The factors of production are land, labour, capital and entrepreneurship. The primary sector involves the exploitation of natural resources in their unprocessed form. The secondary sector involves the processing of natural resources into their final product. In the tertiary sector the finished good...
2.1 Introduction
In this unit we will familiarise ourselves with the language and vocabulary of the business
world. The entrepreneur does not exist in isolation; he interacts with suppliers, customers,
bank managers, branches of local or central government, investors and other stakeholders.
It is important that the entrepreneur understands the business language so that he/she can
communicate easily with other people.
We will look at the factors of production and their relevance to the entrepreneur and the
enterprise. The choice of location is important to the enterprise and deserves our utmost
attention. Answers to the questions will be provided. “What are the objectives of an
entrepreneur when he/she starts an enterprise?” We will then distinguish between informal
and informal enterprises before concluding the unit with a discussion on the business
environment.
2.2 What is a business?
All of us interact with one form of business or another every day of our lives. We buy food
from a business, use transport that is either run by some business or bought from a
business. We use phones provided by a business, wear clothes bought from a business and
even work for a business ourselves.
But what is a business? A business is any individual or group of individuals that satisfy the
needs of people, Smit (2004). A business focuses on producing, goods or services to its
customers. A business will combine capital, labour and technology in providing goods or
services to its customers. There are different types of businesses. A business could be in the
manufacturing, information technology, services sector etc.
Customer needs are the desires or cravings for certain items or services that people require
in day-to-day living. People need food to eat, drinks to refresh themselves, shelter to live in,
electricity. These are called natural needs. Businesses produce goods and services to meet
these needs. Customer needs can also be classified as essential needs for example medicine,
luxury needs, e.g. furniture; cultural needs, e.g. education; and protection needs, e.g. law
and order.
, 2.3 Factors of production
Resources are required to produce goods and services. Resources are scarce relative to the
needs and wants of people and businesses operating in an economy. It is important that
these resources are used efficiently in order to maximise the output that can be produced
from them. Production factors can be looked at as resources when starting an enterprise.
Certain factors are needed to start an enterprise. These are called the factors of
production:
Land
Labour
Capital
Entrepreneurship
1. Land
Land refers to the natural resources available for production. Some countries are endowed
with natural resources and exploit this by specialising in the extraction and production of
these resources - for example – Saudi Arabia has oil in abundance. Other examples of
natural resources include water, minerals, wood, leather and iron ore.
2. Labour
Your desire to start an enterprise of your own is only the first step in establishing a business.
You need people who can assist you with the business. Labour is the human input into the
production process. These employees or labourers are paid a wage or salary. Not all labour
is of the same quality. Some workers are more productive than others because of the
education, training and experience they have received. The technical knowledge and skills of
people who work in an enterprise, is called human capital.
3. Capital
The word capital has several meanings. It means the finance raised to operate a business
(financial capital). Capital also refers to machinery, plant and equipment, new technology,
factories and buildings - all goods designed to increase the productive potential of the
economy. This is called physical capital. Human capital refers to the technical knowledge
and ingenuity of people who work in an enterprise.
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