the actual value of the property e.g. a property of shs.500, 000 can be offered for insurance as having a value of shs.400, 000
Over-insurance
This is a situation where the sum insured is more than the correct value of property e.g. a person insures property of shs.300,000 for shs.600,000.If total loss occurs, he is compensated the correct value of the property i.e. that which he has lost
Agents
These are people who sell insurance policies on behalf of the insurance company. They are paid on commission that is dependent upon the total value of policies sold
Insurance Brokers
These are professional middlemen in the insurance process. They connect the people wishing to take insurance with the insurers. They act on behalf of many different insurance firms, unlike agents.
Their activities include:
This occurs when the sum insured as contained in the policy is less than the actual value of the property e.g. a property of shs.500, 000 can be offered for insurance as having a value of shs.400, 000
Over-insurance
This is a situation where the sum insured is more than the correct value of property e.g. a person insures property of shs.300,000 for shs.600,000.If total loss occurs, he is compensated the correct value of the property i.e. that which he has lost
Agents
These are people who sell insurance policies on behalf of the insurance company. They are paid on commission that is dependent upon the total value of policies sold
Insurance Brokers
These are professional middlemen in the insurance process. They connect the people wishing to take insurance with the insurers. They act on behalf of many different insurance firms, unlike agents.
Their activities include:
- Examination of insurance market trends
- Correspondence between the insured and his clients
- Advising the insured and would be policy holders on the best policies for their property etc.
Principles of Insurance
Principles of insurance provide guidance to the insurance firms at the time they are entering into a contract with the person taking the cover. These insurance principles include:
The insurance principles include;
1. Insurable Interest
This principle states that an insurance claim cannot be valid unless the insured person can prove that he has directly suffered a financial loss and not just because the insured risk has occurred.
Going by this principle one cannot insure his parents or friends or other people’s property since he/she has no insurable interest in them. If such properties are damaged or completely destroyed, he/she will not suffer any financial loss.
For example, Mr. X has no insurable interest in the property of his neighbours. He does not suffer any financial loss should they be destroyed. This principle ensures that people are not deliberately destroying other people’s properties/life in order for them to receive compensation.
In life insurance (life assurance) it is assumed that a person has unlimited interest in his/her own life. Similarly it is assumed that one has insurable in the life of spouse and children e.g. a wife may insure the life of her husband, a father the life of his child because there is sufficient insurable interest.
2. Indemnity
The essence of this principle is that the insurer will only pay the “replacement value” of the property when the insured suffers loss as a result of an insured risk.
This principle thus puts the insured back to the financial position he enjoyed immediately before the loss occurred.
It is therefore not possible, then, for anybody to gain from a misfortune by getting compensation exceeding the actual financial loss suffered as this will make him gain from a misfortune.
This principle does not apply in life assurance since it is not possible to value one’s life or a part of the body in terms of money. Instead, the insurance policy states the amount of money the insured can claim in the event of death.
3. Utmost good faith (uberrima fides)
In this principle the person taking out a policy is supposed to disclose the required relevant material facts concerning the property or life to be insured with all honesty. Failure to comply with this may render the contract null and void hence no compensation.
e.g.
This principle compliments the principle of indemnity. It does so by ensuring that a person does not benefit from the occurrence of loss.
According to this principle, whatever remains of the property insured after the insured has been compensated according to the terms of the policy, becomes the property of the insure.
Example:
Assuming that Daisy’s car is completely damaged in an accident and the insurance compensates for the full value of the loss, whatever remains of the old car (now scrap), belongs to the insurance company
Scrap metal can be sold for some values and should Daisy take the amount she would end up getting more amount than the value of the car which will be against the principle of indemnity.
Note: This principle cannot be applicable to life assurance since there is nothing to subrogate.
5. Proximate cause
This principle states that for the insured to be compensated there must be a very close relationship between the loss suffered and risk insured i.e. the loss must arise directly from the risk insured or be connected to the risk insured.
Example
- Help to determine whether a valid insurance contract exists between the two parties at the time claims are made.
- Provide checks and controls to ensure successful operations of insurance for the benefit of both the parties
The insurance principles include;
1. Insurable Interest
This principle states that an insurance claim cannot be valid unless the insured person can prove that he has directly suffered a financial loss and not just because the insured risk has occurred.
Going by this principle one cannot insure his parents or friends or other people’s property since he/she has no insurable interest in them. If such properties are damaged or completely destroyed, he/she will not suffer any financial loss.
For example, Mr. X has no insurable interest in the property of his neighbours. He does not suffer any financial loss should they be destroyed. This principle ensures that people are not deliberately destroying other people’s properties/life in order for them to receive compensation.
In life insurance (life assurance) it is assumed that a person has unlimited interest in his/her own life. Similarly it is assumed that one has insurable in the life of spouse and children e.g. a wife may insure the life of her husband, a father the life of his child because there is sufficient insurable interest.
2. Indemnity
The essence of this principle is that the insurer will only pay the “replacement value” of the property when the insured suffers loss as a result of an insured risk.
This principle thus puts the insured back to the financial position he enjoyed immediately before the loss occurred.
It is therefore not possible, then, for anybody to gain from a misfortune by getting compensation exceeding the actual financial loss suffered as this will make him gain from a misfortune.
This principle does not apply in life assurance since it is not possible to value one’s life or a part of the body in terms of money. Instead, the insurance policy states the amount of money the insured can claim in the event of death.
3. Utmost good faith (uberrima fides)
In this principle the person taking out a policy is supposed to disclose the required relevant material facts concerning the property or life to be insured with all honesty. Failure to comply with this may render the contract null and void hence no compensation.
e.g.
- A person suffering from a terminal illness should reveal this information to the insurer.
- One should not under-insure or over-insure his/her property.
This principle compliments the principle of indemnity. It does so by ensuring that a person does not benefit from the occurrence of loss.
According to this principle, whatever remains of the property insured after the insured has been compensated according to the terms of the policy, becomes the property of the insure.
Example:
Assuming that Daisy’s car is completely damaged in an accident and the insurance compensates for the full value of the loss, whatever remains of the old car (now scrap), belongs to the insurance company
Scrap metal can be sold for some values and should Daisy take the amount she would end up getting more amount than the value of the car which will be against the principle of indemnity.
Note: This principle cannot be applicable to life assurance since there is nothing to subrogate.
5. Proximate cause
This principle states that for the insured to be compensated there must be a very close relationship between the loss suffered and risk insured i.e. the loss must arise directly from the risk insured or be connected to the risk insured.
Example
- If a property is insured against fire then fire occurs and looters take advantage of the situation and steal some of the property, the insured will suffer loss from ‘theft’ which is a different risk from the one insured against, so he/she will not be compensated.
- However if the property burns down as a result of sparks from the fire-place, the proximate cause of the loss is sparks which are directly related to fire. So the insured is entitled for compensation.
Classes of Insurance
Insurance covers are mainly classified into two,
The term assurance is used in respect of life contracts. It is used to mean that life contracts are not contracts of indemnity as life cannot be indemnified i.e. put back to the same financial position he was in before the occurrence of loss.(life has no money value, no amount of money can give back a lost or injured life)
Life insurance (assurance) is entered by the two parties in utmost good faith and the premiums payable in such life contracts depend on:
Endowment policy.
Advantages of Endowment policies
- Property (non-life) general insurance
- Life assurance
The term assurance is used in respect of life contracts. It is used to mean that life contracts are not contracts of indemnity as life cannot be indemnified i.e. put back to the same financial position he was in before the occurrence of loss.(life has no money value, no amount of money can give back a lost or injured life)
Life insurance (assurance) is entered by the two parties in utmost good faith and the premiums payable in such life contracts depend on:
- Age; The higher the age the higher the premiums as the age factor increase the chances of occurrence of death.
- Health condition; A person with poor health i.e. sickly person pays higher premiums as opposed to one in good health.
- Exposure to health risks; the nature of a person’s occupation can make him susceptible to health problems and death.
- Whole life assurance - In whole life assurance, the assured pays regular premiums until he/she dies. The sum assured is payable to the beneficiaries upon the death of the assured. Whole life assurance covers disabilities due to illness or accidents i.e. if the insured is disabled during the life of the policy due to illness or accidents, the insurer will pay him/her for the income lost.
- Endowment policy/insurance - This is whereby the insured pays regular premiums over a specified period of time. The sum assured is payable either at the expiry of the period (maturity of policy) or on death of the insured, whichever comes first.
The insured, at expiry of policy is given the total sum assured to use for activities of his own choice. (Ordinary endowment policy)
Where the insured dies before maturity of contract, the beneficiaries are given these amounts.
Endowment policy.
Advantages of Endowment policies
- They are a form of saving by the insured, for future investments
- Premiums are payable over a specified period of time which can be determined to suit his/her needs e.g. retirement time
- Where the assured lives and time policy matures, he receives the value of sum assured.
- Policy can be used as security for loans from financial institutions.
Differences Between a whole life policy and an Endownment policy
Whole life |
Endownment |
Compensation is paid after the death of the assured |
Compensation is paid after the expiry of an agreed period |
Premiums are paid throughout the life of the assured |
Premiums are paid only during an agreed period |
Benefits go to the dependents rather than the assured |
The assured benefits unless death proceeds the expiry of the agreed period |
Aims at financial security of dependants |
Aims at financial security of the assured and dependants |
- Term insurance- The insured here covers his life against death for a given time period e.g. 1yr, 5yrs etc. If the policyholder dies within this period, his/her dependants are compensated. If the insured does not die within this specified period, there is no compensation. However, a renewal can be taken.
- Education plan/policies - This policy is normally taken by parents for their children’s future educational needs.
The policy gives details of when the payments are due. - Statutory schemes - The Government offers some types of insurance schemes which are aimed at improving/providing welfare to the members of the scheme such as medical services and retirement benefits.
A member and the employer contribute, at regular intervals, certain amounts of money towards the scheme.
- N.S.S.F
- N.H.I.F
- Widows and children pension scheme (W.C.P.S)
Characteristics of life Assurance
- It is a cover for life until death or for a specified period of time
- It may be a saving plan
- It is normally a long term contract and does not require an annual renewal
- It has a surrender value
- It has a maturity date when the assured is paid the sum assured bonuses and interests.
- A life assurance policy can be assigned to beneficiaries
- The policy can be any amount depending on the assureds’ financial ability to pay premiums
- The policy can be used as security for a loan
1. General insurance (property insurance)
This type of insurance covers any form of property against the risks of loss or damage. A person can insure any property he has an insurable interest in
General insurance is usually divided into;
General insurance is usually divided into;
- Fire insurance/department
- Accident insurance/department
- Marine insurance/department
Accident insurance
This department covers all sorts of risks which occur by accident and includes the following;
Motor policies
Comprehensive policy covers damages caused not only to the third party but also to the vehicle itself and injuries suffered by the owner. Comprehensive policies include full third party, fire, theft and malicious damage to the vehicle.
Motor policies
- These provide compensation for partial or total loss to a vehicle if the loss results from an accident.
- The policy could either be third party or comprehensive.
- Third party policies cover all damages caused by the vehicle to people and property other than the owner and his/her vehicle. This includes pedestrians, fare-paying passengers, cows, fences and other vehicles
Comprehensive policy covers damages caused not only to the third party but also to the vehicle itself and injuries suffered by the owner. Comprehensive policies include full third party, fire, theft and malicious damage to the vehicle.
Personal accident policy
These policies are issued by insurance companies to protect the insured against personal accidents causing;
In case of a partial or total disability as a result of accident, the insured can be paid on regular periods, e.g. monthly as stipulated in the policy.
Compensation for injuries where one loses a part of his/her body can be done on a lump sum basis.
The insured is also paid the value of hospital expenses incurred if hospitalized as a result of an accident.
- Injury to the person
- Partial or total physical disability as a result of the injury
- Loss of income as a result of death
In case of a partial or total disability as a result of accident, the insured can be paid on regular periods, e.g. monthly as stipulated in the policy.
Compensation for injuries where one loses a part of his/her body can be done on a lump sum basis.
The insured is also paid the value of hospital expenses incurred if hospitalized as a result of an accident.
Cash and / or Goods in Transit policies
These are policies that specifically provide cover for loss of cash and goods in transit between any two locations.
E.g. Goods and cash moved from business to the markets, from suppliers to business etc.
E.g. Goods and cash moved from business to the markets, from suppliers to business etc.
Burglary and Theft policies
These policies cover losses caused by robbers and thieves
Burglary policies are enforceable only if the insured has met the specified safety and precautionary measures for protection of the insured items.
E.g.
Burglary policies are enforceable only if the insured has met the specified safety and precautionary measures for protection of the insured items.
E.g.
- How much money should be maintained in different kinds of safety boxes?
- Positioning of each of the cash boxes is also an important precautionary measure.
Fidelity Guarantee policies
These policies cover the employers against loss of money and/or goods caused by their employees in the cause of duty.
- The losses may be as a result of embezzlement, fraud, arithmetical errors e.t.c
- The policies may cover specified employees or all the employees
Workmen’s compensation (Employer’s Accident liability)
These policies provide compensation for employees who suffer injuries in the course of carrying out their duties.
The employer insures his employee against industrial injuries i.e the employer is only liable for the compensation of workers who suffer injuries at work.
Public liability
This insurance covers injury, damages or losses which the business or its employees cause to the public through accidents.
The insurer pays all claims from the public up to an agreed maximum
Bad debts
This policy covers firms against losses that might result from debtor’s failure to pay their debts.
Marine Insurance
This type of insurance covers ships and cargo against the risk of damage or destruction at the sea. The main risks sea vessels are exposed to include; fire, theft, collision with others, stormy weather, sinking etc.
The employer insures his employee against industrial injuries i.e the employer is only liable for the compensation of workers who suffer injuries at work.
Public liability
This insurance covers injury, damages or losses which the business or its employees cause to the public through accidents.
The insurer pays all claims from the public up to an agreed maximum
Bad debts
This policy covers firms against losses that might result from debtor’s failure to pay their debts.
Marine Insurance
This type of insurance covers ships and cargo against the risk of damage or destruction at the sea. The main risks sea vessels are exposed to include; fire, theft, collision with others, stormy weather, sinking etc.
Types of Marine Insurance policies
The marine insurance covers are classified as Hull, cargo, freight and ship owners’ liability.
Marine Hull
This policy covers the body of the ship against loss or damage that might be caused by sea perils.
Included here are any equipment, furniture or machinery on the ship.
A special type of marine hull is the part policy, which is for a specified period when the ship is loading, unloading or at service.
Marine Cargo
This type of policy covers the cargo or goods carried by the ship
The policy is taken by the owners of the sea vessels to cover the cargo being transported. It has the following sub-divisions.
Marine Hull
This policy covers the body of the ship against loss or damage that might be caused by sea perils.
Included here are any equipment, furniture or machinery on the ship.
A special type of marine hull is the part policy, which is for a specified period when the ship is loading, unloading or at service.
Marine Cargo
This type of policy covers the cargo or goods carried by the ship
The policy is taken by the owners of the sea vessels to cover the cargo being transported. It has the following sub-divisions.
- Voyage policy - Here cargo and ship are insured for a specific voyage/journey. The policy terminates automatically once the ship reaches the destination.
- Time policy - Here insurance is taken to cover losses that may occur within a specified period of time, irrespective of the voyage taken
- Fleet policy - This covers a fleet of ships, i.e. several ships belonging to one person, under one policy.
- Floating policy - This policy covers losses that may occur on a particular route, covering all the ships insured along that route for a specified period
- Mixed policy - This policy provides insurance for the ship and cargo on specified voyages and for a particular period of time. No compensation can be made if the ship was on a voyage different from the ones specified even if time has not expired
- Composite policy - This is where several insurance companies have insured one policy of a particular ship especially when the sum insured is too large to be adequately covered by one insurer.
- Construction policy/builders policy - This covers risks that a ship is exposed to while it is either being constructed, tested or being delivered.
- Freight policy - This is an insurance cover taken by the owner of the ship for compensation against failure to pay hiring charges by a hirer of the ship.
- Third parties liability - This is an insurance policy taken by the owner of the ship to cover claims that might arise from damage caused to other people’s property.
Description of marine losses
The following are some of the losses encountered in marine insurance.
Total loss,
This occurs where there is complete loss or damage to the ship and cargo insured. Total loss can be constructive or actual.
In Actual total loss, the claims are as a result of the ships and/or cargos complete destruction. It could also occur;
When a ship and its cargo are so damaged that what is salvaged is of no market value to both the insurer and the insured.
When a ship is missing for a considerable period of time enough to assume that it has sunk.
Constructive total loss occurs when the ship and/or cargo are totally damaged but retrieved. It may also occur;
Where a ship and its cargo are damaged but of market value. This could be as a result of decision to abandon the ship and cargo as the probability of total loss appears imminent.
If the cost of preventing total loss may be higher than that of the ship and its cargo when retrieved e.g. many lives may be lost in the process of trying to prevent total loss.
Total loss,
This occurs where there is complete loss or damage to the ship and cargo insured. Total loss can be constructive or actual.
In Actual total loss, the claims are as a result of the ships and/or cargos complete destruction. It could also occur;
When a ship and its cargo are so damaged that what is salvaged is of no market value to both the insurer and the insured.
When a ship is missing for a considerable period of time enough to assume that it has sunk.
Constructive total loss occurs when the ship and/or cargo are totally damaged but retrieved. It may also occur;
Where a ship and its cargo are damaged but of market value. This could be as a result of decision to abandon the ship and cargo as the probability of total loss appears imminent.
If the cost of preventing total loss may be higher than that of the ship and its cargo when retrieved e.g. many lives may be lost in the process of trying to prevent total loss.
- General average - This is a loss that occurs as a result of some of the cargo being thrown into the sea deliberately to save the ship and the rest of the cargo from sinking. The losses made are shared by the ship owners and the cargo owners proportionately as the effort was in the interest of both.
- Particular average - This occurs where there is a partial but accidental loss to either the ship or the cargo. When this happens each of the affected party is solidly responsible for the loss that has occurred to his property. A claim can, however be made if the loss incurred amounts to more than 3% of the value insured.
Fire insurance
This type of insurance covers property damage or loss caused by accidental fire. Cover is offered to domestic commercial and industrial premises, plant and machinery, equipment, furniture fittings stock etc.
In order to claim for compensation as a result of loss by fire, the following conditions must be fulfilled;
In order to claim for compensation as a result of loss by fire, the following conditions must be fulfilled;
- Fire must be accidental
- Fire must be immediate cause of loss
- There must be actual fire.
Consequential loss policy; (profit interruption policy)
This covers or compensates the insured for the loss of profit suffered when business operations have
It is offered to protect future earnings of an enterprise after fire damage.
It is offered to protect future earnings of an enterprise after fire damage.
- Sprinkler leakage policy - This provides cover against loss or damage caused to goods or premises by accidental leakages from firefighting sprinklers
- Fire and Related perils policy - This covers buildings which include factories, warehouses, shops, offices and their contents. The policy does not cover loss of profit arising from fire damage.
Characteristics of General Insurance
- It’s a contract of indemnity
- It cannot be assigned even to ones relatives
- The insured must have an insurable interest in the property to be insured
- Premiums charged depends on the degree of risk, the higher the premium charged.
- Compensation for loss can only be up to a maximum of the value of the insured property or the sum insured in case of under insurance.
- It has no surrender value
- It’s normally a short term contract which can be renewed periodically, usually after one year.
Factors to be considered when Determining Premiums to be charged
- Health of the person
- Frequency of occurrence of previous losses
- Extent of the previous losses
- Value of the property insured
- Occupation of the insured
- Age of the person or of the property in question
- Location of the insured(address and geographical location)
- Period to be covered by the policy
- Residence of the insured.
Procedure for taking a policy
- Filling a proposal form
- Calculation of the premium to be paid
- Issuing of cover note (Binder)
- Issuing of the policy
Procedure of claiming compensation
- Notification to the insurer - The insurer has to be notified about the occurrence of any incident immediately.
- Filling a claim form - The insurer provides the insured with a claim form which he fills to give details of the risk that has occurred
- Investigation of the claim - The insurer arranges to investigate the cause of the incident and to assess the extent of the loss incurred. The insurer is then able to establish whether the insured is to be compensated and if so, for how much.
- Payment of claim - On receipt of the report of the assessor, the insurer pays the due compensation to the insured. (Payment of the compensation shows that both the insurer and the insured have agreed on the extent of the loss and the payment is the settlement of the claim)
Insurance and Gambling
In most cases, insurance is erroneously taken to be the same as gambling in that small amounts are contributed by many people into a common fund which later benefits just a few people. They are however different and their differences include;
Insurance
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Gambling
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insurance questions on topic
1. 1995 P2
Describe the procedures that should be followed when taking an insurance policy. (10 marks)
2. 1996 P2
Explain four ways in which the insurance industry promotes the growth of business enterprises. (5 marks)
3. 1997 P2
Explain four ways in which the insurance industry contributes to the development of Kenya’s economy. (10 marks)
4. 1998 P2
Discuss various insurance policies under which an insurance company would not compensate the insured in the event of the loss. (10 marks)
5. 1999 P2
Discuss various insurance policies that the owner of a supermarket may find it useful for the business. (12 marks)
6. 2000 P2
Explain four benefits of the ‘pooling of risks’ to an insurance company. (8 marks)
7. 2001 P2
Explain the factors that may make it necessary for an insurance company re-ensure.
8. 2002 P2
Explain the meaning of the following terms as used in insurance (10 marks)
i) Uberrimae fidei
ii) Indemnity
iii) Third party motor vehicle insurance
iv) Contribution.
v) Subrogation
9. 2003 P2
Discuss four circumstances under which an insurance contract may be terminated. (8 marks)
10. 2004 P2
Explain five benefits that could be enjoyed by a person who decided to take out an endowment policy. (10 marks)
11. 2006 Q2 P1
Outline four risks against which a shopkeeper may insure. (4 marks)
12. 2007 Q3 P1
Outline three features of a Re – insurance company
13. 2008 Q22 P1
Elephant Enterprises acquired a building valued at sh 1 000 000 on 1 January 2007. The building was insured with two insurance Companies. Zebra and Simba for sh. 600 000 and Sh.400 000 respectively. In May 2007, fire damaged the building, causing Elephant Enterprises to suffer a loss of 20% of the building value. Determine contribution made by Simba and Zebra to cover the loss. (4 marks)
14. 2009 Q25 P1
KAMAT owned a motor vehicle, valued at sh 1,000,000. He comprehensively insured the car at Sh 800,000. The motor vehicle was involved in an accident and declared a write off. Calculate the amount KAMAT should get from the insurer. (4 marks)
15. 2010 Q11 P1
Outline four differences between insurance and assurance. (4 marks)
16. 2012 Q4a P2
(a) Explain five characteristics of property insurance. (10 marks)
Describe the procedures that should be followed when taking an insurance policy. (10 marks)
2. 1996 P2
Explain four ways in which the insurance industry promotes the growth of business enterprises. (5 marks)
3. 1997 P2
Explain four ways in which the insurance industry contributes to the development of Kenya’s economy. (10 marks)
4. 1998 P2
Discuss various insurance policies under which an insurance company would not compensate the insured in the event of the loss. (10 marks)
5. 1999 P2
Discuss various insurance policies that the owner of a supermarket may find it useful for the business. (12 marks)
6. 2000 P2
Explain four benefits of the ‘pooling of risks’ to an insurance company. (8 marks)
7. 2001 P2
Explain the factors that may make it necessary for an insurance company re-ensure.
8. 2002 P2
Explain the meaning of the following terms as used in insurance (10 marks)
i) Uberrimae fidei
ii) Indemnity
iii) Third party motor vehicle insurance
iv) Contribution.
v) Subrogation
9. 2003 P2
Discuss four circumstances under which an insurance contract may be terminated. (8 marks)
10. 2004 P2
Explain five benefits that could be enjoyed by a person who decided to take out an endowment policy. (10 marks)
11. 2006 Q2 P1
Outline four risks against which a shopkeeper may insure. (4 marks)
12. 2007 Q3 P1
Outline three features of a Re – insurance company
13. 2008 Q22 P1
Elephant Enterprises acquired a building valued at sh 1 000 000 on 1 January 2007. The building was insured with two insurance Companies. Zebra and Simba for sh. 600 000 and Sh.400 000 respectively. In May 2007, fire damaged the building, causing Elephant Enterprises to suffer a loss of 20% of the building value. Determine contribution made by Simba and Zebra to cover the loss. (4 marks)
14. 2009 Q25 P1
KAMAT owned a motor vehicle, valued at sh 1,000,000. He comprehensively insured the car at Sh 800,000. The motor vehicle was involved in an accident and declared a write off. Calculate the amount KAMAT should get from the insurer. (4 marks)
15. 2010 Q11 P1
Outline four differences between insurance and assurance. (4 marks)
16. 2012 Q4a P2
(a) Explain five characteristics of property insurance. (10 marks)
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OBJECTIVES
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NOTES
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Q & A
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APA REF.
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OTHERS
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WAREHOUSING (6 LESSONS)
SPECIFIC OBJECTIVES
By the end of the topic, the learner should be able to:
By the end of the topic, the learner should be able to:
- explain the meaning and importance of ware housing to business
- discuss the essentials of a warehouse
- identify the various types of warehouse
- explain the advantages and disadvantages of each type of warehouse.
TOPICS / SUB-TOPIC BREAKDOWN
- Meaning and importance of warehousing
- Essentials of a warehouse
- Types of warehouses
- Advantages and disadvantages of each type of warehouse
Introduction
Definition
A warehouse is a building for storing goods and services until the need for them arises. A warehouse is also usually referred to as a go down, silo or depot.
Warehousing is the process and the systems for relieving goods, protecting them against all types of hazards and ensuring their availability to those who need them. Therefore, it involves three main processes:
A warehouse is a building for storing goods and services until the need for them arises. A warehouse is also usually referred to as a go down, silo or depot.
Warehousing is the process and the systems for relieving goods, protecting them against all types of hazards and ensuring their availability to those who need them. Therefore, it involves three main processes:
- Receiving goods into a warehouse;
- Storing them
- Releasing them to the users.
Importance of Warehousing to Business
- It enables a steady flow of goods into the market as the producers store their commodities and regulating their supply as needs arise;
- It stabilizes the prices by reducing the supply of goods when the market is faced with surplus and increasing the supply whenever there is shortage;
- It protects the goods from adverse weather conditions thereby upholding their quality until they are sold;
- It facilitates the bridging of time between when the goods are manufactured and when they are demanded. This is especially so for goods with seasonal demands;
- It acts as a reserve that can meet a sudden unexpected demand, for instance cereals can be stored in a warehouse just in case a draught strikes;
- It enables ample time and opportunity for such practices like blending, branding, packaging, grading and sorting out of goods before they are sold.
- Warehousing ensures that goods are protected from loss through theft or pilferage;
- It enables buyers to inspect the goods before they buy them;
- Warehousing allows time for some goods to ripen or mature before they are sold, for instance ripe bananas or tobacco leaves;
- It encourages specialization in production and distribution. Producers concentrate on producing while distributors store the goods for sale to the consumers;
- By allowing manufacturers to buy raw materials in bulk as they await their needs to arise, warehousing ensures a continuous production schedule;
- It allows importance ample time to look for a market.
Essentials of a warehouse
In order to be as effective as possible, warehouses require some features and resources. These include:
- Proper buildings suitable to house various types of goods;
- They should be conveniently located to enhance accessibility by the users;
- Proximity to a good transport network system to ensure smooth movement of goods in and out;
- The warehouse should be equipped with appropriate protection equipment to keep the goods safe from water, sunshine, human animals, excess heat and such factors;
- It should be spacious enough to enable both storage of goods and movement of goods and personnel;
- It should be equipped with proper facilities for handling goods like forklifts and an necessary working materials and tools to facilitate operation;
- It should be equipped with adequate facilities to care for goods for instance coldroom facilitates for perishable goods;
- It should be manned by well trained staff for efficient delivery of services;
- The warehouse should be equipped with an efficient communication network.
- A warehouse should conform to the law of the land.
- It should have proper recording system to monitor movement of goods.
Types of Warehouses
Warehouses are usually categorized on the basis of ownership or types of goods stored.
I. Warehouse Types Based on Ownership
Private Warehouses
These warehouses are owned by individuals for storing goods. They include:
These warehouses are owned by individuals for storing goods. They include:
- Wholesalers warehouse – they enable the wholesalers to buy goods from the producers in bulk and prepare them so that they will be ready whenever the retailers need them;
- Producer’s warehouses – they store producer’s goods before the goods are released to the market. They are most conveniently located near the producers or their clients.
- Retailers – they are commonly owned by some large scale retailers like the chain store and supermarkets to suit the purchase of goods in large quantities and sell them gradually.
Advantages of private warehouses
- They enable the manufacturers more control over the manufacturing operations. They enable for instance coordination between the manufacturing process and delivery to the market
- They are usually flexible enough to adapt to the different requirements for different goods by offering special facilities not accessible in public warehouses;
- The owner can custom make the warehouse to suite any need;
- The owner does not incur the cost of hiring space unlike in public warehouse;
- Decision making is independent and therefore quick since the owner does not have to consult;
- The owner is not ted down by procedures of receiving and issuing the goods unlike in public warehouses;
Disadvantages of public warehouses
- When there is low volumes the resources may become underutilized;
- High initial cost of production;
- The owners may suffer some problems associated worth small scale firms like lack of enough funds to employ adequately qualified personnel.
The term public implies that these warehouses can be used any member of the public to store his/her goods whereby the owners of the premises lend parts or the entire warehouse to any individual. To enhance versatility and suitability, the owners site the warehouses strategically near ports. This is because they are most commonly used by importers or exporters.
Many public warehouses offer some additional services like packaging, clerical services, market reports, preparing export samples and insuring the goods. Ownership of the goods in the warehouse is usually proved and transferred from one owner to another through a document known as a warehouse warrant. This enables the owner of the goods to sell goods in the warehouse without having to physically transfer them from one place to another.
Advantages of Public Warehouse
- Public warehouses enable various small scale owners of goods to come together and sell their commodities together thus enjoying the economies of scale;
- The owner does not have to construct his/her own warehouse;
- Very convenient to traders since the goods can be sold while still in the warehouse;
- Goods are insured against some risk like damage by fire and theft;
- Traders can rent space to store their goods;
- The warehouse can offer additional services;
- The trader can access short term loans with the goods in the warehouse as collateral.
- The goods in the warehouse can be used as a collateral for a loan;
Disadvantages of Public warehouse
- Hiring space can eventually be more costly than constructing premises in the long run;
- Space allocation is not a guarantee, it depends on availability;
- The hirer may lose customer contact since they purchase directly from the premises;
- The presence of other suppliers in the warehouse brings in some competition;
- The presence of several hirers may lead to a complication and prolonged documentation and receipting process;
- Inconveniences emanate from the distant location of the warehouse from the hirer’s presence;
ii. Warehouse Types Based on Goods Stored
These types of warehouses are categorized on whether they house goods awaiting tax or tax free goods.
Bonded Warehouses
They store imported goods prior to payment of the duties. The warehouse owner’s offers cash guarantee to assure that the goods will not be released before clearing the duties. Goods under transit to another country may not attract duties, including those that are packaged outside the warehouse. The goods may be sold inside the warehouse and the new owner undertakes the payment of the taxes. Once cleared, the owner is issued with a warrant of release.
Bonded Warehouses
They store imported goods prior to payment of the duties. The warehouse owner’s offers cash guarantee to assure that the goods will not be released before clearing the duties. Goods under transit to another country may not attract duties, including those that are packaged outside the warehouse. The goods may be sold inside the warehouse and the new owner undertakes the payment of the taxes. Once cleared, the owner is issued with a warrant of release.
Features of Bonded Warehouses
- Goods can be sold while inside the warehouse;
- Goods are released only upon production of the warrant of release;
- Storage charges are made on all the goods under storage;
- Goods can be bonded till custom duty is paid;
- Goods can be inspected or prepared for sale while still in the warehouse;
- Goods can be re-exported while in the warehouse.
Advantages of using Bonded Warehouses to the importer
- Relieves the importer the burden of securing the goods;
- Some goods lose weight while in the warehouse an advantage to those whose amount of tax depends on the weight;
- It offers an opportunity to prepare the goods for sale;
- Some goods improve in quality while in the warehouse due to maturation duration;
- The importer transfers the burden of paying the duty onto a buyer who buys the goods while still in the warehouse;
- The importer can look for the market of the goods even before paying the tax.
Disadvantages of using Bonded Warehouses
- The importer pays rent for the space of goods;
- In case the importer fails to pay the duty, the custom authorities may be auction the goods;
- Withdrawing goods from the warehouse in bits ends up with a higher total tax than a one off fee.
Goods in these types of warehouses are not under the control of the custom authorities. The goods do not have any pending tax. These include locally manufactured goods or imported goods whose duty has been cleared.
Advantages of Free Warehouse
- Cheaper than bonded warehouse since no duties charges;
- Goods do not risk auctioning since there are no taxes charged;
- The warehouses are usually conveniently located for the goods’ owners;
- Release of goods cannot be not delayed by complicated protocols of having to produce signed release warrants
Disadvantages of Free Warehouse
- Inspection of goods is relaxed and therefore it is susceptible to habour illegal goods;
- The storing activity does not earn the government any revenue since no tax is paid;
- Hoarding of goods can occur in these uninspected warehouses.
Current Trends and Emerging Issues in Warehouses
Driven by technological inventions, warehouses are undergoing revolutions such as:
- Computerised monitoring systems are tracking the goods inside and outside the warehouses;
- Conveyor belts and other mechanisms are replacing manual movement of goods in the warehouses;
- Newer designs with improved storage capacities are coming up;
- Better storage facilities like the use of racks is being employed in the warehouses;
warehousing kcse questions and answers
1. 1995 P1
Outline four features of a bonded warehouse (4 marks)
2. 1995 P2
Explain five ways in which warehousing facilitates trade.
3. 1996 P1
Highlight four ways in which a warehouse is useful to a trader. (4 marks)
4. 1997 P1
List three advantages of warehousing to a manufacturer. (3 marks)
5. 1997 P2
Lobo Traders intends to consult a warehouse. Explain five measures that
Lobo would take to ensure smooth functioning of the warehouse
6. 1998 P1
Outline four benefits that consumers get from a warehousing (4 marks)
7. 1999 P1
Outline four factors that a trader would consider in locating a warehouse. (4 marks)
8. 2000 P1
State four benefits that a government gets from a bonded warehouse. (4 marks)
9. 2000 P2
In what ways does warehousing facilitate trade in a country?
10. 2001 P1
State four features of a bonded warehouse (5 marks)
11. 2002 P1
State four advantages of public warehouse to retailers. (4 marks)
12. 2003 P1
The table below contains descriptions relating to some types of warehouse. In the space provided, write the type of warehouse to which each description refers.
Outline four features of a bonded warehouse (4 marks)
2. 1995 P2
Explain five ways in which warehousing facilitates trade.
3. 1996 P1
Highlight four ways in which a warehouse is useful to a trader. (4 marks)
4. 1997 P1
List three advantages of warehousing to a manufacturer. (3 marks)
5. 1997 P2
Lobo Traders intends to consult a warehouse. Explain five measures that
Lobo would take to ensure smooth functioning of the warehouse
6. 1998 P1
Outline four benefits that consumers get from a warehousing (4 marks)
7. 1999 P1
Outline four factors that a trader would consider in locating a warehouse. (4 marks)
8. 2000 P1
State four benefits that a government gets from a bonded warehouse. (4 marks)
9. 2000 P2
In what ways does warehousing facilitate trade in a country?
10. 2001 P1
State four features of a bonded warehouse (5 marks)
11. 2002 P1
State four advantages of public warehouse to retailers. (4 marks)
12. 2003 P1
The table below contains descriptions relating to some types of warehouse. In the space provided, write the type of warehouse to which each description refers.
13. 2004
In which four ways are consumers likely to suffer in a situation where there is no warehousing?
14. 2007 Q13 P1
Outline four benefits to a business that uses its own warehouse. (4 marks)
15. 2007 Q6a P2
a) Explain five features that you would consider in establishing a warehouse for imported goods. (10 marks)
16. 2008 Q3 P1
State four ways in which a warehouse is of importance to a manufacturer. (4 marks)
17. 2010 Q3 P1
Name the types of warehouses associated with each of the statements given below: (4 marks)
In which four ways are consumers likely to suffer in a situation where there is no warehousing?
14. 2007 Q13 P1
Outline four benefits to a business that uses its own warehouse. (4 marks)
15. 2007 Q6a P2
a) Explain five features that you would consider in establishing a warehouse for imported goods. (10 marks)
16. 2008 Q3 P1
State four ways in which a warehouse is of importance to a manufacturer. (4 marks)
17. 2010 Q3 P1
Name the types of warehouses associated with each of the statements given below: (4 marks)
18. 2012 Q21
Outline four conditions under conditions under which a warehouse may be considered to operating efficiently. (4 marks)
Outline four conditions under conditions under which a warehouse may be considered to operating efficiently. (4 marks)
- Speed; Speed is an important factor when the message is urgent. In such a case telex, fax, telephone, telegram or e-mail would be the most suitable means of communication. Otherwise ordinary mail would be used
- Cost; The cost incurred in using a means of communication vary from one means to another e.g. it is cheaper to send messages by ordinary mail than by telegram or telex
- Confidentiality; some messages are quite confidential and are intended for certain person only. Where confidential messages are involved, appropriate means should be used e.g. registered mail or internal memo enclosed in an envelope
- Distance; the geographical gap between the sender and recipient is very important in determining the means of communication to be used. Some means are suitable for long distances while others are not. Paging and sirens are suitable for short distances. For long distances, fax letters, telephone e.g., e-mail may be appropriate
- Evidence, some means of communication do not provide record of the message communicated while others do. All means of written communication provide evidence of messages communicated.
- Reliability; this is the assurance (certainty) that the message will reach the intended person at the right time in the right form. Face-to-face communication is more reliable than other forms of communication because one can ask for clearly and get answers immediately. For some written information, courier service may be preferred
- Accuracy; this refers to the exactness of the message communicated as intended by the sender. Written messages are generally more accurate than other means of communication.
- Desired impression; The impression created upon the recipient of a message is very important e.g. a telegram or speed post mail will carry some sence of urgency, registered mail will create an impression of confidentiality while use of colourful and attractive letterheads would convey a good image of the business.
- Availability; One may want to telephone, for example, but the services are not there so the person would be forced to use alternative means e.g. letters or radio call.
Barriers to Effective Communication
Communication is said to be complete only when the recipient gets the message the way the sender intends it to be. When information is not received the way it was intended then it has been distorted. Distortion of a message is brought about by some communication barriers which may exists in the path of the message between the sender and the recipient. Some of these barriers are;
- Language used; the language used by the sender should be known (understood) by the recipient so that communication can take place
- Poor Listening; the effectiveness of communication will depend on the willingness of the recipient to listen keenly .listening require careful attention and concentration. It may however be the task of the sender of the message to attempt to gain the attention of the listener. Through his/her choice of words and expression among others.
- Negative Attitude; Attitude refers to the feelings of the communicating parties towards each other. It is important that there exists a mutual feeling of trust and respect between the parties concerned in order to avoid bias .If there is mistrust and prejudice then there may be deliberate or unintentional misunderstanding of the message involved.
- Poor Timing ; poor timing leads to breakdown in communication , therefore for effective communication to take place the message must be sent and received at an appropriate time, e.g. a message sent when one is in a hurry may not be properly received or delivered
- Wrong medium ; the medium used to communicate must be appropriate for the message being conveyed otherwise there may breakdown in communication eg one may not convey a confidential message over the telephone effectively
- Prejudgment ; our understanding of the message is often conditional by our earlier experiences and knowledge this may make one individual draw premature conclusion eg a student who always fail in a subject and this time round has improve may be failed by the teacher because he has always failed in the past .
- Ambiguities; it occurs when the sender express in a manner which leads to wrong interpretation. When the receiver interprets the message differently it automatically leads to communication breakdown.
- Emotional responses; emotional responses such as those resulting from hunger or excitement may lead to distortion of message.
- Unclear System within the organization ; if the channel of passing information in an organization are not clear then the message will not get to the right people for whom the messages intended
- Noise; it refers to any disturbing sounds which interfere with concentration or listening ability of the recipient of the message the presence of noise may make it impossible for any message to be received in the right way.
- Unfamiliar; Nonverbal signals; lack of understanding of nonverbal sign may be a barrier to effective communication.
Service That Facilitate Communication
Services that facilitate communication include;
- Mailing services
- Telephone services
- Broadcasting services
Mailing services
This refers to handling of letters and parcels. They are offered by organizations such as postal corporation of Kenya (P.C.K) Securicor courier and Document handling Limited (D.H.L)
Some of the services offered by the postal corporation include;
This refers to handling of letters and parcels. They are offered by organizations such as postal corporation of Kenya (P.C.K) Securicor courier and Document handling Limited (D.H.L)
Some of the services offered by the postal corporation include;
- Speed post; this is service offered by the post office to send correspondence and parcels to a destination in the shortest time possible. The post office uses the quickest means of transport available to deliver the mail.
- The sender pays the normal postage fee plus a fee for special service. An example of such a service is Expedited Mail Service(EMS) speed post
a) Ordinary Mail
These include surface mail and air mail.
An express mail is/must be presented at the post office counter by the sender and the envelope clearly addressed and a label with the word “express” affixed. Normal postage plus an extra fee (commission) is charged
The mail is delivered to the receivers nearest post office from where the post office makes arrangements to deliver the mail to the receiver within the shortest time possible.
NOTE: For speed post special arrangements to deliver the mail start at the sender’s post office whereas express mail, the arrangements start at the addressers post office.
c) Poste Restante;
This is a service offered by the post office to travelers who may wish to receive correspondence right away from their post office box. The addressee has to inform those who may wish to correspond with him/her of the nearest post office he is likely to use at a particular time
Under this arrangement when addressing the letter, the words poste Restante must be written on the envelope clearly. The addressee must identify himself/herself when collecting the correspondence from the post office.
There is no additional charge made apart from normal postage charges. This service can only be offered for three months in the same town.
These include surface mail and air mail.
- Surface Mail; These include letters and parcels delivered by road, rail, water and hand.
- Air Mail; this consists of letters and light parcels delivered by air.
An express mail is/must be presented at the post office counter by the sender and the envelope clearly addressed and a label with the word “express” affixed. Normal postage plus an extra fee (commission) is charged
The mail is delivered to the receivers nearest post office from where the post office makes arrangements to deliver the mail to the receiver within the shortest time possible.
NOTE: For speed post special arrangements to deliver the mail start at the sender’s post office whereas express mail, the arrangements start at the addressers post office.
c) Poste Restante;
This is a service offered by the post office to travelers who may wish to receive correspondence right away from their post office box. The addressee has to inform those who may wish to correspond with him/her of the nearest post office he is likely to use at a particular time
Under this arrangement when addressing the letter, the words poste Restante must be written on the envelope clearly. The addressee must identify himself/herself when collecting the correspondence from the post office.
There is no additional charge made apart from normal postage charges. This service can only be offered for three months in the same town.
a) Registered Mail;
This service is offered by the post office for sending articles of value for which security handling is required. A registration fee and a commission is paid. The commission depends on the weight of the article and the nature of registration. The sender is required to draw a horizontal and a vertical line across the faces of the envelope.
A certificate of registration is given to the sender. In case of loss, the sender may be paid compensation on production of the certificate of registration.
A green card is sent to the recipient. The card bears his name and the post office at which the mail was registered. The recipient will be required to identify himself before being allowed to possess the mail.
Items that may be registered include jewels, certificate, land title deeds etc.
b) Business Reply Service;
This is a service offered by the post office to business firms on request. The firm pays some amount to the post office and an account is then opened from which posted charges are deducted.
The service is useful/more common with firms which would like to encourage their customers to reply their letters. Customers are issued with reply card envelopes (or envelopes marked ‘postage paid’)
They can send letters to the business by using these envelopes/the card. The customers then place the card/envelope in the post box and the firm’s post office branch will deduct postage charges from the lump sum amount.
This service is offered by the post office for sending articles of value for which security handling is required. A registration fee and a commission is paid. The commission depends on the weight of the article and the nature of registration. The sender is required to draw a horizontal and a vertical line across the faces of the envelope.
A certificate of registration is given to the sender. In case of loss, the sender may be paid compensation on production of the certificate of registration.
A green card is sent to the recipient. The card bears his name and the post office at which the mail was registered. The recipient will be required to identify himself before being allowed to possess the mail.
Items that may be registered include jewels, certificate, land title deeds etc.
b) Business Reply Service;
This is a service offered by the post office to business firms on request. The firm pays some amount to the post office and an account is then opened from which posted charges are deducted.
The service is useful/more common with firms which would like to encourage their customers to reply their letters. Customers are issued with reply card envelopes (or envelopes marked ‘postage paid’)
They can send letters to the business by using these envelopes/the card. The customers then place the card/envelope in the post box and the firm’s post office branch will deduct postage charges from the lump sum amount.
a) Courier Services
These are services where a service provider receives transports and delivers parcels or important documents to destinations specified by customers in return for payment of fees or charges.
Examples; Akamba bus service, Securicor courier services etc.
ii) Telephone services
Telkom Kenya, through the post office, provides telephone services which offer direct contact between people who are far apart. It makes conversation between people at any distance possible, as long as there are transmission facilities between them. Urgent matters can be discussed and consultations can take place so that instant decision or actions are taken. The telephone assists organizations to establish a fast and convenient machinery for its internal and external communication network.
ii) Cellular(mobile)phone services
These are hand held telephones with digital links that use radio waves. They are sometimes called cell-phones since they use power stored in a dry cell
In Kenya mobile phone services are provided by safaricom Ltd.(a subsidiary of Telkom Kenya)and Airtel communications Ltd(formally Kencel Communication Ltd)which is a joint venture between a French company and a Kenyan company, yu mobile services and Orange mobile services . This sector therefore greatly benefits from foreign investment to improve services.
The use of this service is popular. Apart from the provision of telecommunication service, cell phones have different attractive features or services such as short messages service (sms) whereby a caller can send a written message. Recent models of mobile phones enable the user to access the internet and send e-mail messages
These are services where a service provider receives transports and delivers parcels or important documents to destinations specified by customers in return for payment of fees or charges.
Examples; Akamba bus service, Securicor courier services etc.
ii) Telephone services
- Landline/fixed line services
- Cellular (mobile)phone services
Telkom Kenya, through the post office, provides telephone services which offer direct contact between people who are far apart. It makes conversation between people at any distance possible, as long as there are transmission facilities between them. Urgent matters can be discussed and consultations can take place so that instant decision or actions are taken. The telephone assists organizations to establish a fast and convenient machinery for its internal and external communication network.
ii) Cellular(mobile)phone services
These are hand held telephones with digital links that use radio waves. They are sometimes called cell-phones since they use power stored in a dry cell
In Kenya mobile phone services are provided by safaricom Ltd.(a subsidiary of Telkom Kenya)and Airtel communications Ltd(formally Kencel Communication Ltd)which is a joint venture between a French company and a Kenyan company, yu mobile services and Orange mobile services . This sector therefore greatly benefits from foreign investment to improve services.
The use of this service is popular. Apart from the provision of telecommunication service, cell phones have different attractive features or services such as short messages service (sms) whereby a caller can send a written message. Recent models of mobile phones enable the user to access the internet and send e-mail messages
Advantages of mobile phones
- They are portable
- Written messages can be transmitted easily and cheaply through the short message service(sms)
- Enables both local and international communication.
- The cost of acquiring the equipment is relatively affordable
- Direct feedback is possible
- Has memory for storing written messages
- Has got e-mail capability
Disadvantages of cellular phones
- Some kinds of mobile phones are expensive to buy
- Maintenance expenses of a mobile phone are high. They are also susceptible to damage and repair can be very costly
- Users are greatly inconvenienced in case there is no network coverage
- A special facility where the callers identity is known(displayed on screen)can be abused where recipient does not wish to answer the call
- Mobile phones are a security problem. They are easy targets for thieves
- There is a danger of the radioactive rays or emissions negatively affecting the users health, if such emissions are not adequately controlled
iii) Broadcasting services
Communication commission of Kenya is a regulatory body that receives applications and issues licenses for radio and television broadcasting stations.
a) Radio stations
Radio broadcasting is a very important mode of giving news and information to people in the whole world.
The liberalization of the communications sector in Kenya in 1999, Kenya has witnessed a mushrooming of FM Stations which are owned by private sector operators e.g. Kiss Radio, Easy FM, Classic FM, Family FM, Kameme etc.
They have helped to spread news and information countrywide. Before liberalization, Kenya Broadcasting cooperation (KBC) radio was operating as a state owned monopoly.
b) Television Stations
Television broadcasting (telecasting) does not reach as wide an audience as radio broadcasting in Kenya. It however serves the same purpose of relaying news and information to Kenyans. Both radio and television stations are widely used for advertising purposes.
The T.V subsector has been liberalized since 1999 and a number of privately owned stations have emerged e.g. Kenya Television Network (KTN) Nation Television, Family T.V etc. Prior to that time KBC television was in operation as a state owned monopoly.
Communication commission of Kenya is a regulatory body that receives applications and issues licenses for radio and television broadcasting stations.
a) Radio stations
Radio broadcasting is a very important mode of giving news and information to people in the whole world.
The liberalization of the communications sector in Kenya in 1999, Kenya has witnessed a mushrooming of FM Stations which are owned by private sector operators e.g. Kiss Radio, Easy FM, Classic FM, Family FM, Kameme etc.
They have helped to spread news and information countrywide. Before liberalization, Kenya Broadcasting cooperation (KBC) radio was operating as a state owned monopoly.
b) Television Stations
Television broadcasting (telecasting) does not reach as wide an audience as radio broadcasting in Kenya. It however serves the same purpose of relaying news and information to Kenyans. Both radio and television stations are widely used for advertising purposes.
The T.V subsector has been liberalized since 1999 and a number of privately owned stations have emerged e.g. Kenya Television Network (KTN) Nation Television, Family T.V etc. Prior to that time KBC television was in operation as a state owned monopoly.
Other services that facilitate communication
- Telex
- Facsimile
- Paging
Current trends and Emerging issues in communication
With the advancement of information technology (I.T) there has been a lot of revolution in communication.
The following are some of the current trends and emerging issues in communication;
The following are some of the current trends and emerging issues in communication;
Telephone Bureaux (Bureaus)
These are privately owned kiosks where telephone services are sold. The owner of the kiosk must get authority from the service provider in order to run the bureau. The individual wishing to use the services of the bureau makes payments to the owner of the service. Other services offered by the bureau include selling of scratch cards for mobile telephones and credit cards for landline telephone services.
i) Mobile phones (cell phones)
These are hand held telephones with digital links that use radio waves. They have become an important business and social tool. This is because most people and traders want some flexibility to be able to communicate whenever they are.
Other reasons that have led to the popularity of cell phones include:
This is a service provided through the internet for sending messages.
It is similar to sending a letter through the postal system only that it is done electronically.
Messages can be sent to anyone on the network, anywhere in the world. For this to take place, computers have to be connected to each other to form a network.
To communicate, one is required to have an email address e.g. raeform2@ yahoo.com. Messages arrive at the e – mail address immediately they are sent.
It is only the addressee of the message who can retrieve the message since a password is required to access the mailbox.
E – Mail can also be used to send documents and photographs like certificates by scanning and attaching.
More and more businesses are using e- Mail to communicate with other businesses, their customers and suppliers.
i) Mobile phones (cell phones)
These are hand held telephones with digital links that use radio waves. They have become an important business and social tool. This is because most people and traders want some flexibility to be able to communicate whenever they are.
Other reasons that have led to the popularity of cell phones include:
- Pre-paid services which enable the owners to control communication costs.
- Most cellular phones now allow the owners to browse the internet, check and send mail. This allows business people to communicate research and even place orders.
- Cellular phones have short message services (sms) which enables the owners to send written messages.
This is a service provided through the internet for sending messages.
It is similar to sending a letter through the postal system only that it is done electronically.
Messages can be sent to anyone on the network, anywhere in the world. For this to take place, computers have to be connected to each other to form a network.
To communicate, one is required to have an email address e.g. raeform2@ yahoo.com. Messages arrive at the e – mail address immediately they are sent.
It is only the addressee of the message who can retrieve the message since a password is required to access the mailbox.
E – Mail can also be used to send documents and photographs like certificates by scanning and attaching.
More and more businesses are using e- Mail to communicate with other businesses, their customers and suppliers.
iv) Internet
The internet links computers all over the world. Written and oral information is transmitted on the internet through the use of telephone wires, fibre- optic cables and wireless devices.
The internet has changed the way people communicate in the following ways;
The future office will rely largely on computers. Most of the communication will be done through computers. This may result in less use of paper, hence the use of the term “the paperless office”.
Vi) Decline in the use of postal services
Decline in the use of postal services is a result of the impact of the internet. E-mail has become a popular and preferred mode of communication since it is fast and cheap. However, ordinary mail/ use of postal services may not be completely phased out since the government, businesses and people do not regard an e-mail as a binding or formal communication.
Vii) Transformation of language
The language used to pass and receive messages has evolved through time. e.g. the youth have adopted the use of “sheng” in exchanging messages. Such language is largely understood by its youthful users. There is also the use of cell phones to send short text messages; which are highly abbreviated and may use slang whose meaning is only known to the users.
The internet links computers all over the world. Written and oral information is transmitted on the internet through the use of telephone wires, fibre- optic cables and wireless devices.
The internet has changed the way people communicate in the following ways;
- Increased use of electronic mail (e-mail)
- Quick access to information from all over the world.
- Development of home offices and remote offices.
- Use of teleconferencing and video conferencing.
- Development of e-commerce.
The future office will rely largely on computers. Most of the communication will be done through computers. This may result in less use of paper, hence the use of the term “the paperless office”.
Vi) Decline in the use of postal services
Decline in the use of postal services is a result of the impact of the internet. E-mail has become a popular and preferred mode of communication since it is fast and cheap. However, ordinary mail/ use of postal services may not be completely phased out since the government, businesses and people do not regard an e-mail as a binding or formal communication.
Vii) Transformation of language
The language used to pass and receive messages has evolved through time. e.g. the youth have adopted the use of “sheng” in exchanging messages. Such language is largely understood by its youthful users. There is also the use of cell phones to send short text messages; which are highly abbreviated and may use slang whose meaning is only known to the users.
Communication Revision Questions
1. Define the term communication
Communication is the process by which information is passed from one person or place to another.
2. Outline the role played by communication in any given organization
(a) Vertical communication
Involves the flow of information either downwards or upwards, for example, from a senior employee to a junior employee
(b) Horizontal communication
Is also referred to as lateral communication which is passing of information between people of the same rank or status, for example from one departmental manager to another departmental manager
(c) Diagonal communication
This is communication of different people in different levels of management or departments for example a receptionist communicating to a production manager.
4. Distinguish between formal and informal communication
Formal communication is official and documented and follows certain rules for example a worker writing an official letter to an organization’s seniors. Informal communication does not conform to any time, for example communicating to friends and relatives.
5. State the essential elements in communication.
Advantages
Advantages
Communication is the process by which information is passed from one person or place to another.
2. Outline the role played by communication in any given organization
- It is used to give instructions on what should be done at work and during work.
- It enhances good relations among workers thereby promoting and enhancing their efficiency.
- Through communication most organizations have been able to improve their image, for example through advertising.
- It used to improve the relationship between the organization and the customer or clients.
- For coordinating purposes, communication is used to ensure all departments work in harmony.
- The feedback got from the clients or customers helps to improve an organization’s reliability and quality of goods and services offered.
- Communication is used as a tool for management.
- Good decisions are made as communication helps one understand all the necessary matters.
(a) Vertical communication
Involves the flow of information either downwards or upwards, for example, from a senior employee to a junior employee
(b) Horizontal communication
Is also referred to as lateral communication which is passing of information between people of the same rank or status, for example from one departmental manager to another departmental manager
(c) Diagonal communication
This is communication of different people in different levels of management or departments for example a receptionist communicating to a production manager.
4. Distinguish between formal and informal communication
Formal communication is official and documented and follows certain rules for example a worker writing an official letter to an organization’s seniors. Informal communication does not conform to any time, for example communicating to friends and relatives.
5. State the essential elements in communication.
- The sender who is the source of the information being communicated
- The receiver(or recipient) of information
- The message being communicated
- The channel (or medium) through which the message is passed on
- Feedback which is the response or reaction of the recipient.
- Face-to-face communication
- Telephone conversation
- Radio calls conversation.
Advantages
- A large number of people can receive the information at once for example when addressing in a meeting.
- There is immediate feedback
- Clarification can be made easily and immediately
- This is personal appeal
- It can be very convenient and persuasive
- It is fast since the intended information reaches the recipient immediately.
- It is not easy to know if the message or information has been received particularly if the receivers are many
- It is prone to outside interference due to noise and other forms of disruptions
- In case of incorrect pronunciation of words, there could be distortion of the information
- There is no record for future reference.
- The method is not effective for recipients with learning problems.
- Can take a lot of time to pass intended information.
- Noise may hinder effective communication
- The emotional state of both the sender and the recipient
- Use of the wrong channel to communicate
- Breakdown of a channel used to communicate
- Illiteracy of the recipient particularly for written communication.
- The attitude of the recipient towards the sender and the information being communicated
- Use of difficult vocabulary or words by the sender
- Lack of concentration on the part of the recipient may affect communication
- Poor timing by the sender.
- One gets immediate feedback
- It is fast and can be used to send urgent messages
- There is personal appeal
- The sender has a great opportunity to convince and persuade the recipient.
- It is not very expensive particularly for making calls for a short duration of time
- It can be used even when both the sender and the recipient are far apart
- Written
- Memorandum(memos)
- Reports
- Notices
- Telegrams
- Circulars
- Minutes
- Written communication provides evidence which may not be there in verbal communication
- Written information can be stored for future reference unlike verbal which cannot be stored and depends on the recipients memory
- It is not prone to distortions and therefore more accurate than verbal communication
- Written communication can be in form of diagrams, illustration and maps which is not possible for verbal communication
- Some written communication such as letters would be cheaper and time saving than verbal communication, for example making long telephone calls.
- Written communication can be used for confidential messages, for example registered mails.
- Written is not very persuasive or convincing
- There is no personal touch
- It can only be used by literate
- It can be slow where letters take time to reach the recipient
- It takes time to get a feedback from the recipient
- Messages cannot be enhanced by gestures, that is, body language or face expressions
- It can be expense to file all the written communication
- Charts
- Photographs
- Gestures, which may include signs and symbols
- Slides
Advantages
- Information is more attractive and appealing
- Can reach many people at once
- It can be used even for those who cannot read and write
- Immediate feedback is received from the way the recipient behave
- Can be entertaining
- Can be misinterpreted, for example if the receiver does not understand the signs or gesture
- Not suitable for passing confidential information
- It is not possible for the recipient to give a feedback
- Gesture and signs are only suitable to those who can understand them
- The initial cost of preparing these forms of communication may be high for the sender
- It may take a lot of time to prepare these forms of communication
- Registered mail, for sending valuable or confidential information.
- Speed post services offered by the post office to send letters parcels using the quickest means possible
- Poste restante, usually used by those without postal addresses
- Business reply service which enables customers and clients to reply to a business without having to pay for postage stamps
- Broadcasting services through various radio stations
- Print media such as the various newspapers, magazines and journals
- Internet services which connect one to the world wide website
- Telephone services
- Mobile or cell phone use
- Internet which uses inter linked computers to the world wide website
- Fax, which can be used to send written messages very fast
- Information and telephone bureaus where one can make local and international calls
- Move towards a paperless office.
- Transformation of language.
- The cost because some are more expensive than others
- Availability of the means
- Reliability or assurance that the message will reach the recipient
- The distance between the sender and the recipient.
- The literacy level of both the receiver and the recipient
- The confidential nature of the information being sent
- The urgency of the message
- If there is need for evidence or need for future reference
- The desired impact of the means upon the recipient.
- Her friends may be illiterate and may be unable to read the message received
- Her friends may not have a receiving machine and will be unable to get the information
- It can be expensive to use as the sender pays a subscription fee and rental fee while he and the recipient pays for the sent message
- It can be expensive to buy the teleprinters used in receiving and sending information
- Telex may only send written messages but cannot be used to send maps, diagrams and charts
- When communicating to someone who has a hearing problem
- If one wishes to pass a secret or coded message
- If both the receiver and the sender are far apart but can see each other
- It can be used in case there is a language barrier
- In an environmental where there is a lot of noise or physical interference to other forms of communication, sign language may be used
- It can be appropriate where both the recipient and the sender understand the signs.
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OBJECTIVES
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NOTES
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Q & A
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APA REF.
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OTHER
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COMMUNICATION TOPIC OBJECTIVES.
By the end of the topic, the learner should be able to:
- Explain the meaning and importance of communication
- Describe the lines of communication
- Explain the essential of effective communication
- Discuss the advantages and disadvantages of each means of communication
- Discuss the factors that influence choice of an appropriate means of communication
- Identify the barriers to effective communication
- Discuss services that facilitate communication
- Discuss trends in communication.
SUB-TOPIC GUIDELINES
- Meaning and importance of communication
- Lines of communication
- Vertical/horizontal
- Formal and informal
- Essential of effective communication
- Barriers to effective communication
- Forms and means of communication
- Advantages and disadvantages of communication
- Choice of an appropriate means of communication
- Services that facilitate communication e.g. courier, postal, telecommunication
- Trends in communication e.g.
- Facsimile (fax)
- Development in the internet e.g. e-mail; e-commerce
- Cell-phones
Meaning of communication
Effective communication is vital/important for business in that it serves the following purposes.
- Communication is the transfer or conveyance of messages or information from one person to another.
- Communication is the process of sending and receiving meaningful messages, information and ideas between two or more people located at different points in space.
Effective communication is vital/important for business in that it serves the following purposes.
Importance of communication (purposes)
- To give and obtain information - For an organization to run smoothly there should be proper flow of information within the business and also between the firm and outsiders e.g. the manager may inform members of staff about a planned meeting. Similarly the business may receive a letter of inquiry from a customer
- To clarify issues and points through proper communication - the organization is able to clarify confusing issues from within and without the firm for example in cases where there are many managers. It would be necessary to clarify the responsibilities of each manager.
- To enhance public relations - Good/efficient communication enables the business to create a more positive image and a favorable reputation of itself to outsiders and overcome prejudices and negative attitudes that people may have against the business.
- To start and influence Action - Proper communication enables the business to get new ideas make plans and ensure that they are implemented in the desired way.
- Improving customer service - Good communication helps in reducing errors providing customers with desired feedback and assisting in handling inquiries more efficiently
- Giving instructions - Through proper communication management is able to get work done by issuing instructions (procedures and orders)e.g. a supplier may be instructed when and where to deliver the goods ordered.
- To give Reassurance - Information is needed to reassure people that their performance is good e.g. an employee may feel better is he/she is served with a “will done“ memo or a “customer of the year” award.
- Confirming arrangements - Through communication arrangements are confirmed for example confirmation of meetings conferences or details of transactions
- Co-coordinating departments of the firm - Charges in one department are communicated to other departments that have a direct bearing to those changes e.g. when sales increase the sales department informs the production department so as to increase production proportionality
- Modifying behavior of persons within or outside the organization - Through effective communication persons are trained and counseled and as a result their behavior knowledge and attitudes change
Communication process
Communication is a process that involves interchange of information and ideas between two or more people. Communication therefore is a circular process i.e. communication may lead to some reaction which in turn may generate further communications or feedback. This flow can be illustrated as below;
- Sender – this is the person who writes, speaks or sends signs (symbols or signals) and is the source of the information.
- Receiver - this is the person to whom the information or the message is sent.
- Message – this is the information that is transmitted from the sender to the receiver. It may be spoken, written or in the form of symbols.
- Feedback – this is the response to the sender’s message. A message is said to have been understood if the receiver provides the desired feedback.
Lines of communication
Communication can be classified according to either the levels of the communicating parties or according to the nature of the message.
A. According to levels
This can either be:
A. According to levels
This can either be:
- Vertical
- Horizontal
- Diagonal
Vertical communication
This is where messages are passed between a senior and her/his juniors in the same organizations
Vertical communication can be divided into two parts:-
Vertical communication can be divided into two parts:-
- Downward communication
- Upward communication
Downward communication
This is a communication process which starts from the top manager to her/his juniors. This can be informed of:
- Training juniors
- Evaluating performance
- Delegating duties
- Solving the problems facing workers
- Inspiring and motivating the juniors(giving rewards)
Upward communication
This is a communication process that starts from the juniors to the seniors and maybe in the form of:
- Submitting reports
- Giving suggestion
- Submitting complaints a grievances
- Making inquiries
Horizontal communication (lateral communication)
This is communication between people of the same level (rank) in the same organization e.g. departmental heads in an organization may communicate to achieve the following:
- Co-ordination and harmonization of different activities.
- To create teamwork within the department.
- To exchange ideas in order to develop human resources.
- To reduce goal blindness among different departments.
- To create a sense of belonging among department heads thus acting as a motivating factor.
Diagonal communication
This is communication between people of different levels in different departments or different organizations e.g. an accounts clerk may communicate with a sales manager of the same organization or of different organizations. Diagonal communication enhances team work.
b) According to nature of message
This can either be;
b) According to nature of message
This can either be;
- Formal communication
- Informal communication
Formal communication
This is the passing of messages or information using the approved and recognized way in an organization such as official meetings, memos and letters. This means that messages are passed to the right people following the right channels and in the right form.
Formal communication is also known as official communication as it is the passing of information meant for office purposes.
Formal systems of communication are consciously and deliberately established.
Formal communication is also known as official communication as it is the passing of information meant for office purposes.
Formal systems of communication are consciously and deliberately established.
Informal communication
This is communication without following either the right channels or in the right form i.e. takes place when information is passed unofficially. It is usually used when passing information between friends and relatives hence it lacks the formality.
Informal communication may also take the form of gossips and rumor-mongering.
Informal communication usually supplements formal communication as is based on social relations within the organization.
Note: Both formal and informal communication is necessary for effective communication in an organization.
Informal communication may also take the form of gossips and rumor-mongering.
Informal communication usually supplements formal communication as is based on social relations within the organization.
Note: Both formal and informal communication is necessary for effective communication in an organization.
Essentials of Effective communication
For communication to be effective it must be originated produced transmitted received understood and acted upon. The following are the main essentials to effective communications.
- The sender/communicator - This is the person from whom the message originates. He/she encodes the message i.e. puts the message in the communicative form.
- Message - This is the information to be sent. It is the subject matter of communication and may contain words, symbols, pictures or some other forms which will make the receiver understand the message
- Encoding - this is the process of expressing ones ideas in form of words, symbols, gestures and signs to convey a message
- Medium/channel - this refers to the means used in communicating. This could be in the form of letters, telephones and emails among others.
- The receiver - this is the person for whom the message is intended. The receiver decodes the message for proper understanding.
- Decoding - this is the process of interpreting or translating the encoded message to derive the meaning from the message
- Feed-back - this refers to the reaction of the receiver of the message. This maybe a reply /response which the receiver sends back to the sender.
Forms and Means of Communication
Forms; these are channels or ways of passing on messages. The four main forms are;
- Oral communication
- Written communication
- Audio –visual communication
- Visual communication
Oral communication
This is where information is conveyed by talking (word of mouth)
It is also known as verbal communication
It is also known as verbal communication
Means of communication
i) Face-to-face conversation
This involves two or more people talking to each other. The parties are usually near each other as much as possible to ensure effective communication.
It is suitable where subject matter of discussion require convincing persuasion and immediate feed-back.
It may be used during meetings, interviews, seminars, private discussions, classrooms e.t.c
It is the most common means of oral communication
This involves two or more people talking to each other. The parties are usually near each other as much as possible to ensure effective communication.
It is suitable where subject matter of discussion require convincing persuasion and immediate feed-back.
It may be used during meetings, interviews, seminars, private discussions, classrooms e.t.c
It is the most common means of oral communication
Advantages of face-to-face communication
- Provides for immediate feedback
- Has personal appeal
- Body language can be easily expressed
- One can persuade or convince another
- It is the simplest communication to use
- It is direct i.e. does not pass through intermediaries
- Convenient for confidential messages.
Disadvantages of face-to-face communication
- No record for future reference
- Can be time consuming
- Messages can be distracted
- Not suitable when people are far apart
- Unsuitable for the dumb and deaf
ii) Telephone
This form of communication is commonly used in offices and homes. It is useful in sending messages quickly over short and long distances.
It is however not suitable for sending;
Installation is done on application by the subscriber (applicant).He/she pays the installation fee in addition; the subscriber is sent a monthly bill with the charges for all the calls made during the month.
The charges for calls depend on the time spent time of the day of the week and distance of the recipient from the caller e.g. it is cheaper to call at night than during the day. It is also cheap to make calls during public holidays and weekends than on weekdays.
There are also mobile phones which have no physical line connection to exchange and may be fixed to a vehicle or carried in pockets. In Kenya these services are provided by safaricom, Airtel, orange and Yu mobile communications.
This form of communication is commonly used in offices and homes. It is useful in sending messages quickly over short and long distances.
It is however not suitable for sending;
- Confidential messages
- Long and detailed reports, charts and graphs
- Messages that would require reference or evidence
Installation is done on application by the subscriber (applicant).He/she pays the installation fee in addition; the subscriber is sent a monthly bill with the charges for all the calls made during the month.
The charges for calls depend on the time spent time of the day of the week and distance of the recipient from the caller e.g. it is cheaper to call at night than during the day. It is also cheap to make calls during public holidays and weekends than on weekdays.
There are also mobile phones which have no physical line connection to exchange and may be fixed to a vehicle or carried in pockets. In Kenya these services are provided by safaricom, Airtel, orange and Yu mobile communications.
Advantages of Telephones
- Relatively fast
- Has personal appeal
- Provides for immediate feedback
- One can persuade or convince another
- Suitable for long distance communication
Disadvantages of Telephone
- Can be expensive especially over long distances
- No record for future reference
- Lacks confidentiality
- Not convenient for dumb and deaf
- Can be time consuming
Reasons why mobile phones have become popular
- They are portable and can be conveniently carried around.
- It is not very expensive especially when making local calls.
- Relatively cheap to acquire.
- Some mobile phones can record conversations / calls thereby acting as evidence.
- Can be used to send short text messages (sms)
- Can be used anywhere since they are portable.
iii) Radio calls
This involves transmitting information by use of radio waves i.e. without connecting wires between the sender and the receiver
The device used is called a radio telephone. It is commonly used in remote areas where normal telephone services are lacking or where telephone services are available but cannot be conveniently used e.g. policemen on patrol in different parts of a town
Radio transmission is a one way communication system i.e. only one person can speak at a time. It is therefore necessary for the speaker to say ‘over’ to signal the recipient that the communication is through so that the recipient can start talking. To end the conversation, the speaker says ‘over and out’
The radio calls are commonly used by the police, game rangers, researchers, foresters, ship owners and hotels situated in remote areas. They are also used for sending urgent messages such as calling for an ambulance and fire brigade
Note; Radio calls are not confidential since they use sound frequencies that can be tapped by any radio equipment that is tuned to that frequency
This involves transmitting information by use of radio waves i.e. without connecting wires between the sender and the receiver
The device used is called a radio telephone. It is commonly used in remote areas where normal telephone services are lacking or where telephone services are available but cannot be conveniently used e.g. policemen on patrol in different parts of a town
Radio transmission is a one way communication system i.e. only one person can speak at a time. It is therefore necessary for the speaker to say ‘over’ to signal the recipient that the communication is through so that the recipient can start talking. To end the conversation, the speaker says ‘over and out’
The radio calls are commonly used by the police, game rangers, researchers, foresters, ship owners and hotels situated in remote areas. They are also used for sending urgent messages such as calling for an ambulance and fire brigade
Note; Radio calls are not confidential since they use sound frequencies that can be tapped by any radio equipment that is tuned to that frequency
Advantages of Radio calls
- Relatively fast
- Has immediate feedback
- Has personal appeal
- Provide room for one to persuade and convince another
- Suitable for remote areas
- Convenient for long distances
Disadvantages of Radio calls
- No record for future reference
- Lacks confidentiality
- Messages are sent one way at a time
- Can be expensive
- Cannot be used by dumb and deaf
- Can be time consuming.
iv) Paging
This is a means of communication used to locate staff or employers who are scattered in an organization or who are outside and need to be located urgently
When within the organization portable receivers, lighted signals, bells, loudspeakers etc. are used
When outside the organization employees are contacted using portable receivers (pocket-size) used to send messages through sms (short message services)
The paying system can only be used within a certain radius. When using a portable receiver, the caller will contact the subscriber by calling the post office which will then activate the pager.
The subscriber is then informed to contact the originator of the message.
Paging is mostly used in emerging cases
This is a means of communication used to locate staff or employers who are scattered in an organization or who are outside and need to be located urgently
When within the organization portable receivers, lighted signals, bells, loudspeakers etc. are used
When outside the organization employees are contacted using portable receivers (pocket-size) used to send messages through sms (short message services)
The paying system can only be used within a certain radius. When using a portable receiver, the caller will contact the subscriber by calling the post office which will then activate the pager.
The subscriber is then informed to contact the originator of the message.
Paging is mostly used in emerging cases
v) Radio
Usually messages intended for a wide audience can be transmitted through a radio more quickly and economically than by using other forms of communication.
Radio is used for different reasons apart from advertising e.g. for formal notices, and venue for activities
Usually messages intended for a wide audience can be transmitted through a radio more quickly and economically than by using other forms of communication.
Radio is used for different reasons apart from advertising e.g. for formal notices, and venue for activities
Advantages of oral/verbal communication
- Very effective method of communication since the recipient can be persuaded/convinced
- It is relatively faster method of communication
- The sender can get immediate feedback
- It indicates some sense of regard hence more appealing.
Disadvantages of oral/verbal communication
- Has no records for future reference
- Is an expensive method especially if the two parties are far apart
- Is not good for confidential messages
- It is not suitable for confidential messages
- It may be time wasting especially where one needs to be convinced
vi) Written Communication
This involves transmission of messages through writing. It is the most formal way of communication because the information is in recorded form and can be used for reference
This involves transmission of messages through writing. It is the most formal way of communication because the information is in recorded form and can be used for reference
Means of written communication
(i)Letters
Letters are the most commonly used means of communication.
There are two categories of letters;
Business letters are written to pass messages and information from businessmen to customers and vice versa e.g. letters of inquiry and acknowledgement notes.
It can also be used between employees and employers in an organization e.g. a complimentary note.
Official letters are letters between people in authority and others that touch on the activities of the organization e.g. an application letter for an advertised vacancy in an organization.
Formal letters have a salutation clause which usually starts with “Dear Madam “or “Dear Sir”. It also bears the addresses of both the sender and the recipient, a subject heading and a complimentary clause ending with “Yours faithfully”.
b) Informal Letters; these are letters between friends and relatives
They are also known as Personal letters
Letters are the most commonly used means of communication.
There are two categories of letters;
- Formal letters
- Informal letters
Business letters are written to pass messages and information from businessmen to customers and vice versa e.g. letters of inquiry and acknowledgement notes.
It can also be used between employees and employers in an organization e.g. a complimentary note.
Official letters are letters between people in authority and others that touch on the activities of the organization e.g. an application letter for an advertised vacancy in an organization.
Formal letters have a salutation clause which usually starts with “Dear Madam “or “Dear Sir”. It also bears the addresses of both the sender and the recipient, a subject heading and a complimentary clause ending with “Yours faithfully”.
b) Informal Letters; these are letters between friends and relatives
They are also known as Personal letters
ii) Telegrams
This is a means of communication provided by the post office. The sender obtains the telegram form from the post office and fills the message on it in capital letters and hand it over to the post office employees at the counter. Alternatively the sender may use a telephone to read the message to the post office. The post office then transmits the message to the recipient post office.
The charges of a telegram are based on the number of words used, the more the words used the higher the charges. However there is a standing charge.
Telegrams are used for sending urgent messages.
Note; Due to changing technology telegrams have lost popularity. Short messages can now be sent by cell phones (mobile phones) using the short messages services (sms)
This is a means of communication provided by the post office. The sender obtains the telegram form from the post office and fills the message on it in capital letters and hand it over to the post office employees at the counter. Alternatively the sender may use a telephone to read the message to the post office. The post office then transmits the message to the recipient post office.
The charges of a telegram are based on the number of words used, the more the words used the higher the charges. However there is a standing charge.
Telegrams are used for sending urgent messages.
Note; Due to changing technology telegrams have lost popularity. Short messages can now be sent by cell phones (mobile phones) using the short messages services (sms)
iii) Telex
This is a means of communication used to send short or detailed messages quickly by use of a teleprinter. The service is provided by the post office on application.
A message is sent by use of two teleprinters one on the senders end and another on the recipients end. When sending information through a teleprinter which is a form of electric typewriter producing different electric signals, its keys are pressed and automatically the message is printed at the recipient’s machine.
Telex saves time for both the sender and recipient as the messages are brief precise and received immediately. However it’s an expensive means of communication
This is a means of communication used to send short or detailed messages quickly by use of a teleprinter. The service is provided by the post office on application.
A message is sent by use of two teleprinters one on the senders end and another on the recipients end. When sending information through a teleprinter which is a form of electric typewriter producing different electric signals, its keys are pressed and automatically the message is printed at the recipient’s machine.
Telex saves time for both the sender and recipient as the messages are brief precise and received immediately. However it’s an expensive means of communication
iv) Facsimile (Fax)
This involves transmission of information through a fax machine. Both the sender and the receiver must have a fax machine. These machines are connected using telephone lines
Fax is used to transmit printed messages such as letters, maps, diagrams and photographs. To send the information, one dials a fax number of the required destination and then the document is fed into the sender’s machine. The receiving machine reproduces the document immediately. It is used for long distance photocopying service.
v) Memorandum (Memo)
This is printed information for internal messages within an organisation. It is normally used to pass information between departments or offices in an organization.
Memoranda have no salutation or complimentary clause. They are suitable for informing the officers within an organization of matters related to the firm.
A memo is pinned on the notice board of an organization if it is meant for everybody otherwise passed to the relevant staff.
vi) Notice
This is a written communication used to inform a group or the public about past current or future events. It is usually brief and to the point. It can be placed on walls, in public places, on trees, in newspapers or on notice boards.
This involves transmission of information through a fax machine. Both the sender and the receiver must have a fax machine. These machines are connected using telephone lines
Fax is used to transmit printed messages such as letters, maps, diagrams and photographs. To send the information, one dials a fax number of the required destination and then the document is fed into the sender’s machine. The receiving machine reproduces the document immediately. It is used for long distance photocopying service.
v) Memorandum (Memo)
This is printed information for internal messages within an organisation. It is normally used to pass information between departments or offices in an organization.
Memoranda have no salutation or complimentary clause. They are suitable for informing the officers within an organization of matters related to the firm.
A memo is pinned on the notice board of an organization if it is meant for everybody otherwise passed to the relevant staff.
vi) Notice
This is a written communication used to inform a group or the public about past current or future events. It is usually brief and to the point. It can be placed on walls, in public places, on trees, in newspapers or on notice boards.
viii) Reports
These are statements/within records of findings recommendations and conclusion of an investigation/research. A report is usually sent to someone who has asked for it for a specific purpose.
viii) Circulars
These are many copies of a single letter addressed to very many people when the message intended for each is the same.
ix) Agenda
This is an outline of the items to be discussed in a meeting. It is usually contained in a notice to a meeting sent in advance to all the participants of the meeting. The notice of the meeting contains;
These are records of the proceedings of a meeting. Keeping minutes of certain meetings is a legal requirements e.g. companies
Keeping minutes for other meetings are for management purposes to ensure that decisions made at the meetings are implemented
These are statements/within records of findings recommendations and conclusion of an investigation/research. A report is usually sent to someone who has asked for it for a specific purpose.
viii) Circulars
These are many copies of a single letter addressed to very many people when the message intended for each is the same.
ix) Agenda
This is an outline of the items to be discussed in a meeting. It is usually contained in a notice to a meeting sent in advance to all the participants of the meeting. The notice of the meeting contains;
- The date of the meeting
- The venue of the meeting
- Time of the meeting
- Items to be discussed
These are records of the proceedings of a meeting. Keeping minutes of certain meetings is a legal requirements e.g. companies
Keeping minutes for other meetings are for management purposes to ensure that decisions made at the meetings are implemented
Advantages of written communication
- It can be retained for future reference
- Some like letters are relatively cheap(can produce many copies)
- It is suitable for confidential messages
- Allows for inclusion of fine details
- It is not prone to distortion of messages
- Can be used as evidence
- Can be addressed to many people.
Disadvantages of written communication
- It lacks personal appeal
- It takes time to prepare and reach the recipient
- Suitable for the literate only
- Immediate feedback may not be possible
- Does not offer room for persuasion and convincing
- It may be expensive because it involves a lot of paperwork and time.
- Not suitable if the sender and the receiver do not share a common language.
3) Visual Communication
This is the process of passing information by use of diagrams, drawings pictures, signs, and gestures etc.
a)Photographs
A photograph is an image (visual representation of an object as it appeared at the time when the photograph was taken
Photographs are self-explanatory and may not be accompanied by any narration or explanation. The recipient is able to get the message at a glance.
b) Signs
Refer to marks, symbols, drawings or gestures whose purpose is to inform the public about such things as directions, distances, dangers and ideas.
Examples; road signs, traffic lights and danger signs on electricity poles
This means of communication can only be effective if the meaning of the sign used is understood.
Graphs; these are used to show and illustrate statistical information
Charts; these are diagrams which show or illustrate the flow of an idea e.g. an organization chart illustrates the whole organization structure indicating the chain of command
This is the process of passing information by use of diagrams, drawings pictures, signs, and gestures etc.
a)Photographs
A photograph is an image (visual representation of an object as it appeared at the time when the photograph was taken
Photographs are self-explanatory and may not be accompanied by any narration or explanation. The recipient is able to get the message at a glance.
b) Signs
Refer to marks, symbols, drawings or gestures whose purpose is to inform the public about such things as directions, distances, dangers and ideas.
Examples; road signs, traffic lights and danger signs on electricity poles
This means of communication can only be effective if the meaning of the sign used is understood.
Graphs; these are used to show and illustrate statistical information
Charts; these are diagrams which show or illustrate the flow of an idea e.g. an organization chart illustrates the whole organization structure indicating the chain of command
Advantages of visual communication
- It can be used to pass confidential information
- The information may be obtained at once
Disadvantages of visual communication
- Can only be used by people who can see
- The information may be wrongly interpreted
- It may be an expensive method of communication
- Cannot be used for long distances
4) Audio-Visual communication
This is a form of communication in which messages are sent through sounds and signs.
This form of communication ensures that the receiver gets the message instantly.
It is suitable where both the sender and the receiver know the meaning of specific sounds and signs.
This is a form of communication in which messages are sent through sounds and signs.
This form of communication ensures that the receiver gets the message instantly.
It is suitable where both the sender and the receiver know the meaning of specific sounds and signs.
Means of Audio-visual communication
- Television (TV); this is a device that transmits information inform of a series of images on a screen accompanied by sound. It is a very effective method of communication since it combines the advantages of image and sound. A television can be a very suitable means of sending urgent messages especially when it gives live coverage of events.
- Siren; this is a device used to produce a loud shrill sound accompanied by a flashing light. It is commonly used by the police, ambulances, and the fire brigade and security firms to alert the public of the danger involved e.g. the ambulance siren conveys the message that somebody is seriously sick and therefore other motorists should give way.
Advantages of Audio-visual communication
- It reaches many people
- It is more appealing than other means of communication
- Reinforces verbal communication
- May have a lasting effect on the receiver
- Suitable where receivers are illiterate.
Disadvantages of Audio-visual communication
- It is suitable to those people who can interpret the messages correctly
- It is not suitable for confidential messages
- Preparation may take long.
5) Audio Communication
This is when the message is transmitted through sounds. Examples include
This is when the message is transmitted through sounds. Examples include
- A whistle; this is a device which is blown to produce a sharp shrill sound to alert or warn the public or employees in an institution. It is normally used by security guards when there is danger. In some organization, a whistle is used to announce change in shifts
- Horn; This is also an instrument that is used to produce sound which passes different information depending on the way it is blown. Other methods of audio communication include drums, alarms, and bells among others
Advantages of Audio communication
- Is a faster method of communication
- It can reach several people at once
- The message is received instantly
Disadvantages of Audio communication
- The message may be interpreted wrongly
- It can only be used within a certain radius at a time
- It distracts people’s attention
communication questions and answers
1. 1996 P1
Outline four reasons why a business person may prefer written communication to verbal communication. (5 marks)
2. 1997 P1
State five services offered by the post office. (5 marks)
3. 1998 P1
State four advantages of verbal communication. (4 marks)
4. 1999 P1
Highlight four advantages of using telex as a means of communication. (4 marks)
5. 1999 P2
Discuss the factors that a firm may consider in choosing a method of communication within the firm
6. 2000 P1
State four features of effective communication. (4 marks)
7. 2001 P1
State four reasons why the post office is still popular as a means of sending letters. (4 marks)
8. 2001 P2
State reasons for use of letters in business communication.
9. 2002 P1
Give four reasons why a person would send a message by mail rather than by telephone. (4 marks)
10. 2003 P1
Highlight four factors that may limit the use of telephone as a means of communication in Kenya. (4 marks)
11. 2004 P1
State four problems that may interfere with the effectiveness of face to face communication. (4 marks)
12. 2006 Q15 P1
Give four reasons why one would prefer a letter to a telephone to send a message. (4 marks)
13. 2007 Q2 P1
The following terms relate to communication: vertical, horizontal, formal and informal. Write the appropriate term of communication associated with each of the following statements.
Outline four reasons why a business person may prefer written communication to verbal communication. (5 marks)
2. 1997 P1
State five services offered by the post office. (5 marks)
3. 1998 P1
State four advantages of verbal communication. (4 marks)
4. 1999 P1
Highlight four advantages of using telex as a means of communication. (4 marks)
5. 1999 P2
Discuss the factors that a firm may consider in choosing a method of communication within the firm
6. 2000 P1
State four features of effective communication. (4 marks)
7. 2001 P1
State four reasons why the post office is still popular as a means of sending letters. (4 marks)
8. 2001 P2
State reasons for use of letters in business communication.
9. 2002 P1
Give four reasons why a person would send a message by mail rather than by telephone. (4 marks)
10. 2003 P1
Highlight four factors that may limit the use of telephone as a means of communication in Kenya. (4 marks)
11. 2004 P1
State four problems that may interfere with the effectiveness of face to face communication. (4 marks)
12. 2006 Q15 P1
Give four reasons why one would prefer a letter to a telephone to send a message. (4 marks)
13. 2007 Q2 P1
The following terms relate to communication: vertical, horizontal, formal and informal. Write the appropriate term of communication associated with each of the following statements.
14. 2007 Q1b P2
b) Explain four advantages of transaction business through e-commerce. (8 marks)
15. 2008 Q5 P1
Outline four benefits that may accrue to a business person who uses e-mail to communicate. (4 marks)
16. 2009 Q12 P1
Outline four circumstances under which face to face communication may be ineffective.
17. 2012 Q5 P1
Outline one circumstance under which each of the following telecommunication services may be used:
(b) Explain five elements of effective communication. (10 marks)
b) Explain four advantages of transaction business through e-commerce. (8 marks)
15. 2008 Q5 P1
Outline four benefits that may accrue to a business person who uses e-mail to communicate. (4 marks)
16. 2009 Q12 P1
Outline four circumstances under which face to face communication may be ineffective.
17. 2012 Q5 P1
Outline one circumstance under which each of the following telecommunication services may be used:
- Paging
- Facsimile(fax)
- Radio call
(b) Explain five elements of effective communication. (10 marks)
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OBJECTIVES
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NOTES
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Q & A
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APA REF.
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TOPIC OBJECTIVES
By the end of the topic, the learner should be able to:
- Explain the meaning and importance of transport to business
- Explain the essential elements of transport
- Describe the modes and means of transport
- Discuss advantages and disadvantages of each means of transport
- Discuss the factors which influence choice of appropriate means of transport
- Discuss trends of transport.
GUIDELINES ON TOPICS
- Meaning and importance of transport
- Essentials of transport
- Modes and means of transport
- Advantages and disadvantages of each means of transport
- Choice of appropriate means of transport
- Trends in transport e.g.
- Containerization
- Pipeline
MEANING OF TRANSPORT
Transport is the physical movement of people and goods from one place to another. It helps bridge the gap between producers and consumers hence creating place utility.
Importance of Transport to Business
- Bridging the gap between producers and consumers/ linking consumers to producers-Transport links consumers to producers which enable the consumers to obtain the goods they need.
- Employment creation-Transport helps in solving unemployment problem by creating job opportunities. For example, people may be employed as drivers, pilots, mechanics and road constructors.
- Promotes specialization-Transport enables people to specialize in jobs they are best at. For example; producers would concentrate in production only while other people carry out distribution.
- Making goods and services more useful-Through transport goods are moved from a place where they are least required to a place where they are most required thereby making them more useful.
- Improving people’s standard of living-It enables consumers to get a variety of goods and services thereby improving the standards of living.
- Availing a wide market for products-It helps producers to widen the markets for their products by enabling them access to areas they would otherwise not have accessed
- Increased production/ facilitates mass production-Due to the wider market created through transport, producers are able to increase the volume of goods produced.
- Avoiding wastage-Transport makes it possible for surplus goods to be disposed of by taking them to areas where they are required. Perishable goods such as flowers, fruits and vegetables can also be transported fast hence minimizing/ avoiding wastage.
- Promoting development of industries-Through transport, raw materials can be taken to manufacturing industries and also finished goods to the market. Similarly, it promotes development of service industries such as tourism.
- Adds value to goods and services- creates utility in goods by moving them from the point of production to where they are needed thereby adding their value.
- Leads to the opening of new markets- Goods and services can be taken to new areas with ease.
- It facilitates the movement of labour- people can easily move from where they stay to where they work.
ESSENTIAL ELEMENTS OF TRANSPORT
In order for a transport system to function efficiently it should have certain basic elements, these elements are:
- Unit(S) of carriage
- Methods of propulsion
- Ways
- Terminals(terminus)
A. Unit(S) of carriage
This refers to anything i.e. vessel that is used to transport goods and people from one place to another. Units of carriage include: ships, trains, airplanes, motor vehicles, bicycles and carts. Units of carriage are also referred to as means of transport.
b. Methods of propulsion
This is the driving force (source of power) that makes a unit of carriage to move. The power for most vessels may be petroleum products, electricity, human force or animal power.
c. Ways
It refers to either the route or path passes by the vessel. The route can be on land, on water or through air. Examples of ways are roads, railways, paths, canals, seaways and airways. The ways can be classified into either natural ways or man made ways.
- Natural ways-As the name suggests, natural ways are the ways that are provided by nature. They are therefore free to acquire. They include airways and seaways.
- Man-made ways-These are ways that are made available by human being. They include roads, canals and railways. Man made ways are usually expensive to construct and maintain.
d. Terminals (terminuses)
The vessel used to carry goods and people starts from one destination and ends up at another. At these destinations the loading and off-loading take place respectively. The loading and off-loading places are referred to as terminals or terminus. Examples of terminuses are bus stations, airports and seaports.
MODES OF TRANSPORT
Mode refers to the manner in which transport is carried out. There are three modes of transport namely:
- Land transport
- Water transport
- Air transport
Land transport
This mode of transport involves movement of goods and people using units of carriage that move on dry land. The various means under this mode includes:
Human Porterage
This involves human beings carrying goods on their heads, shoulders or backs. Human Porterage as a means of transport is the oldest kind of transport and is still very common in our society. The means is suitable for transporting light luggage over short distances. It is also appropriate where other means of transport are not available or convenient.
Advantages of Human Porterage
- Could be the only means of transport available
- Compliments other means of transport
- Flexible as it has no fixed time table or routes
- May be a cheap means compared to other means of transport
- Readily available when required
- Convenient over short distances
Disadvantages of human Porterage
- Not suitable for long distances
- They add onto congestion on roads
- Not suitable for transporting heavy and bulky goods
- It is relatively slow
- Relies on human energy which is exhaustible
Carts
Carts are open vessels usually on two or four wheels that are pushed or pulled by either human being or animals such as oxen and donkeys. The carts pushed or pulled by human beings are referred to as hand carts or mikokoteni. The ones pulled by animals, on the other hand, are called animal driven carts. Carts are used to carry relatively large quantities compared to human Porterage. Like human Porterage, they are not suitable for long distances. Types of goods that are transported using this means include, agricultural produce, water and animal feeds.
Advantages of carts
- Compliments other means of transport
- Relatively cheap to hire
- Initial buying and maintenance cost is low
- Appropriate in remote areas where other means are not available
- Readily available for hire
- Can carry fairly heavier and bulky goods
- Convenient for transporting goods over short distances
Disadvantages of carts
- May not be suitable for transporting heavy and bulky goods
- Cause traffic jams on roads leading to congestion and accidents
- Not suitable for transporting goods over long distances
Vehicles
These are means (units of carriage) of transport that ferry goods and people on roads. Vehicles are the most commonly used means of transport.
Vehicles are either passenger or goods carriers. Passenger carriers may be buses, matatus, taxis and private cars while goods are transported using Lorries, pick-ups, tankers and trailers. Vehicles are expensive to acquire and maintain. The convenience of vehicles may depend on the nature of the road on which they travel.
Some roads are impassible especially when it rains while others are usable throughout the year (all weather roads).Of special concern in road transport is the matatus. These are privately owned passenger vehicles which were introduced to supplement the existing mainstream transport companies that were inadequate at independence. They got their name from the amount of fare they used to charge originally that is, mapeni matatu. The operators have to obtain the relevant documents such as insurance cover in order to be allowed to operate. Their owners may form associations which take care of their interests along given routes or in certain areas.
Vehicles are either passenger or goods carriers. Passenger carriers may be buses, matatus, taxis and private cars while goods are transported using Lorries, pick-ups, tankers and trailers. Vehicles are expensive to acquire and maintain. The convenience of vehicles may depend on the nature of the road on which they travel.
Some roads are impassible especially when it rains while others are usable throughout the year (all weather roads).Of special concern in road transport is the matatus. These are privately owned passenger vehicles which were introduced to supplement the existing mainstream transport companies that were inadequate at independence. They got their name from the amount of fare they used to charge originally that is, mapeni matatu. The operators have to obtain the relevant documents such as insurance cover in order to be allowed to operate. Their owners may form associations which take care of their interests along given routes or in certain areas.
Advantages of matatus
- They supplement regular bus companies, especially in remote areas where they are the only means.
- They fill up faster than buses hence save time
- They are more flexible since they can change routes easily depending on demand
- They reach out into the interior of rural areas where big buses cannot access
- They are more flexible with the fares they charge
- They are easier to hire as most of them are readily available
- They are cheaper to acquire as compared to buses
Disadvantages of matatus
- Some matatus are poorly maintained to the extent of being unroadworthy
- Most drivers are reckless as they rush to compete for customers. They pick or drop passengers anywhere
- In some cases, touts use impolite language when dealing with passengers
- They may cause noise pollution such as unnecessary hooting and loud music
- They may cause congestion in towns unnecessarily because of careless driving and parking
- Uncalled for sudden increase in fares at peak hours, during the night and on public holidays
- Their operation is concentrated on peak hours, rarely operating at night.
- They at times unexpectedly change their route hence causing breach of contract.
Advantages of vehicles
- Most readily available means of transport
- Relatively fast compared to carts and human Porterage
- Relatively cheaper over short distances
- Flexible as it can offer door to door service
- Vehicles may be available for transporting special goods
- Roads are widely spread thereby making many areas accessible.
Disadvantages of vehicles
- Acquisition and maintenance costs are high
- May not be suitable for transporting heavy and bulky goods over long distances as compared to railways
- Traffic jams in roads may cause delays
- Vehicle transport is prone to accidents which may lead to loss of goods and life
- Some roads may be impassible especially during the rainy seasons.
Trains
Trains are vessels that transport goods and people on rails hence the term railways.
The terminuses of trains are the railways stations. Therefore; the goods to be transported by trains have to be taken to the railway station. Railway transport is suitable for heavy and bulky goods as well as passengers. There are two types of trains: cargo and passenger train.
The terminuses of trains are the railways stations. Therefore; the goods to be transported by trains have to be taken to the railway station. Railway transport is suitable for heavy and bulky goods as well as passengers. There are two types of trains: cargo and passenger train.
Advantages of Trains
- Relatively secure as cases of theft and accidents are rare
- Enables a transporter to plan for the transport of his/her goods as trains follow a fixed time table
- Economical for transporting heavy and bulky goods over a long distance
- Trains may have facilities for carrying special types of goods e.g. gas, petrol and vehicles
- Where shunting facilities are available trains may deliver goods up to or from the owner’s premises
Disadvantages of Trains
- Not flexible as trains follow a strict time table
- Railway lines are expensive to construct and to maintain
- Not all areas are served by railway lines
- Not suitable for transporting urgently required or perishable goods as it is slow
- Unsuitable for transporting goods over short distances
- Trains are expensive to acquire and maintain
Pipeline Transport
This is the movement of liquids and gases from one place to another through a pipe. Products transported through pipes include water, gases, petrol and diesel. Solids that cannot be dissolved or damaged by water may also be transported through pipes as suspension. Examples coffee berries from machines to drying places. The pipeline is both a vessel and a way.
Products flow by the force of gravity or pressure from an original station. If the original terminal is at a higher level than the receiving terminal, the force of gravity is adequate to move the product. But if the receiving terminal is at a higher level than the original than the originating terminal, then power is required to pump the product uphill. For example, petroleum from Mombasa which is at sea level needs pressure to pump it to all the receiving stations.
Products flow by the force of gravity or pressure from an original station. If the original terminal is at a higher level than the receiving terminal, the force of gravity is adequate to move the product. But if the receiving terminal is at a higher level than the original than the originating terminal, then power is required to pump the product uphill. For example, petroleum from Mombasa which is at sea level needs pressure to pump it to all the receiving stations.
Advantages of pipeline Transport
- It is labour saving as it requires minimal manpower
- It is environmentally friendly since it is free of noise or smoke
- It may be constructed in areas where it is difficult to construct roads or railway lines. For example, over rugged terrain
- Pipelines allow continuous flow of the goods being transported
- It ensures that road damage is reduced as the number of tankers is reduced on roads
- It helps to reduce accidents that may be caused by tankers on roads
- It reduces delays arising from congestion on roads
- Maintenance costs are reduced as it relies on gravitational force and booster stations along the way
- It may not be affected by adverse weather conditions
Disadvantages of pipeline Transport
- A leakage not detected in good time may lead to high losses
- Initial construction cost is high
- Accidents leakages may lead to environmental pollution
- It is unidirectional that is, travels only in one direction
- It can transport only one product at a time
- It is not flexible since once a line is laid, it cannot be adjusted according to transport patterns or demands
- Generates comparatively fewer job opportunities as it is capital intensive
- It is vulnerable to sabotage by enemies.
- Once laid, it is difficult to reroute or relocate.
Water Transport
It is a mode of transport where the units of carriage transport goods and people on water. Water in this case includes; navigable rivers, lakes, seas and oceans. The means of transport which are the units of carriage or vessels using this mode include; ships, dhows, boats, steamers and ferries. Water transport can be divided into inland waterways and sea transport.
Inland waterways
This is transport carried out on lakes, rivers and inland canals. The Lake Victoria facilitates transport among the three east African countries i.e. Kenya, Uganda and Tanzania. Ferries also connect the mainland to islands such as Rusinga Islands, found in Lake Victoria.
Water hyacinth has however been a threat to transport on the lake. Most rivers in Kenya are not navigable due to reasons such as:
Water hyacinth has however been a threat to transport on the lake. Most rivers in Kenya are not navigable due to reasons such as:
- Too small
- Presence of rapids and waterfalls
- Too shallow
- Most are seasonal
- High gradient
Sea Transport
This is where goods and people are transported in seas and oceans. All types of water vessels may be used in sea transport. Sea transport is important as it connects continents of the world thereby facilitating international trade. Kilindini in Mombasa provides a good natural harbor facilitating sea transport between Kenya and other countries of the world. Ferries also connect the island of Mombasa and the mainland.
Types of Water vessels
Ships
A ship is a large vessel that transports people or goods through water. Their sizes however vary depending on quantity of goods and passengers they carry. Ships help in connecting countries or places which borders the sea. They load and offload in terminals referred to as harbors found at sea ports. For example, the Kilindini harbor is found in the port of Mombasa.
Ships that transport people are referred to as passenger ship while those that transport goods are referred to as cargo ships. Cargo ships are c are convenient for carrying heavy and bulky goods.
Ships may also be classified as either liners or tramps.
A ship is a large vessel that transports people or goods through water. Their sizes however vary depending on quantity of goods and passengers they carry. Ships help in connecting countries or places which borders the sea. They load and offload in terminals referred to as harbors found at sea ports. For example, the Kilindini harbor is found in the port of Mombasa.
Ships that transport people are referred to as passenger ship while those that transport goods are referred to as cargo ships. Cargo ships are c are convenient for carrying heavy and bulky goods.
Ships may also be classified as either liners or tramps.
Liners
These are ships that are owned and operated by shipping companies called conferences. Each conference is responsible for specifying the route on which each liner would operate the rates to be charged and setting the rules and regulations to be followed by the members.
These are ships that are owned and operated by shipping companies called conferences. Each conference is responsible for specifying the route on which each liner would operate the rates to be charged and setting the rules and regulations to be followed by the members.
Characteristics of liners
- Have fixed routes
- Follow a fixed time table
- Charges are fixed
- Call at specified ports along the route at specified intervals
- Travel at regular intervals.
Tramps
These are ships that do not follow a regular route or time table. Their routes therefore depend on demand. During times when demand is high, they charge higher rates and when demand is low they lower their rates. Tramps can therefore be likened to matatus. Tramps may be owned by either individuals or firms.
These are ships that do not follow a regular route or time table. Their routes therefore depend on demand. During times when demand is high, they charge higher rates and when demand is low they lower their rates. Tramps can therefore be likened to matatus. Tramps may be owned by either individuals or firms.
Characteristics of tramps
- Do not have a fixed rate. They therefore move to wherever there are goods or passengers to carry.
- Have no set time tables. They therefore move according to demand
- Their fares change according to demand.
- Their travelling patterns are irregular and therefore cannot be relied upon
When a trader hires an entire ship to transport goods to a given destination, he/she and the ship owner signs a document called a charter party. This document shows the terms and conditions under which the goods would be transported.
Other information included in the agreement are destination, nature of the goods and freight charges. When the ship is hired to carry goods for a given journey the document signed is referred to as voyage charter. On the other hand, if the ship is hired to transport goods for a given period of time, the document signed is called time charter.
Ships may be specially built to carry special commodities. These may include tankers specially built to transport petroleum products and other liquids. Refrigerated ships may also be available to transport perishable commodities such as meat, fish and fruits.
Boats and Ferries
These are water vessels used in transporting goods and people over short distances. They are therefore found in both inland water transport and also the sea transport, e.g. the Likoni ferry in Mombasa carries people from and to the island of Mombasa and the main land.
Advantages of water transport
- Sea transport is economical to the owner as the number of employees to carriage volume ratio is less compared to road transport
- Suited for transporting heavy and bulky goods
- It is cheap as the way is natural and free
- Connects countries of the world which border the sea
- Special types of ships are available for transporting goods
- Large volume can be carried thereby reducing cost per unit
- Not affected by traffic congestion.
- Some ships can be very luxurious for passengers and may even provide swimming pools.
- At the port/dock, there are many depots for storage of goods.
Disadvantages of water transport
- Sea-sickness, sea-pirates and storms may occur
- They are slow therefore not suitable for transporting perishable and urgently required goods
- It is expensive to construct and maintain artificial harbors
- Unfavorable weather conditions may affect water transport
- Sea transport is not accessible to land locked countries
- Lack of loading and off-loading facilities may lead to delay
- Cost of acquiring and maintaining ships is high.
- Theft of cargo and other valuables may occur during loading and offloading.
Air Transport
This refers to the movement of goods, people and documents by aircrafts. Aircrafts/ aeroplanes are the units of carriage and air the way. The terminals include airports and airstrips.
Aeroplanes are fast compared to other means of transport i.e. they are the fastest means of transport. They are therefore suitable for transporting urgently required goods like drugs and perishable goods Such as flowers over long distances.
Aircrafts may be classified as either passenger planes or cargo planes. Passenger planes transport people from one place to another. On the other hand, cargo planes transport light cargo to the required destinations. Aeroplanes may be fitted with special facilities for handling special goods. Aeroplanes are expensive to acquire and to maintain. Their operations may also be affected by weather conditions.
Aeroplanes are fast compared to other means of transport i.e. they are the fastest means of transport. They are therefore suitable for transporting urgently required goods like drugs and perishable goods Such as flowers over long distances.
Aircrafts may be classified as either passenger planes or cargo planes. Passenger planes transport people from one place to another. On the other hand, cargo planes transport light cargo to the required destinations. Aeroplanes may be fitted with special facilities for handling special goods. Aeroplanes are expensive to acquire and to maintain. Their operations may also be affected by weather conditions.
Advantages of Air Transport
- There is less handling of goods on the way since aeroplanes may move direct to the final destinations.
- The way does not require construction or maintenance as it is natural and free.
- Planes can move through places where other means cannot, such as over the earth poles and across high mountains/ planes are not hampered by physical barriers.
- Have efficient interconnections between airlines all over the world which makes it convenient
- Suitable for long distance travelers especially from one continent to another
- Very fast therefore suitable for transporting perishable and urgently required goods.
- Chartered planes can be used to reach remote areas.
- The movement of aircrafts is smooth therefore suitable for transporting fragile goods such as glassware and eggs.
- Passengers are given the highest degree of comfort and personal attention making it the most comfortable means of transport.
Disadvantages of Air Transport
- Causes noise pollution
- Air fields are not available in all places
- Cannot be conveniently used to carry heavy and bulky goods
- Expensive to acquire and maintain aircrafts
- Requires highly trained manpower e.g. air traffic controllers, pilots e. t. c
- Unfavorable weather conditions such as fog, mist and heavy rains smay cause delay
- It is an expensive means of transport in terms of freight charges
- Not suitable for transporting inflammable goods such as cooking gas and petrol
- In case of accidents results are catastrophic/ accidents are rare but fatal.
- Has limited carrying capacity which should not be exceeded.
- It is not flexible.
- Most air fields/ terminals are located some distance away from town/ city centers and therefore require transport or railway links that are affected by jams occasionally causing delays.
- Recent hijackings by terrorists have made air transport an insecure means especially for transporting valuables.
Containerization
This is a recent development in transport. It refers to the packaging of goods in standardized ‘box like’ containers designed for use in transporting cargo. The containers are mainly made of metal though a few are made of wood. They can either be hired or bought from firms that provide them. The hired containers are returnable to the owner after the goods have been transported.
Containers are designed in a way appropriate to transport goods by ships, train, lorry or by air. To safeguard the goods against risks such as theft and unfavorable weather conditions the containers are sealed immediately after goods have been packed. The sealed containers are then transported up to the final destination where they are off-loaded. The consignee can then break the seal.
Goods can be transported in containers as Full Container Load (F.C.L) or as Less Container Load (L.C.L).Full container load applies where the container is filled with goods belonging to one person. In FCL, goods are delivered to the consignee intact. On the other hand, less than container load applies where a container is filled with goods belonging to several consignors. This may be the case where a single consigner does not have enough goods to fill a container. When such a container reaches the destination, it is opened and the various consignees take their goods.
There are special handling facilities for loading and offloading containers onto and from the units of carriage.
Apart from the container depot at Mombasa, Kenya Ports Authority (K.P.A) has established inland container depots referred dry ports. An example of a dry port is found at Embakasi in Nairobi. The establishment of dry ports aims at relieving congestion at the sea port. It also aims at making handling of cargo easier and efficient for inland importers and exporters.
When containers are off loaded from ships at Mombasa, they are loaded into special container trains called railtainer which transports them by railway to the inland container depot at Embakasi. Containers can also be transported by specially designed trucks between the ports or from the port to consumer’s destination.
Containers are designed in a way appropriate to transport goods by ships, train, lorry or by air. To safeguard the goods against risks such as theft and unfavorable weather conditions the containers are sealed immediately after goods have been packed. The sealed containers are then transported up to the final destination where they are off-loaded. The consignee can then break the seal.
Goods can be transported in containers as Full Container Load (F.C.L) or as Less Container Load (L.C.L).Full container load applies where the container is filled with goods belonging to one person. In FCL, goods are delivered to the consignee intact. On the other hand, less than container load applies where a container is filled with goods belonging to several consignors. This may be the case where a single consigner does not have enough goods to fill a container. When such a container reaches the destination, it is opened and the various consignees take their goods.
There are special handling facilities for loading and offloading containers onto and from the units of carriage.
Apart from the container depot at Mombasa, Kenya Ports Authority (K.P.A) has established inland container depots referred dry ports. An example of a dry port is found at Embakasi in Nairobi. The establishment of dry ports aims at relieving congestion at the sea port. It also aims at making handling of cargo easier and efficient for inland importers and exporters.
When containers are off loaded from ships at Mombasa, they are loaded into special container trains called railtainer which transports them by railway to the inland container depot at Embakasi. Containers can also be transported by specially designed trucks between the ports or from the port to consumer’s destination.
Advantages of containerization
- Minimizes the risks of loss or damage of goods as containers are sealed at source
- Containers are lifted with devices which make movement and handling easy
- Saves time and labour in loading and off-loading due to use of machines
- Containers sealed at source in presence of customs officials may not be opened until they reach their final destination. This reduces delay.
- Special containers are available for goods requiring special attention like chemicals.
- Insurance costs are relatively low as risks are less
- Space is saved when containers are used as opposed to when individual items are packed in the carrier.
- Can carry large quantities of cargo if packed well.
- Containers are tough structure, which offer protection to sensitive and fragile goods.
Disadvantages of containerization
- They are expensive and this increases the cost of transporting goods
- Contributes to unemployment since it is capital intensive
- Not suitable for transporting small quantities of goods.
- Requires special handling equipment which may be expensive
- May not be suitable for goods with irregular shapes.
- Training labour force is long and expensive.
- They may be used to smuggle illegal goods.
- The large trucks used on the road increase road damage and may increase accidents.
Factors that influence the choice of appropriate means of transport
- Cost; The cost of transporting a good should be reasonable; except where other factors should be considered such as need for quick delivery. Otherwise should be proportional to the value of goods transported.
- Nature of goods; the nature of goods should be considered when choosing a means of transport. For example, perishable goods require a fast means. Similarly, heavy and bulky goods require a means of transport convenient for such goods e.g. trains and ship.
- Reliability; the means chosen should be able to deliver the goods to the required place at the right time and in the right form.
- Urgency; for goods that are urgently required, the fastest means available should be chosen.
- Safety and Security; the means chosen should ensure that the goods on transit are secure against loss, theft or physical damages.
- Distance; some means of transport are suitable for long distances while others are suitable for short distances. If goods are to be transported for long distances, air, sea or railway transport would be appropriate, otherwise roads would be suitable for short distances.
- Availability of means; the means of transport to be selected should be based on its availability. For example, where there is only one means of transport, it would be the only one to be chosen.
- Flexibility; this is the ability of means of transport to be manipulated to suit the convenience of the transporter. Where flexibility is required, then the means that would provide such should be chosen. For example a matatu is usually more flexible than an aeroplane.
- Terminals; some means of transport may have their terminals near the transporter than others. In this case, the transporter should choose the means whose terminals are conveniently accessible to facilitate loading and offloading of goods.
- Value of goods to be transported- goods of high value require special handling and high security during transportation.
TRENDS IN TRANSPORT
- Pipeline and containerization
- Electric trains are replacing diesel engines
- Underground tunnels for trains are being used to ease congestion on the surface
- Dual-carriage roads are being developed in various parts to ease congestion and minimize accidents
- Development of planes with larger carrying capacity and speed is a major feature in the transport industry
- Use of bicycles commonly known as boda boda are a common feature in towns, bus terminals and rural areas, supplementing other means of transport to ferry people and cargo to their destinations. The bicycles are being modified to make them more convenient. It is not unusual to find a bicycle (boda boda) which has been fitted with facilities such as:
- Motors to increase their speed and reduce energy applied by the cyclist.
- Music systems to entertain passengers and more comfortable seats.
- Motor cycles are also being used as bodabodas in various areas. Similarly, the three wheeled vehicles commonly known as ‘Tuk Tuk’ is a major feature in cities and most towns.
- Private personal vehicles with less carrying capacity e.g. four-seater vehicles are being used as matatus. The vehicles are convenient to the passengers as they:
- Fill up within a shorter time compared to larger vehicles
- May accommodate each of the customer’s interests.
- Passenger vehicles are being fitted with radios, music systems and videos to entertain customers as they travel. However, some forms of entertainment may not be conducive to all.
- Fill up within a shorter time compared to larger vehicles
TRANSPORT kcse questions
1. 1995 P1
Give three disadvantages of railway transport in Kenya. (4 marks)
2. 1995 P1
Give three disadvantages of railway transport in Kenya (3 marks)
3. 1995 P2
Explain five reasons that may account for continued use of handcarts as a mode of transport in Kenya. (12 marks)
4. 1996 P1
State four circumstances under which a businessman would choose to transport goods by air? (4 marks)
5. 1996 P2
The oil pipeline has recently been extended from Nairobi to western Kenya. Explain five benefits that may be accounted to the country from the extension. (10 marks)
6. 1997 P1
Outline four reasons why a school in Kisumu may prefer to transport its sixty students to a music festival in Nairobi by train rather than by bus. (4 marks)
7. 1998 P1
List four disadvantages of using containers to transport goods. (4 marks)
8. 1998 P2
Discuss five factors that have hindered the expansion of railway transport in Kenya.
9. 1999 P1
Give five reasons why a manufacturing firm would be located in an area well served by good road network. (4 marks)
10. 1999 P1
Outline four limitations of containerization. (4 marks)
11. 1999 P2
Explain five features of an efficient transport system (8 marks)
12. 2000 P1
State four reasons why road transport is popular in Kenya. (4 marks)
13. 2000 P2
Explain the advantages of pipeline as a mode of transporting oil products. (12 marks)
14. 2001 P1
State four ways in which the nature of goods would influence the choice of transport. (4 marks)
15. 2002 P1
Outline four reasons why a transporter of goods from Mombasa to Nairobi may prefer rail transport to road transport. (4 marks)
16. 2002 P2
Outline five factors that should be considered when choosing a means of transport. (10 marks)
Give three disadvantages of railway transport in Kenya. (4 marks)
2. 1995 P1
Give three disadvantages of railway transport in Kenya (3 marks)
3. 1995 P2
Explain five reasons that may account for continued use of handcarts as a mode of transport in Kenya. (12 marks)
4. 1996 P1
State four circumstances under which a businessman would choose to transport goods by air? (4 marks)
5. 1996 P2
The oil pipeline has recently been extended from Nairobi to western Kenya. Explain five benefits that may be accounted to the country from the extension. (10 marks)
6. 1997 P1
Outline four reasons why a school in Kisumu may prefer to transport its sixty students to a music festival in Nairobi by train rather than by bus. (4 marks)
7. 1998 P1
List four disadvantages of using containers to transport goods. (4 marks)
8. 1998 P2
Discuss five factors that have hindered the expansion of railway transport in Kenya.
9. 1999 P1
Give five reasons why a manufacturing firm would be located in an area well served by good road network. (4 marks)
10. 1999 P1
Outline four limitations of containerization. (4 marks)
11. 1999 P2
Explain five features of an efficient transport system (8 marks)
12. 2000 P1
State four reasons why road transport is popular in Kenya. (4 marks)
13. 2000 P2
Explain the advantages of pipeline as a mode of transporting oil products. (12 marks)
14. 2001 P1
State four ways in which the nature of goods would influence the choice of transport. (4 marks)
15. 2002 P1
Outline four reasons why a transporter of goods from Mombasa to Nairobi may prefer rail transport to road transport. (4 marks)
16. 2002 P2
Outline five factors that should be considered when choosing a means of transport. (10 marks)
17. 2003 P1
State the unit of carriage for each of the following modes of transport. (5marks)
State the unit of carriage for each of the following modes of transport. (5marks)
18. 2003 P2
Explain six advantages of containerization as a mode of transport. (10 marks)
19. 2004 P1
List four ways in which transport promotes growth of trade. (4 marks)
20. 2004 P2
Discuss six factors that may discourage the use of pipeline as a means of transporting petroleum products in a country. (12 marks)
21. 2005 P2
Discuss five circumstances under which a trader may choose to transport goods by rail. (10 marks)
22. 2006 Q5a P2
a) Outline five factors that may limit the use of containers as a method of transporting goods in a developing country. (10 marks)
23. 2007 Q11 P1
State four circumstances under which air transport may be used to ferry goods (4 marks)
24. 2008 Q14 P1
Outline four factors that a trader would consider in choosing a mode of transport. (4 marks)
25. 2009 Q11 P1
Outline four factors that should be considered in the choice of a means for transporting perishable goods (4 marks)
26. 2009 Q2a P2
(a)Explain five demerits that may be associated with water transport. (10 marks)
27. 2010 Q18 P1
State four reasons why flower exporters would transport their produce by air rather than by sea. (4 marks)
Explain six advantages of containerization as a mode of transport. (10 marks)
19. 2004 P1
List four ways in which transport promotes growth of trade. (4 marks)
20. 2004 P2
Discuss six factors that may discourage the use of pipeline as a means of transporting petroleum products in a country. (12 marks)
21. 2005 P2
Discuss five circumstances under which a trader may choose to transport goods by rail. (10 marks)
22. 2006 Q5a P2
a) Outline five factors that may limit the use of containers as a method of transporting goods in a developing country. (10 marks)
23. 2007 Q11 P1
State four circumstances under which air transport may be used to ferry goods (4 marks)
24. 2008 Q14 P1
Outline four factors that a trader would consider in choosing a mode of transport. (4 marks)
25. 2009 Q11 P1
Outline four factors that should be considered in the choice of a means for transporting perishable goods (4 marks)
26. 2009 Q2a P2
(a)Explain five demerits that may be associated with water transport. (10 marks)
27. 2010 Q18 P1
State four reasons why flower exporters would transport their produce by air rather than by sea. (4 marks)
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OBJECTIVES
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NOTES
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Q & A
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APA REF.
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GOVERNMENT AND BUSINESS;
SPECIFIC OBJECTIVES
By the end of the topic, the learner should be able to:
- explain reasons for Government involvement in business
- explain how the Government gets involved in business
- discuss the merits and demerits of government involvement in business activities
- discuss the importance of consumer protection.
TOPIC GUIDELINES
- Government involvement in business activities
- Government involvement in business e.g.
- Regulations
- Training
- Trade promotion
- Provision of public utilities
- Enabling environment
- Merits and demerits of Government involvement in business
- Consumer protection
- Need for consumer protection
- Methods of consumer protection
Introduction
Government involvement in business activities is one of the commercial duties it owes its citizens. It is the one that provides the necessary environment for investments to be undertaken by itself, or by the local and foreign investors. This, the government may do in various ways, these include;
- Producing goods and services
- Distributing goods and services
- Advising producers and traders
- Promoting trade and economic development.
- Protecting consumers against exploitation by producers and traders.
- As a consumer of goods and services.
Reasons for Government involvement in business
The following are the major reasons for the government’s involvement and participation in business activities;
- To prevent exploitation of the public by private business persons especially in the provision of essential goods and services such as sugar, transport, communication etc. the Kenya Bureau of standards (KEBS) regulates the quality of goods consumed in Kenya.
- To provide essential goods and services in areas where private individuals and organizations are unwilling to venture because of low profits/ high risks involved.
- To provide essential goods and services which private organizations and individuals are unable to provide due to the large amount of initial capital required b e.g. generation of electricity, establishment of airlines etc.
- To attract foreign investment by initiating major business projects.
- To stimulate economic development in the country e.g. by providing social services.
- To provide goods and services which are too sensitive to be left in the hands of the private sector e.g. provision of firearms.
- To create employment opportunities by initiating projects such as generation of electricity.
- To prevent foreign dominance of the economy by investing in areas where the locals are not able to.
- To redistribute wealth where returns are very high.
- To prevent establishment of monopolies.
Methods of Government Involvement in Business
The government gets involved in business activities through the following methods:
Regulation
This refers to Rules and restrictions the government requires business units to follow in their business activities. Through this method, the government ensures high quality goods and services and puts in control measures to protect consumers from exploitation. The government regulation measures include;
Licensing
A license is a document that shows that a business has been permitted by the government to operate. It is usually issued upon payment of a small fee.
Licensing is the process of issuing licenses to businesses.
Some of the reasons why the government issues licenses include;
Regulation
This refers to Rules and restrictions the government requires business units to follow in their business activities. Through this method, the government ensures high quality goods and services and puts in control measures to protect consumers from exploitation. The government regulation measures include;
Licensing
A license is a document that shows that a business has been permitted by the government to operate. It is usually issued upon payment of a small fee.
Licensing is the process of issuing licenses to businesses.
Some of the reasons why the government issues licenses include;
- Regulating the number of businesses in a given place at any given time to avoid unhealthy competition.
- To control the type of goods entering and leaving the country.
- To ensure there are no illegal businesses.
- To ensure that traders engage only in trade activities that they have been licensed for.
- To ensure that those who engage in professional activities meet the requirements of the profession.
- To raise revenue for the government.
a) Ensuring standards/ enforcing standards; the government regulates business activities by setting standards that businesses should and ensuring that the standards are adhered to. To achieve this purpose, the government has established bodies such as;
i) Training The government takes keen interest in training and advising people in business about business management strategies and better ways of producing goods and services. The government offers these services through seminars and courses. This is mainly done by the Kenya Business Training Institute (K.B.T.I).
Reasons for government training include;
This is a government initiated and supported policy to encourage local business people to enter into business. This is aimed at increasing the volume and variety of goods and services traded in.
Trade promotion is classified as either external trade promotion or internal trade promotion.
a) External trade promotion
- Kenya bureau of standards (KEBS) whose main responsibility is to set standards especially for the manufactured goods and see to it that the set standards are adhered to/ met. Goods that meet such standards are given a diamond mark of quality, to show that they are of good quality.
- The ministry of public health to ensure that businesses meet certain standards as concerning facilities before such businesses can be allowed to operate. Such standards may include clean toilets, clean water and well aerated buildings.
i) Training The government takes keen interest in training and advising people in business about business management strategies and better ways of producing goods and services. The government offers these services through seminars and courses. This is mainly done by the Kenya Business Training Institute (K.B.T.I).
Reasons for government training include;
- To expose business persons to modern developments in management.
- Introduce modern technology and skills in management
- Educate the business people on efficient methods of operating a business e.g., effective methods of advertising and keeping books of accounts.
- Expose business people to problems/ challenges facing them and their possible solutions for example, problems of raising capital and identifying investment opportunities.
- Impart proper business ethics e.g. good customer relations and honesty.
- Creating awareness of the available profitable business opportunities in their environment.
- Expose business people to government policies regarding business activities in the country.
- Educate business people on how to use available resources to minimize costs and maximize profits.
- Expose people to other opportunities that exist in the import and export market.
This is a government initiated and supported policy to encourage local business people to enter into business. This is aimed at increasing the volume and variety of goods and services traded in.
Trade promotion is classified as either external trade promotion or internal trade promotion.
a) External trade promotion
- The purpose of external trade promotion is to encourage local business people to enter into the export market.
- It also intended to attract foreign investors into the country.
- In Kenya, external trade promotion is done through the department of external trade in the ministry of trade and industry.
- External trade promotion may also be done by Commercial attaches.
Duties of commercial attaches
- Explore and identify new markets for more export opportunities.
- Research and analyze markets for exports from their home countries.
- Keep statistics of products such as volumes, packaging size and method of manufacturing.
- Attend meetings, seminars and workshops on trade patterns of the countries and keep data for new markets of exports.
- Publish and advertise their country’s exports in business journals and magazines.
- Select buyers, agents and distributors of the home country’s exports.
- Inform traders in their home countries of the standards required for exports.
- Assist sales missions from their home countries by organizing educational tours for them.
- Organize visits to trade fairs and exhibitions for business people from their home country.
- Make detailed reports on commercial activities that may help improve the exports of their countries.
To perform these duties, the commercial attaché needs to:
- Keep information on prices paid for exports and terms of payments( conditions to be filled before the payment is made)
- Be aware of the rules that govern payment in international trade.
- Be aware of the working of the regional organizations that operate in developing countries such as the East African Community (E. A. C), Inter-Governmental Authority for Development (I.G.A.D), Common Market for Eastern and Southern Africa (COMESA), Economic Commission for Africa (E.C.A) and African Growth Opportunity Act (A.G.O.A).
b) Internal trade promotion
This is done by the government through the ministry of trade. The ministry carries out various activities that are aimed at helping local traders to start and run their businesses.
Such activities include:-
This is done by the government through the ministry of trade. The ministry carries out various activities that are aimed at helping local traders to start and run their businesses.
Such activities include:-
- Advising business people on matters such as type of goods and services to producers, source of finances where to locate their business and legal formalities required for various businesses.
- Training business persons on appropriate ways of carrying out business
- Offering business persons financial assistance to enable them to start and run their businesses
- Creating an enabling environment for business to thrive
- Providing incentives such as tax exemptions to encourage local businesses.
- Organizing shows, trade fairs and exhibitions through which local traders may promote their goods and services or from which investors may obtain business ideas.
4. Provision of public utilities
Public utilities are essential services such as water, transport and sewerage, power and communication which are provided by either the central government or local authorities. Public utilities are essentially non-profit making enterprise and their main aim is to provide essential services.
The sources of finance include local authorities for public utilities include local taxes government grants, private and public loans and charges such as rent, rates
Public utilities are essential services such as water, transport and sewerage, power and communication which are provided by either the central government or local authorities. Public utilities are essentially non-profit making enterprise and their main aim is to provide essential services.
The sources of finance include local authorities for public utilities include local taxes government grants, private and public loans and charges such as rent, rates
5. Enabling Environment
The government creates a conducive environment in which business people are able to start and sustain their businesses.
The ways in which the government creates an enabling environment are:-
i. Subsidies
A subsidy is a financial assistance given by the government to business to make it easier for them to sell their products at lower prices.
The government may subsidize operations of a business in order to reduce its running costs
ii. Incentives
An incentive is something that is offered in order to encourage one to do something.
In order to attract business people and encourage them to invest, the government may offer various incentives e.g. tax, holidays, duty free privileges and favourable expatriate protection that safeguards the interests of foreigners who invest in the country
iii. Protection
This refers to instituting legal measures/ regulations to shield local industries from foreign competition.
For the government to help a firm sustain itself, it may introduce import duties and quotas.
Import duties have the effect of making imported goods expensive. In comparison to locally manufactured goods.
Quotas have the effect of reducing the quantity that can be imported.
iv. Loan Guarantee
Lending international agencies may insist that for them to lend money to local business persons, the host government must act as a guarantor to help the local firm benefit from funds by offering the required guarantee.
The government creates a conducive environment in which business people are able to start and sustain their businesses.
The ways in which the government creates an enabling environment are:-
i. Subsidies
A subsidy is a financial assistance given by the government to business to make it easier for them to sell their products at lower prices.
The government may subsidize operations of a business in order to reduce its running costs
ii. Incentives
An incentive is something that is offered in order to encourage one to do something.
In order to attract business people and encourage them to invest, the government may offer various incentives e.g. tax, holidays, duty free privileges and favourable expatriate protection that safeguards the interests of foreigners who invest in the country
iii. Protection
This refers to instituting legal measures/ regulations to shield local industries from foreign competition.
For the government to help a firm sustain itself, it may introduce import duties and quotas.
Import duties have the effect of making imported goods expensive. In comparison to locally manufactured goods.
Quotas have the effect of reducing the quantity that can be imported.
iv. Loan Guarantee
Lending international agencies may insist that for them to lend money to local business persons, the host government must act as a guarantor to help the local firm benefit from funds by offering the required guarantee.
Merits of government involvement in business
- The government is able to carry out business that require a large amount of capital which may not be possible with private investors. E.g. Kenya Power and lightening company.
- It ensures essential goods and services are provided to the public e.g. water and sewerage service provision.
- Business started and run by the government’s help to solve unemployment problems.
- To contribute income so as to finance various government services. E.g. education, medical and security
- Businesses run by the government help create competition which may make private investor improve quality and charge reasonable prices for the goods or services they offer.
- It enables reduction of foreign domination of the country’s economy
Demerits of government involvement in business
a) Political interference.
Political interference affects the operations of the business activities initiated by the government thus negatively influencing their performance.
b) Managerial problems
Because of the complexity of some business activities, managerial problems may arise due to employment of unqualified personnel and embezzlement of funds
c) Lose making
Some business activities that are government run have a tendency of making losses. This may derail public resources as money is used in areas that are not helping Kenyans.
d) Hinder competition
The government may operate as a monopoly hence hindering competition leading to provision of poor services
e) Inhibitive regulation
Through licensing and legislation, the government may discourage participation of private enterprise by passing inhibitive regulations
f) Low quality
They offer low quality goods and services
g) Interference
Sometimes the government interferes with the price mechanism in areas of commodity prices, interest rates and exchange rates.
Political interference affects the operations of the business activities initiated by the government thus negatively influencing their performance.
b) Managerial problems
Because of the complexity of some business activities, managerial problems may arise due to employment of unqualified personnel and embezzlement of funds
c) Lose making
Some business activities that are government run have a tendency of making losses. This may derail public resources as money is used in areas that are not helping Kenyans.
d) Hinder competition
The government may operate as a monopoly hence hindering competition leading to provision of poor services
e) Inhibitive regulation
Through licensing and legislation, the government may discourage participation of private enterprise by passing inhibitive regulations
f) Low quality
They offer low quality goods and services
g) Interference
Sometimes the government interferes with the price mechanism in areas of commodity prices, interest rates and exchange rates.
Consumer protection
It is the effort put in place by the government or private organizations to ensure that consumer’s rights are not violated in terms of prices, quantity and quality of goods.
The government ensures that the consumers are not cheated by adopting measures that control the activities of business people and traders.
The government ensures that the consumers are not cheated by adopting measures that control the activities of business people and traders.
Need for consumer protection
There are various reasons why the government needs to protect consumers from producers and business people. These include:-
- To ensure that consumers get high quality goods from business people or manufacturers. i.e. provided with standardized goods.
- To ensure that consumers buy goods in the required quantity, right equipment to be used in weighing and measuring.
- To ensure that goods sold to the consumers are charged fair prices.
- To ensure safety and standard measures in construction of business premises and adhered to buildings. For examples; schools, hospitals, warehouses and supermarkets should be firm and safe.
- To ensure that contracts between business people and consumers are respected. Producers and traders might fail to honor contract entered into with the consumers as regards the sale of commodities
- To protect consumers against discriminatory practices by traders selling goods to some consumers and refusing to sell to others.
- To ensure health standards are maintained. Premises where production takes place should be clean and hygiene. E.g. butcheries and eating places.
- To ensure that commodities are readily available to the consumers. Producers and business people might create artificially shortages by hoarding restricting production.
- To protect consumers from false advertising due to ignorance of consumers concerning products the producers may take advantage of misleading to buy goods they don’t require through advertising
Some of the bodies concerned in protecting consumers include:-
- Kenya Consumer Organisation
- Health Inspectorate
- Price Control Advisory Board
- Kenya Bureau of Standards
- Department of Weights and Measures
Methods of consumer protection
The following are some of the methods that may be used to protect consumers and they are divided into three:-
- Government initiated consumer protection
- Consumer- initiated method
- Non-governmental organizations (NGOs)
a) Government initiated methods
Several methods are used by the government to protect consumers. These include:-
i) Setting up standards
The Kenya Bureau of Standards carries out the following functions
The government ensures that equipment used for weighing and measuring are correct and accurate. It is done by regular checking and adjusting of the equipment. Consumers are issued with receipts indicating the quantity, size and price which can be used as an evidence in case of complaint by consumers.
iii) Licenses
Manufacturers and business people are required to get a license before they can operate. This ensures that there is control on the type of business carried out.
iv) Foods and drugs Act.
The government ensures goods sold to the consumers do not contain any harmful products that may affect the health of consumers. This is done by indicating the ingredients on the packaging. Side effects of the commodity should be disclosed. Those selling certain types of foods and drugs be licensed.
v) Trade description Act / sale of goods Act
This ensures that a producer or trader does not cheat the consumer by providing false description of commodities. It requires that goods that are offered for sale are of good quality and right standards.
vi) Public health Act.
The government trains officers in public health to ensure that they inspect the level of hygiene in all business circles. They look at hygiene in terms of sanitation in schools, hospitals and other public places. They ensure goods sold to consumers are sold by people who are in good health and are sold in hygienic conditions.
vii) Price Control
They government may set a price beyond which a commodity should not be sold especially for essential goods and services.
It is also a requirement that traders display price lists or price tags for the goods and services they sell.
viii) Rent tribunal Act.
Ensures that tenants are not overcharged by the landlords
Several methods are used by the government to protect consumers. These include:-
i) Setting up standards
The Kenya Bureau of Standards carries out the following functions
- That goods and services offered to the consumers by manufacturers are of the right quantity.
- It ensures that commodities are examined and test before being sold.
The government ensures that equipment used for weighing and measuring are correct and accurate. It is done by regular checking and adjusting of the equipment. Consumers are issued with receipts indicating the quantity, size and price which can be used as an evidence in case of complaint by consumers.
iii) Licenses
Manufacturers and business people are required to get a license before they can operate. This ensures that there is control on the type of business carried out.
iv) Foods and drugs Act.
The government ensures goods sold to the consumers do not contain any harmful products that may affect the health of consumers. This is done by indicating the ingredients on the packaging. Side effects of the commodity should be disclosed. Those selling certain types of foods and drugs be licensed.
v) Trade description Act / sale of goods Act
This ensures that a producer or trader does not cheat the consumer by providing false description of commodities. It requires that goods that are offered for sale are of good quality and right standards.
vi) Public health Act.
The government trains officers in public health to ensure that they inspect the level of hygiene in all business circles. They look at hygiene in terms of sanitation in schools, hospitals and other public places. They ensure goods sold to consumers are sold by people who are in good health and are sold in hygienic conditions.
vii) Price Control
They government may set a price beyond which a commodity should not be sold especially for essential goods and services.
It is also a requirement that traders display price lists or price tags for the goods and services they sell.
viii) Rent tribunal Act.
Ensures that tenants are not overcharged by the landlords
b) Consumer – Initiated Methods
These are voluntary organizations set by consumers to protect themselves against exploitation by traders.
Ways used by consumers to protect themselves.
These are voluntary organizations set by consumers to protect themselves against exploitation by traders.
Ways used by consumers to protect themselves.
- Through consumer associations.
- Consumer cooperative societies
- Writing letters to the press
Consumer associations
They perform some functions which are highlighted below:-
- Dealing with complaints about defective items bought by members
- Making sure commodities are not hoarded and that a regular supply is maintained
- Ensuring that health and safety regulations are adhered to.
- Ensuring that essential goods and services are available and that their prices are fair
- Educating their members on their rights and consumers.
- Ensuring that weights and measurements of commodities are correct.
They perform some functions which are highlighted below:-
- Dealing with complaints about defective items bought by members
- Making sure commodities are not hoarded and that a regular supply is maintained
- Ensuring that health and safety regulations are adhered to.
- Ensuring that essential goods and services are available and that their prices are fair
- Educating their members on their rights and consumers.
- Ensuring that weights and measurements of commodities are correct.
- Lack of support from the government
- Lack of capital to finance their Organisation
- Ignorance of consumers about their rights
- Reluctance of many consumers to join these associations so that they may voice their complaints as a group.
- Lack of initiative from consumers to check on trader’s performance and report cases of non-compliance to quality and price.
Consumer cooperative societies
Consumers may decide to come together to form a cooperative society to protect their interest. This society will buy goods on behalf of members and sell to them at fair prices.
Letters to the press
Consumers may present their complaints on exploitation through print and electronic media so as to make the government respond to their problems.
The same media may also be used to identify markets where better quality products and better terms are available.
The same media may also be used to identify markets where better quality products and better terms are available.
c. Non-Governmental Organizations
Some non-governmental organisations participate in activities aimed at protecting the consumer e.g. public law institute.
They ensure that standards are maintained by both the producers and traders e.g. Kenya Association of Manufacturers (K.A.M)
Traders to charge same prices for a particular product e.g. retail price maintenance (R.P.M)
Some non-governmental organisations participate in activities aimed at protecting the consumer e.g. public law institute.
They ensure that standards are maintained by both the producers and traders e.g. Kenya Association of Manufacturers (K.A.M)
Traders to charge same prices for a particular product e.g. retail price maintenance (R.P.M)
Emerging trends in business and Government
i) Corruption
Corruption has adversely affected running of government business and bodies to protect consumers-traders conceal the expiry dates of products and sell goods of low quality.
ii) Drug abuse
False advertisement in producers such as cigarettes and unauthorized wines and spirits continue to harm consumers. The government ensures that these are not affected.
iii) Dumping
Goods of poor quality produced in other countries may find way into the country. This is because they are being sold at low prices.
Non- Governmental organisations have come up to assist in consumer protection and education to traders.
Corruption has adversely affected running of government business and bodies to protect consumers-traders conceal the expiry dates of products and sell goods of low quality.
ii) Drug abuse
False advertisement in producers such as cigarettes and unauthorized wines and spirits continue to harm consumers. The government ensures that these are not affected.
iii) Dumping
Goods of poor quality produced in other countries may find way into the country. This is because they are being sold at low prices.
Non- Governmental organisations have come up to assist in consumer protection and education to traders.
BUSINESS AND GOVERNMENT QUESTIONS AND ANSWERS
1. 1995 P1
State four ways in which the Kenya Government protects consumers (4 marks)
2. 1996 P1
State four ways in which a government may regulate business activities (4 marks)
3. 1997 P1
Outline four reasons why a government may find it necessary to protect consumers. (4 marks)
4. 1997 P2
Explain 5 problems that farmers may face when they sell their produce though marketing boards. (10 marks)
5. 1998 P1
Outline four reasons why the government participates in business protection. (4 marks)
6. 1998 P2
Explain in the business malpractice that consumer needs to be protected against by the government. (10 marks)
7. 1999 P1
Highlight four limitations of using consumer initiated methods in consumer unfair business practices by traders. (4 marks)
8. 1999 P2
Explain how the Kenya national chamber of commerce and Industry (KNCCI) promotes development of businesses activities in Kenya. (10 marks)
9. 2000 P1
State four reasons why a government may want to be involved in commercial activities (4 marks)
10. 2001 P2
Discuss the problems faced by KETA (10 marks)
11. 2004 P1
State four reasons why a government may want to be involved in commercial activities (4 marks)
12. 2004 P2
Outline five measures that the government of Kenya has put in place to protect consumers from unscrupulous business practices. (10 marks)
13. 2005 P1
Give four functions of the Kenya external trade authority. (4 marks)
14. 2005 P2
Explain 5 reasons why consumers need protection against malpractices by some traders. (10 marks)
15. 2006 Q3 P1
Give four ways in which a government may participate in the operations of a state corporation. (4 marks)
16. 2007 Q1 P1
State four types of complaints that a consumer organization may receive from consumers. (4 marks)
17. 2008 Q25 P1
Outline four reasons why the government may use regulatory measures to protect consumers against exploitation. (4 marks)
18. 2009 Q2 P1
Outline four ways in which Commercial Attaches may promote, trade between their country and others (4 marks)
19. 2012 Q4 P1
Highlight four ways in which consumers may protect themselves against exploitation by traders (4 marks)
State four ways in which the Kenya Government protects consumers (4 marks)
2. 1996 P1
State four ways in which a government may regulate business activities (4 marks)
3. 1997 P1
Outline four reasons why a government may find it necessary to protect consumers. (4 marks)
4. 1997 P2
Explain 5 problems that farmers may face when they sell their produce though marketing boards. (10 marks)
5. 1998 P1
Outline four reasons why the government participates in business protection. (4 marks)
6. 1998 P2
Explain in the business malpractice that consumer needs to be protected against by the government. (10 marks)
7. 1999 P1
Highlight four limitations of using consumer initiated methods in consumer unfair business practices by traders. (4 marks)
8. 1999 P2
Explain how the Kenya national chamber of commerce and Industry (KNCCI) promotes development of businesses activities in Kenya. (10 marks)
9. 2000 P1
State four reasons why a government may want to be involved in commercial activities (4 marks)
10. 2001 P2
Discuss the problems faced by KETA (10 marks)
11. 2004 P1
State four reasons why a government may want to be involved in commercial activities (4 marks)
12. 2004 P2
Outline five measures that the government of Kenya has put in place to protect consumers from unscrupulous business practices. (10 marks)
13. 2005 P1
Give four functions of the Kenya external trade authority. (4 marks)
14. 2005 P2
Explain 5 reasons why consumers need protection against malpractices by some traders. (10 marks)
15. 2006 Q3 P1
Give four ways in which a government may participate in the operations of a state corporation. (4 marks)
16. 2007 Q1 P1
State four types of complaints that a consumer organization may receive from consumers. (4 marks)
17. 2008 Q25 P1
Outline four reasons why the government may use regulatory measures to protect consumers against exploitation. (4 marks)
18. 2009 Q2 P1
Outline four ways in which Commercial Attaches may promote, trade between their country and others (4 marks)
19. 2012 Q4 P1
Highlight four ways in which consumers may protect themselves against exploitation by traders (4 marks)
Business Studies Notes Form 1 - 4
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