Bus 261 Business Environment and Management

DISTANCE LEARNING INSTITUTE
UNIVERSITY OF LAGOS
DLI
COURSE MODULE
BUS261
BUSINESS ENVIRONMENT AND

MANAGEMENT
DISTANCE LEARNING INSTITUTE
UNIVERSITY OF LAGOS
DLI
COURSE MODULE
BUS261
BUSINESS ENVIRONMENT AND MANAGEMENT
© Distance Learning Institute
University of Lagos 2022
This Publication is made available in
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share Alike 4.0 (CC-BY-SA 4.0) license
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use of Distance Learning Institute,
University of Lagos Open Education
Resources.
Published by
Distance Learning Institute
University of Lagos
Akoka-Yaba, Lagos,
Nigeria.
e-mail: directordli@unilag.edu.ng
COURSE DEVELOPMENT TEAM
Authors:
Dr. Alaneme, Gloria C.
Dr. Adebakin, M. A.
Dr. Adekoya, O. A.
Content Editor:
Prof. O.L Kuye
Language Editor:
Dr Yewande Ntekim-Rex
Instructional Designer:
Dr. Esther.O. Oladele
ODL Expert:
Dr. Esther.O.Oladele
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TABLE OF CONTENTS
Welcome Message ................................................................................................................................... xi
1.0 INTRODUCTION ........................................................................................................................... xii
a. Course Description ...................................................................................................................... xii
b. Background of the Course...........................................................................................................xiii
c. Module Aims ...............................................................................................................................xiii
2.0 MODULE OUTLINE.......................................................................................................................xiv
a. Learning Objectives .........................................................................................................................xiv
b. Study Sessions .................................................................................................................................xiv
c. Learning Supports............................................................................................................................ xv
d. Module Evaluation ....................................................................................................................... xv
3.0 MODULE DELIVERY SCHEDULE....................................................................................................xvi
a. Session Arrangements.....................................................................................................................xvi
b. Preparation Required in Advance of Sessions ................................................................................xvi
c. Student Engagement...................................................................................................................xvi
d. Preparatory Questions ............................................................................................................... xvii
4.0 ASSESSMENT DETAILS ................................................................................................................ xvii
5.0 GRADING .................................................................................................................................... xvii
6.0 List of Icons and Their Meanings ...................................................................................................... xix
STUDY SESSION 1: ......................................................................................................................................... 1
THE CONCEPT OF BUSINESS .......................................................................................................................... 1
...................................................................................................................................................................... 1
Introduction .............................................................................................................................................. 1
Learning Outcomes for Study session 1 .................................................................................................... 1
1.1 Definition of Business ................................................................................................................... 2
1.2 The Purpose for business .............................................................................................................. 2
1.3 Brief history of business development in Nigeria ......................................................................... 3
1.4 Business and Economic Foundations .................................................................................................. 4
1.5 The Nigerian Economy and Business ............................................................................................ 7
1.6 Categorization of Business ............................................................................................................ 9
1.7 Why Study Business .................................................................................................................... 11
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Summary of Study Session 1 ................................................................................................................ 11
Self-Assessment Questions for Study Session 1 ..................................................................................... 12
Links to OERs ........................................................................................................................................... 13
References and Suggestions for further readings................................................................................... 13
STUDY SESSION 2: ....................................................................................................................................... 15
THE BUSINESS ENVIRONMENT ................................................................................................................... 15
Introduction ............................................................................................................................................ 15
Learning Outcomes for Study session 2 .................................................................................................. 15
Key Terms: Business Environment, Internal environment, External environment, Organizational
resources, Organizational behaviours, macro-Environment................................................................... 16
2.1 The Concept of the Environment ................................................................................................ 16
2.2 The Concept of Business Environment ...................................................................................... 17
2.3 Components of the Business Environment – An overview ......................................................... 17
2.3.1 Internal Environmental Factors .......................................................................................... 18
2.3.2 External Environmental Factors .......................................................................................... 19
2.4 Importance of understanding the environment ......................................................................... 24
2.5 Characteristics of Business Environment .................................................................................... 26
Summary of Study Session 2 ................................................................................................................... 27
Self-Assessment Questions (SAQs) for Study Session 2 .......................................................................... 27
Links to OERs ........................................................................................................................................... 28
References and Suggestions for futher readings .................................................................................... 28
STUDY SESSION 3: ....................................................................................................................................... 30
OPPORTUNITIES, THREATS AND BUSINESS FAILURE .................................................................................. 30
Introduction ............................................................................................................................................ 30
3.1 What is SWOT?............................................................................................................................ 31
3.2 Identification of Opportunities .................................................................................................. 33
3.2.1 Indicators of Unmet needs.................................................................................................. 34
3.3 Institutionalized sources of business ......................................................................................... 37
3.4 Constraints to the exploitation of business opportunity ............................................................ 38
3.5 Business Failure................................................................................................................................. 39
3.5.1 Micro Causes of Business Failure (Internal) ............................................................................... 39
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3.5.2 Macro causes of Business Failure (External) ....................................................................... 42
3.6 Survival for Small Scale Businesses ............................................................................................. 43
Links to OERs ........................................................................................................................................... 45
References/Suggestions for further reading .......................................................................................... 46
STUDY SESSION 4: ....................................................................................................................................... 47
SOCIAL RESPONSIBILITY AND BUSINESS ETHICS ......................................................................................... 47
Introduction ............................................................................................................................................ 47
4.1 Definition of Social Responsibility............................................................................................... 48
4.1.1 Basic Assumption about Socially Responsible Business Organization ................................ 49
4.1.2 Is There Really Need for Social Responsibility? .................................................................. 50
4.1.3 Arguments in Favour Of Social Responsibility ........................................................................... 50
4.1.4 Arguments Against .............................................................................................................. 51
4.1.5 Factors Responsible for Consideration of Social Responsibilities by business ................... 53
4.1.6 Interest Groups in Social Responsibility .............................................................................. 54
4.1.7 Benefits of Social Responsibility to the Organisation ................................................................ 56
4.2 Business Ethics ............................................................................................................................ 56
4.2.1 Definition of Ethics .............................................................................................................. 56
4.2.2 Ethics and the Various Aspects of Human Life........................................................................... 57
4.2.3 State of Ethical Standards in Nigeria .................................................................................. 57
4.2.4 Factors Encouraging Compliance to Ethics ................................................................................ 58
4.2.5 Causes of Ethical Compromise and Influences .......................................................................... 59
4.2.6 Ethical Issues in Business ........................................................................................................... 59
4.2.7 Measures to Ensure Ethical Practices Are Followed .................................................................. 61
Links to OERs ........................................................................................................................................... 64
References/Suggestions for Further Readings ....................................................................................... 64
STUDY SESSION 5: ....................................................................................................................................... 65
ENTREPRENEURSHIP DEVELOPMENT ......................................................................................................... 65
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Introduction ............................................................................................................................................ 65
5.1 What is entrepreneurship? ......................................................................................................... 66
5.2 Who is an entrepreneur? ............................................................................................................ 66
5.3 The History of Entrepreneurship in Nigeria. ............................................................................... 68
5.4 Characteristics of Successful Entrepreneurs .............................................................................. 70
5.5 Nigeria, Youth and Entrepreneurship ......................................................................................... 71
5.6 Role of Government in Entrepreneurship Development in Nigeria .......................................... 72
5.7 Employment and types of employment .................................................................................... 74
5.7.1 Types of Employment ................................................................................................................ 74
5.7.2 Motives for self-employment: ............................................................................................ 75
5.7.3 Advantages of self-employment ......................................................................................... 75
5.8 Success Nuggets for Entrepreneurs ........................................................................................... 76
Links to OERs ........................................................................................................................................... 78
References/Suggestions for Further Readings ....................................................................................... 79
STUDY SESSION 6: ....................................................................................................................................... 80
ORGANIC FUNCTIONS AND FEASIBILITY ..................................................................................................... 80
Introduction ............................................................................................................................................ 80
6.1 The Organic Functions of Business ................................................................................................... 81
6.1.1 The Marketing Function ...................................................................................................... 81
6.1.2 The Production Function ..................................................................................................... 83
6.1.3 The Finance Function ............................................................................................................... 85
1.1.4 The Human Resources Function ......................................................................................... 86
6.2 Feasibility Study and Business .......................................................................................................... 87
6.2.1 Role or Uses of Feasibility Study ......................................................................................... 88
6.2.2 Contents of a Business Feasibility Study ............................................................................. 89
Multiple Choice Questions .................................................................................................................... 93
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Links to OERs ........................................................................................................................................... 95
References/Suggestions for further reading .......................................................................................... 95
STUDY SESSION 7: ....................................................................................................................................... 96
CHALLENGES OF MANAGING BUSINESS IN NIGERIA .................................................................................. 96
Introduction ............................................................................................................................................ 96
7.1 Definition .................................................................................................................................... 97
7.2 Types of Business Organization .................................................................................................. 99
7.3 Factors militating against Business Operations in Nigeria ........................................................ 101
Summary of Study Session 7 ................................................................................................................. 109
Self-Assessment Questions (SAQs) for Study Session 7 ........................................................................ 109
Links to OERs ......................................................................................................................................... 110
References and Suggestions for further reading .................................................................................. 110
STUDY SESSION 8: ..................................................................................................................................... 112
OPPORTUNITIES, THREATS, AND BUSINESS FAILURE ............................................................................... 112
Introduction .......................................................................................................................................... 112
Learning Outcomes for Study session 8 ................................................................................................ 113
Key Terms: Strength, weakness, threats, opportunities ....................................................................... 113
8.1 What is SWOT?................................................................................................................................ 113
8.2 Identification of Opportunities ....................................................................................................... 116
8.2.1 Indicators of Unmet needs................................................................................................ 117
8.3 Institutionalized sources of business .............................................................................................. 120
8.4 Constraints to the exploitation of business opportunity .......................................................... 121
8.5 Business Failure............................................................................................................................... 121
8.5.1 Micro Causes of Business Failure (Internal) ............................................................................. 121
8.5.2 Macro causes of Business Failure (External) ..................................................................... 124
8.6 Survival for Small Scale Businesses ........................................................................................... 125
Links to OERs ......................................................................................................................................... 128
References/Suggestions for further reading ........................................................................................ 128
STUDY SESSION 9: ..................................................................................................................................... 129
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SOCIAL RESPONSIBILITY AND BUSINESS ETHICS ....................................................................................... 129
Introduction .......................................................................................................................................... 129
Learning Outcomes for Study session 9 ................................................................................................ 130
9.1 Definition of Social Responsibility............................................................................................. 130
9.1.1 Basic Assumption about Socially Responsible Business Organisation .............................. 131
9.1.2 Is There Really Need For Social Responsibility? ................................................................ 132
9.3 Arguments in Favour of Social Responsibility ................................................................................. 132
9.1.4 Arguments Against ............................................................................................................ 133
9.1.5 Factors Responsible for Consideration of Social Responsibilities by business ................. 135
9.16 Interest Groups in Social Responsibility .................................................................................... 136
9.1.7 Benefits of Social Responsibility to the Organisation .............................................................. 138
9.2 Business Ethics .......................................................................................................................... 138
9.2.1 Definition of Ethics ............................................................................................................ 138
9.2.2 Ethics and the Various Aspects of Human Life......................................................................... 139
9.2.3 State of Ethical Standards in Nigeria ................................................................................ 139
9.2.4 Factors Encouraging Compliance to Ethics .............................................................................. 140
9.2.5 Causes of Ethical Compromise and Influences ........................................................................ 141
9.2.6 Ethical Issues in Business ......................................................................................................... 141
9.2.7 Measures to Ensure Ethical Practices Are Followed ................................................................ 143
Links to OERs ......................................................................................................................................... 146
References and Suggestions for further Reading ................................................................................. 146
STUDY SESSION 10: ................................................................................................................................... 148
GOVERNMENT ROLE AND ECONOMIC POLICIES ...................................................................................... 148
Introduction .......................................................................................................................................... 148
Learning Outcomes for Study session 10 .............................................................................................. 149
10.1 Economic Systems......................................................................................................................... 149
10.1.1 The Role of Government in Business ..................................................................................... 151
10.1.2 Why do Governments Regulate/Control Business?.......................................................... 152
10.1.3 Methods of Control ........................................................................................................... 152
10. 2 Nigeria Enterprises Promotion Decree (NEPD) ............................................................................ 153
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10.2.1 Objectives of Nigerian Enterprises Promotion Decree ..................................................... 155
10.2.2 Benefits of the Nigerian Enterprises Promotion Decree .................................................. 155
10.2.3 A Revised Economic Climate ............................................................................................. 156
10.3 Structural Adjustment Programme ........................................................................................... 156
10.4 Commercialization .................................................................................................................... 159
10.4.1 Objectives of Commercialization ..................................................................................... 160
10.4.2 Assessment of Commercialization Programmes in Nigeria .............................................. 160
10.5 Privatization ............................................................................................................................. 161
10.5.1 Types or Methods of Privatization .................................................................................... 162
Summary of Study Session 10 ............................................................................................................... 164
Self-Assessment Questions (SAQs) for Study Session 10 ...................................................................... 164
Links to OERs ......................................................................................................................................... 166
References/Suggestions for further readings ....................................................................................... 166
STUDY SESSION 11: ................................................................................................................................... 168
GOVERNMENT ECONOMIC POLICIES AND PARTNERSHIPS ...................................................................... 168
.................................................................................................................................................................. 168
Introduction .......................................................................................................................................... 168
11.1 National Economic Empowerment and Development Strategy (NEEDS) ............................. 169
11.1.1 What Made NEEDS Different ............................................................................................ 171
11.1.2 Empowerment programme .............................................................................................. 171
11.1.3 Assessment of the Success of the NEEDS Programme .......................................................... 172
11.2 The New Partnership for Africa’s Development (NEPAD) ........................................................ 173
11.2.1 History of NEPAD .............................................................................................................. 173
11.2.2 Objectives of NEPAD ......................................................................................................... 174
11.2.3 The principles of NEPAD.................................................................................................... 175
11.2.4 The elements of NEPAD's strategic focus ......................................................................... 175
11.2.5 How NEPAD programme is governed .................................................................................... 176
11.2.6 NEPAD Planning and Coordinating Agency (NEPAD Agency)........................................... 176
11.2.7 African Ownership ............................................................................................................ 177
11.3 The African Growth and Opportunity Act (AGOA) .................................................................... 178
11.3.1 Long-Term Potential Benefits of AGOA to African Countries ........................................... 179
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11.3.2 Implementation ................................................................................................................ 180
11.3.3 Country Eligibility .............................................................................................................. 180
11.3.4 GSP Product Eligibility ...................................................................................................... 181
11.3.5 Apparel Provisions ............................................................................................................ 182
Summary of Study Session11 ................................................................................................................ 183
Links OERs ............................................................................................................................................. 185
References/Suggestions for further reading ........................................................................................ 185
STUDY SESSION 12: ................................................................................................................................... 188
BUSINESS AND CONTEMPORARY ISSUES .................................................................................................. 188
Introduction .......................................................................................................................................... 188
12.1 Concept of International Trade................................................................................................. 189
12.1.1 Reasons for international trade ........................................................................................ 189
12.1.2 Advantages of International Trade ................................................................................... 189
12.1.3 Disadvantages of International trade ............................................................................... 190
12.1.4 Barriers to International trade ............................................................................................... 190
12.1.5 Documents used in International Trade ........................................................................... 190
12.1.6 Means of payment in foreign trade .................................................................................. 191
12.1.7 Advantages of the letter of credit ..................................................................................... 191
12.1.8 Disadvantages of the letter of credit ................................................................................ 192
12.2 Globalisation ............................................................................................................................. 192
12.2.1 Advantages of Globalization ............................................................................................. 192
12.2.2 Disadvantages of Globalisation ......................................................................................... 193
12.2.3 Features of the world that aid globalization. .................................................................... 193
12.4 Regional Economic Integration ................................................................................................. 194
12.4.1 Advantages/Reasons ......................................................................................................... 194
12.4.2 Disadvantages/Problems .................................................................................................. 194
12.4.3 Types of economic unions ..................................................................................................... 195
12.5 The Economic Community of West African State (ECOWAS) ................................................... 195
12.6 General Agreement on Trade and Tariffs (GATT) ..................................................................... 196
12.6.1 Basic Principles of GATT .................................................................................................... 196
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12.6.2 Objectives of GATT ............................................................................................................ 196
12.6.3 Specific areas of agreement .............................................................................................. 197
12.7 World Trade Organization (WTO) ............................................................................................ 197
12.7.1 Objectives of WTO ............................................................................................................ 198
12.7.2 Functions of WTO.............................................................................................................. 198
12.8 The World Bank......................................................................................................................... 198
12.8.1 Groups of World Bank ....................................................................................................... 199
12.9 International Monetary Fund (IMF) .......................................................................................... 199
12.9.1 Composition of IMF............................................................................................................... 200
12.9.2 Features oF IMF ................................................................................................................ 200
12.9.3 Mode of operation ............................................................................................................ 201
12.9.4 Objectives of the IMF ........................................................................................................ 202
Summary of Study Session 12 ............................................................................................................... 202
Links to OERs ......................................................................................................................................... 205
References/Suggestions for Further readings ...................................................................................... 205
APPENDIX 1 ............................................................................................................................................... 207
SOLUTIONS TO SELF_ASSESSMENT QUESTIONS FOR SESSIONS 1 to 12................................................... 207
APPENDIX 2 ............................................................................................................................................... 233
GLOSSARY OF KEYWORDS......................................................................................................................... 233
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Welcome Message
Good day to you and we are delighted to welcome you to this study guide on the Course BUS 261:
Management of Business Environment As your instructor for this course, we are looking
forward to working together with you and helping you to get the best head start in this course. We
want, once again, to welcome you warmly and wish you well.
This Self-Learning Material (SLM) for the course has been specifically designed to help you
acquire a significant aspect of the skills you need to succeed in your dream to acquire a degree of
the University of Lagos. We hope also that you will maximize the opportunities provided through
the material in this direction. and complete this course leading to your degree programme. Read
through the course outline carefully to learn what is expected of you.
We wish you the best.
Dr. Alaneme, Gloria C.

Dr. Adebakin, M. A.
Dr. Adekoya, O. A.
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1.0 INTRODUCTION
You are welcome to Management of Business Environment (BUS 261) module. Generally, this
course fundamentally aims to introduce you to Management and Business Environment as a
discipline. The module is specifically designed to introduce you to virtually all areas of business
operations like the different forms of business organizations, rules and regulations guiding
business operations, the environment of business, societal expectation of business, etc. It gives a
general background to the elements and the characteristics of managing business and its
environment.
At the end of each module, there are self-assessment questions for you to practice with; to test
your understanding of what you have read in each module.
a. Course Description
The goal of this course is to make you understand the fundamentals of managing business and the
concerns about the environment of business. Because of its wide coverage, the field of business
environment looks at the external and internal environment. The external environment looks at
the general and international environment while the internal environment is concerned with the
specific environment or the task environment of Nigeria. This course essentially introduces
students to basic rudiments of the Nigerian business environment. It is the bedrock for you to
understand what management of business environment is as a course. The content of the course
and reading references provided will cover some areas of the course; while lectures, class
discussions and teamwork, cover the rest areas of the bulk of knowledge you are expected to
acquire and complete through this course; and by extension, this course will be helpful to you in
providing a window through which you learn the background to other courses on the programme
xii
and other useful principles required to make a successful business manager.
b. Background of the Course
a. This module is specifically designed to equip you with relevant academic skills that are
supportive of your excellent class performance. For example, Study Session 1 to 5 exposes
you to what business and business environment is, the components of business
environment, types of environments, how to analyze the environment of business, types of
business organization and ownership, advantages and disadvantages of the various forms
of business ownership, what entrepreneurship is, characteristics of successful
entrepreneurs, among others.
b. You will soon discover by paying attention to the basic principles taught in these study
sessions how important this course is in providing the necessary skills you require in
understanding business environment and management. You will therefore require
dedication to your work and acquisition of relevant academic skills to excel brilliantly.
There are necessary supports provided by the Distance Learning Institute (DLI) tutor
through the assignments given in these study sessions.
c. Module Aims
The main aim of this module is to develop the relevant key study skills in you. Note that your
tutors are just a click of the button away from you to give you the support you require.
This course will seek to:
• develop students in broad range areas.
• develop students specifically in: -
o Critical thinking and problem-solving skills.
o Accessing and analyzing information skills.
o Effective communication skills
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2.0 MODULE OUTLINE
a. Learning Objectives
On completion of this module, you should be able to:

Define the concept of Business.
Discuss the Business Environment.
Discuss Business and environmental interdependence.
Describe the forms of Business ownership
Examine Entrepreneurship Development.
Discuss Organic Business Functions and Feasibility Study.
Discuss the challenges of managing business in Nigeria
Identify the opportunities and threats of business.
Determine the reasons for business failure
Analyze social responsibility and business ethics
Examine the role of government and economic policies
Discuss government economic policies and partnerships
Examine Business and Contemporary issues
b. Study Sessions
This study guide should be read in conjunction with the Module in print by the same author, which
will be provided to all students. In addition to this module, students are encouraged to consult
additional recommended reading materials such as textbook and websites on the subject matter.
The following topics are covered in the module:
Study Session 1: Concept of Business

Study Session 2: Business Environment
Study Session 3: Business and Environmental Interdependence
Study Session 4: Forms of Business ownership
Study Session 5: Entrepreneurship Development
Study Session 6: Organic Functions and Feasibility Studies
Study Session 7: Challenges of Managing Business in Nigeria
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Study Session 8: Opportunities, Threats and Business Failure
Study Session 9: Social Responsibility and Business Ethics
Study Session 10: Government Role and Economic Policies
Study Session 11: Government Economic Policies and Partnerships
Study Session 12: Business and Contemporary Issues
c. Learning Supports
This study guide and the Self Learning Material (SLM) are the key materials for studying the
relevant study sessions. Each topic provides you with a 'road map' to guide you through the SLM.
The textbook readings will be supplemented by lecture notes. You are also expected to attempt the
online activities on the Learning Management System (LMS) as they will deepen your
understanding of the individual topics. Online discussions and collaborations are additional vital
parts of the learning support tools. They give you the opportunity to express your understanding
and application of the topics under discussion in practice. Furthermore, you benefit from the
experiences and insights of your peers challenging their own perspectives and actions.
There is availability of other useful sources such as numerous websites which are appropriate
for this course. The following list is by no means exhaustive but should be explored:
http://www.skills4study.com
http://www.ucd.ie/adulted/currentstudents/studyskillsguide/
http://www.mindmapping.com/
d. Module Evaluation
At the end of the session, you will be asked to provide feedback on this course guide through an
online evaluation that will be sent to your email account. The gathering of such feedback is an
important part of our quality assurance and accreditation processes, and I would encourage you to
complete these evaluations.
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3.0 MODULE DELIVERY SCHEDULE
a. Session Arrangements
The module contains fifteen study sessions, and you are encouraged to spend at least three (3)
hours on individual study sessions. The module is programmed for you to engage in prior
preparation, to seek confirmation and clarification at appropriate periods, to practice each In-Text
Questions (ITQs) and Self-Assessment Questions (SAQs) at the end of each study session and to
be actively engaged during the session. The ITQs are short questions that give you an immediate
opportunity to assess yourself before going to study the next session. You are expected to study
and be prepared for all sessions. The study sessions are divided into weekly format as will be seen
on the LMS.
b. Preparation Required in Advance of Sessions
This is a 3-unit course which means that you are required to study and take all parts of the course
seriously. In addition to the SLM assignments, you are expected to have read the study sessions in
advance of online facilitations. BUS 261 being a 3-unit course and the workload reflects that fact.
It is essential to set out your study schedule so that you can plan your learning activities for the
academic year ahead with the aim of balancing study, work, and family demands. You are expected
to be fully familiar with the contents of the module.
c. Student Engagement
During the sessions, you are expected to be able to discuss issues arising from the study. Session
participation is a vital element in the design of this Self Learning Material. Therefore, you are
expected to engage in class discussion and online collaborations to facilitate the formation of your
critical judgments. To support your learning, Power-Point slides will be available which (on certain
occasions) may need to be upgraded / modified during or following the sessions depending on the
issues raised.
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d. Preparatory Questions
There two types of Assessments in this module; the In-Text Questions (ITQs) and Self-Assessment
Questions (SAQs). The In-Text Answers (ITAs) follow directly after the ITQs. Going through
these gives you the opportunities to quickly assess yourself before moving to the next session. The
ITQs come immediately after a sub-topic but you will find the SAQs at the end of each study
session. Answering SAQs enable you to check your own progress in achieving the Learning
Outcomes.
4.0 ASSESSMENT DETAILS

In every course undertaken there will always be a form of assessment. Assessment is to assist in
evaluating the extent to which you have successfully completed in studying the content of the
module. This module has three assignments with equal marks. Each will come after/during every
five-week of facilitation with you.
You will be exposed to other forms of assessments in form of Computer Marked Assessments
(CMA) and Tutor Marked Assessments (TMA). Endeavour to submit all assignments via the
relevant assignment upload link on the LMS which can be located under the ‘Assignments’ section
of the course page before/ on the due date for submission. You are expected to complete all
assignments ensuring that they are submitted by the specified date. Please take part in all TMA
and CMA before the due dates. Do not wait until the last minute before participating in the
assessment activities.
5.0 GRADING
Your programme is designed with courses which are weighted and classified into various levels.
Courses are assigned units depending on the volume of work required to complete the course. This
section is designed to acquaint you with the alphabets representing your final grade in this course.
It is necessary to first recognize and be thoroughly familiar with certain ranges that are commonly
used in arriving at your grade. These are defined as follows:
Grade Percentage range Grade point
A (70-100%) 5 points
B (60-69%) 4 points
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C (50-59%) 3 points
D (45-49%) 2 points
E (40-44%) 1 point
F (0-39%) 0 point
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6.0 List of Icons and Their Meanings
S/No Icon Meaning
1.
Activity
2.
Calculations
3.
Charts and Tables
4.
Experiments
5. Group Activity
6.
IAG Information
7.
In-Text Questions
8.
In-Text Answers
9.
Introduction
10.
Learning Outcomes
11.
Summary
12.
E-Tutor
13.
Figure
14.
Key Terms
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STUDY SESSION 1:
THE CONCEPT OF BUSINESS
Introduction
Are you a businessman or woman? Can you think of any businessman or woman you know? Do
you know what businessmen and or women do even if you are not one? Your response would
probably be that they engage in trading or buying and selling? Well then, let us see what this unit
has in stock. In this unit you will learn the concept and definition of business, state the purpose of
business while an insight will be drawn into the Nigerian economy and business objectives and the
classification of business will also be dealt with.
Learning Outcomes for Study session 1
When you have studied this session, you should be able to:
1.1. Define and correctly use all the key words printed in bold (SAQ 1.4)
1.2. Define Business and State the Purpose of Business (SAQ 1.4)
1.3. Explain the Nigerian Economy and Business (SAQ 1.1)
1.4. Summarise the Business Economic foundations (SAQ 1.3)
1.5. Describe the different Categories or Classification of Business (SAQ 1. 2)
Key Terms: Business, Nigerian Economy, Economics, Business Development,

Extractive, Manufacturing, Construction, Commercial and Service Industries
1
1.1 Definition of Business
Business has been defined in various ways by various schorlars. Some authors have defined
Business as “an organisation set up to make profit”; others described it as “an organization
consisting of a person or a group of persons who produce and distribute goods and services for
private profit”. It has also been viewed as an economic system in which goods and services are
exchanged for one another or money, based on their perceived worth (BusinessDictionary.com,
2010). Karimu (1992) defines Business as “the sum of all the activities involved in the creation
and distribution of goods and services for private profit”. It is also conceived as a legally
recognized organization. Business could be referred to as: an enterprise, business enterprise,
commercial enterprise, company, firm, organization, profession or trade operated for the purpose
of earning a profit by providing goods or services, or both to consumers, businesses and
governmental entities (Sullivan and Sheffrin, 2003; AllBusiness.com., 2010). Business is therefore
any legal means of satisfying human wants with the motive of profit. When people engage in illicit
deals and make abnormal income it is not business. When people engage in criminal and fraudulent
activities to enrich themselves it is not business. Business must be seen as rendering legal services
or producing goods at a cost.
Define Business by Karimu (1992)
Karimu (1992) defines Business as “the sum of all the activities involved in the creation
and distribution of goods and services for private profit”.
1.2 The Purpose for business

Every human activity has a purpose or else it will not be useful. I am sure you have a purpose for
living or you are living to fulfil a purpose. Likewise, the major essence or purpose of business is
the supply of goods and services in order to satisfy the societal needs (Isimoya, 2005). The
aggregation of people in a place will necessitate the need for goods and services. Needs, going by
Abram Maslow’s hierarchy of needs, could be physiological, psychological security,
social/belongingness, esteem or self-actualization. It is expected that these needs will be provided
by the institutions best suited to provide them. For instance, essential and infrastructural needs
2
will be provided by the state (local, state, and federal), belongingness or friendship needs will be
provided by the family and the society one belongs to, spiritual need which may fall under social,
or belongingness need will be supplied by the church etc. In the same vein, business will provide
economic goods and services to satisfy human wants. These human wants may cut across the
various hierarchy of needs as stated by Abram Maslow and the others. For instance,
businesspeople who are into the manufacturing of cars realized the importance of class and status
distinction (esteem needs) and decided to segment the market for cars. The richest of the rich go
for the hummer cars and the likes, while the poor go for fairly used (tokunbo) cars and the likes.
The motives for satisfying needs by the various institutions differ. As you know, an institution like
the church is spiritually motivated, government is politically motivated, while business is profit
motivated. A business cannot long exist if it does not make profit to enhance its existence. Possibly
the first few months of business operation may not see the profit rolling in, but for its long-term
sustenance and existence, it must make profit. Every institution therefore serves a purpose in terms
of need satisfaction.
You have just learnt the meaning of business. Do you think someone hired to kill
another for a pay is into business?
No. Hire killing for a pay is an illegal deal and does not reflect the true meaning of
business.
1.3 Brief history of business development in Nigeria
Trade or business is as old as man itself. In the primitive era or Stone Age, individual family units
provided goods and services through what is called trade by barter where someone who needs meat
exchanges his own produce, say yam with a hunter who probably requires the yam. The means for
exchange today is through the accepted Nigerian currency or any other currency in which the
business is transacted. In the pre-colonization era, trade went on successfully in the historical
3
kingdom or empires such as Kanem-Bornu, Oyo and Benin. The economy thrived on agriculture,
craft and commercial activities. Trans-saharan trade also flourished with the Portuguese where
nations traded in commodities such as gold, ivory, kolanuts, salt, shares, in exchange for items that
were brought in by the Portuguese. When Britain colonized Nigeria, trade with the British was
bolstered while the British industrialists needed raw materials such as palm oil, groundnuts, and
cocoa (which were cheaply produced in West Africa) for their industries. They also needed trading
outlets, i.e. commercial opportunities for their finished goods. The nation’s economic and trading
activities were controlled by the Europeans. With the indigenization decree of 1972 and
government’s direct involvement in ownership of business, the control has shifted from Europeans
to Nigerians (Isimoya, 2005). The Nigeria Enterprises Promotion Decree of December 1989
permits a 100% foreign ownership in any new venture except those involved in the production of
arms and ammunitions (UHY,
2008). The Nigeria Free Trade Zone Act established the Nigerian Export Processing Zone
Authority (NEPZA). In the Free Trade Zones (FTZ’s), as renamed in 2001, all products and
services are designated for export with specific exceptions . Enterprise zones are exempted from
custom duties, local taxes and foreign exchange restrictions, and qualify for incentives – tax
holidays, rent free land, no strikes or lockouts, no quotas in the EU or US markets (UHY, 2008).
1.4 Business and Economic Foundations

Economics is the study of how resources are distributed for the production of goods and services
within a social system (Ferrell, Hirt and Ferrell, 2008). The types of resources available as you
know are the natural resources, human resources and financial resources. The natural resources
include land, forests, minerals, water, and other things that are not made by people; the human
resources which is essentially labour is the physical and mental abilities that people use to produce
goods and services. People working in an organization are the human resources of that
organisation. Financial resources referred to as capital are the funds used to acquire the natural and
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human resources needed to provide products. These resources are also called the factors of
production because they are used to produce goods and services.
Economic Systems
An economic system describes how a given society distributes its resources to produce goods and
services. What is important in economics is how to satisfy the unlimited yearning for goods and
services in a world of limited or scarce supply of resources. Different economic systems attempt
to resolve this basic issue in diverse ways. The various economic systems though different in the
handling of the distribution of resources must address three crucial issues as expressed by Ferrell
et al (2008) thus;
1. What goods and services to be produced, and how much of each will satisfy consumers’
needs?
2. How goods and services will be produced, who will produce them, and with what resources
will they be produced? and
3. How are the goods and services to be distributed to the consumers?
There are basically three types of economic systems found in the world today. These are
Communism, Socialism, and Capitalism.
Communism by Karl Marx (1818-1883) was first described as a society in which the people,
without regard to class, own all the nation’s resources. In Karl Marx’ ideal political-economic
system, everyone contributes according to ability and receives benefits according to need. In this
type of economy, the people (through the government) own and operate all business and factors of
production. Central government planning determines what goods and services satisfy citizens’
needs, how the goods and services are produced, and how they are distributed. This system was
previously practiced in Russia, Poland, Hungary, and other Eastern European nations. However,
no true communist economy exists today that satisfies Marx’s ideal. Or can you name one?
Socialism is closely related to communism. Socialism is an economic system in which the
government owns and operates basic industries such as postal service, telephone, utilities,
5
transportation, health care, banking, and some manufacturing, but individuals own most
businesses. Central planning determines what basic goods and services are produced, how they
are produced, and how they are distributed. Individuals and small businesses provide other goods
and services based on consumer demand and the availability of resources. As with communism,
citizens are dependent on the government for many goods and services. Examples of socialist
nations are Sweden, India, and Israel. They are democratic and recognize basic individual
freedoms. Citizens can vote for political offices, but central government planners usually make
decisions about what is best for the nation.
Capitalism or free enterprise is an economic system in which individuals own and operate the
majority of businesses that provide goods and services. Competition, supply, and demand
determine which goods and services are produced, how they are produced, and how they are
distributed. The United States, Canada, Japan, and Australia are examples of economic systems
based on capitalism. There are two forms of capitalism: pure capitalism and modified capitalism.
In pure capitalism also called a free-market system, all economic decisions are made without
government intervention. This economic system was first described by Adam Smith in “the Wealth
of Nations” (1776). Smith, often called the father of capitalism, believed that the invisible hand of
competition best regulates the economy. On the other hand, modified capitalism states that the
government intervenes and regulates business to some extent. One way of doing this is through
enactment of laws and policies on the economy. This can be viewed as what is referred to in today’s
world as the Mixed Economies. No country practices a pure form of communism, socialism, or
capitalism, although most tend to favour one system over the others. Most nations operate as mixed
economies, which have elements from more than one economic system.
Each nation develops along one economic system or the other. Can you say on
which system Nigerian’s economy is built?
6
Nigeria’s economic system is built on modified capitalism or mixed economic
system because government intervenes and regulates business to some extent.
1.5 The Nigerian Economy and Business

Remember that in the preceding section, you were asked to name Nigeria’s economic system. Now
study it in the following segment.
Nigeria runs a mixed economy which is an economic system that is in between a capitalist (free
market or free enterprise) economy and a socialist (pure planned) economy. A mixed economy
entails that the government accepts a degree of ownership of the means of production, e.g. land
and capital, and also influences the key economic variables like interest rate, exchange rate and the
maintenance of sound financial regulations. Government is also involved in direct supply of
utilities like water, electricity, roads, power, postal services, telecommunication, etc. These are
vital economic institutions whose activities are very basic to the total economic system.
Government involvement in the provision of goods and services (both as commercially-oriented
as well as socially-oriented) is stated in the Nigerian Second National Development Plan (1970-
74:75) where the reason for public enterprise or state owned enterprise establishment is given thus:
Their (Public enterprise) primary purpose is to stimulate and accelerate

National economic development under conditions of capital scarcity and
structural defects in private business organizations. There are
also basic considerations arising from the dangers of leaving vital
sectors of the national economy to the whims of the private sector
often under the direct and remote controls of foreign large scale
industrial companies.
The mixed economy also has its legal backing in the 1979 Nigerian Constitution which states that
“the state shall control the national economy in such a manner as to secure the maximum welfare,
freedom and happiness of every citizen on the basis of social justice, equality of status, and
opportunity; the state shall manage the major sectors of the economy (defence, currency,
7
export/import, aviation, military, railway, mineral resources, etc., and may take active part in other
sectors like education, electricity, water resources, agriculture, etc)”.
It is evident from the above, that in Nigeria the state and her agencies, as well as the private
investors, are involved in the supply of goods and services that meet the society’s needs. The
objective of the state obviously is to promote maximum welfare, freedom and happiness, as stated
in the constitution, while that of private business investors is to maximize profit. The effect of
government objective is felt in the provision of essential services, infrastructural facilities, and
employment opportunities among others. Aside from the generally accepted profit motive of
private business, Isimoya (2005) states that there are other objectives of business and this include:
i. Innovation: introduction of new products or services
ii. Productivity: Business aims at enhancing productivity i.e. the ratio of input to output.
An increase in productivity can be measured in terms of output per labour employed,
and output per capital employed, which show the extent to which the business is able
to effectively utilize a set of resources to achieve the highest possible value of output.
iii. Employees’ satisfaction: Business seeks to enhance employees’ satisfaction, so as to
optimize contributions to business well-being.
iv. Shareholders’ Satisfaction: increase in dividends and reduction in business risk
exposures.
v. Social responsibility: Business aims at identifying with the locality in which it
operates.
vi. Stakeholders’ Satisfaction: Apart from employees and shareholders who are directly
involved in the running of business, there are other stakeholders every business outfit
strives to satisfy, such as:
- Consumers: These are people who buy the goods and services produced.
- Suppliers: They supply the inputs to business
- Distributors: They distribute the goods produced by business
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- Government: The government legally regulates the business operations so that
individual’s rights would not be infringed upon.
- Pressure Groups/General Public: They are the recipients of all that the business
produces and assess the positive and possible negative impacts on the society.
1.6 Categorization of Business
Business has been classified in various ways by various people. In this study, business shall be
classified using the type of customers, type of goods produced, and industry characteristics as
stated by Isimoya (2005).
a. Type of customers: The customers of a business may either be end-users or those who use
the products to further their own production. In this case, the output of one business
becomes the input of another. For instance, an ice block producer will require nylon
produced by plastic companies to be able to fill water in it and produce ice block. In a
situation like this, the former, whose output is used as input by the other, is an
intermediate/industrial goods producer while the other whose product goes to the end-users
are called consumer goods producers. From the example given, the nylon producer is an
intermediate/industrial goods producer while the ice block producer could be termed the
consumer goods producer.
b. Type of Goods Produced: Business can be classified according to the kind of goods
produced. Some business produce goods that are termed durable or specialty goods, e.g.
machines, electrical appliances, motor vehicles, aeroplanes, etc., while other firms produce
non-durable or convenience goods that are consumed within relatively short periods of
time, such as food items, cigarettes and paper products.
c. Industry Type: Businesses can be classified by industry characteristics thus:
i) Extractive Industry: This is a group of business firms whose primary activities
involve mining, fishing, forestry, farming, quarrying, drilling, etc.
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ii) Manufacturing Industry: This is composed of businesses whose primary purpose
is to convert items (goods) in the crude state to a more useful state. The
manufacturing group gets the inputs (raw materials) from the extractive industry,
and then processes either by reshaping or refining them to enhance their utility.
iii) Construction Industry: This comprises businesses involved in building
infrastructure like roads, bridges, houses, office blocks, seaports and airports,
stadia, to mention but a few.
iv) Commercial Industry: The activities engaged in these organizations serve as
facilitators of business. Examples are the banks, insurance companies, wholesale
and retail trade organizations, real estate companies, transportation firms, etc.
v) Service Industry: This is another segment of business in our country. The service
industry is growing in importance with every passing day. Unlike the basic
industries, the service industry does not produce physical goods, yet it is very
productive through services which are demanded and paid for by consumers and
businesses alike. Examples are entertainment and recreation, hotels and lodging,
laundry and general cleaning, engineering and other professional services, as well
as automobile repair. Others are educational institutions, religious and social
organizations, medical and health services business and domestic services.
Supposing your company decides to engage in the cleaning of offices for other
companies and individuals for a pay, what kind of industry does that fall within and
how many ways can you classify your kind of business?
The cleaning business will fall under the service industry, and can be classified
using the industry type or customers’ type.
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1.7 Why Study Business
Every purposeful activity must have a reason. For example you must have a reason for enrolling
in a degree programme. You must also have a reason for choosing business administration as
a course of study. Can you state your reason for studying business? Read further. Studying
business can help you develop skills and acquire knowledge to prepare for your future career,
regardless of whether you plan to work for a multinational firm, start your own business, work
for a government agency, or manage or volunteer at a non-profit organization (Ferrell, Hirt &
Ferrell, 2008). The business field offers a variety of interesting and challenging career
opportunities throughout the world such as human resources management, finance, production
and operations, wholesaling and retailing and many more.
The study of business helps us to understand better the many business activities that are
necessary to provide satisfying goods and services and that these activities have their cost. For
instance, most businesses charge a reasonable price for their products to ensure that they cover
their production costs, pay their employees, provide their owners with a return on their
investment, and perhaps give something back to their local communities.
The activities of business help generate the profits that are essential not only to individual
business and local economies but also to the good or betterment of the world at large. Without
profit, business will find it difficult, if not impossible to expand its scope, buy more raw
materials, hire more employees, attract more capital, and create additional products that in turn
make more profits and fuel the global economy.
Summary of Study Session 1
In this Study Session, you have learnt:

1) the concept of business and the various definitions of business. Business was defined as
any legal means of satisfying human wants with the aim of making profit.
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2) The purpose for the business includes the provision of goods and services with a profit
motive as well as satisfying other stakeholders.
3) the brief history of business development in Nigeria as well as the economic foundations
of business and the various economic systems was briefly examined. Business was
categorized according to its customer type, good or product type, and industry
characteristics.
4) about the Nigerian Economy and Business and the Business Economic foundations
5) how to describe the different Categories or Classification of Business
Self-Assessment Questions for Study Session 1

Now that you have studied this session, you can assess how well you have achieved its learning
outcomes by answering the following questions. Write your answers in your study diary and
discuss them with your facilitator at the next study centre meeting. You can check your answers
at the end of this course material.
SAQ 1.1 (tests Learning Outcomes 1.3)

Give a brief account of the Nigerian economy and business
Write short notes of not more than three sentences each on the different categories or classification
of business
Outline and illustrate the economic foundations of business
SAQ 1.4 (tests Learning Outcomes 1.1 and 1.2)
Define Business and state the purpose of business
Multiple Choice Questions
1.1 ................ is a group of business firms whose primary activities involve mining, drilling,
forestry, farming, quarrying etc.
(a) Construction Industry
(b) Manufacturing industry
(c) Extractive industry
(d) Service industry
1.2. .................. can be viewed as an economic system in which goods and services are
exchanged for one another or money, on the basis of the perceived worth.
(a) Business
(b) Contract
(c) Marketing
(d) Commerce
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1.3. One of these is not a method of classifying business
(a) types of customers
(b) types of goods produced
(c) industry characteristics
(d) company’s name
1.4. This industry does not produce physical goods but yet very productive through work
done for others which are demanded and paid for by customers.
(a) Extractive industry
(b) Service industry
(c) Commercial Industry
(d) Construction industry
1.5. All the following are objectives of business except
(a) Enhance employees’ satisfaction
(b) Focus on customer satisfaction
(c) Utility creation
(d) make profit any how
Links to OERs
https://openstax.org/details/books/introductionbusiness
business ethics Archives - BusinessOER.com
http://www.allbusiness.com/glossaries/business/4959436-1.html
References and Suggestions for further readings

Ferrell, O. C., Hirt. G. And Ferrell, L. (2008). Business A Changing World. 6th Ed. New
York, McGraw Hill Pub.
Isimoya, A. O. (2005). Nigerian Business Environment: An Introduction. Lagos.
Concept Publications Ltd.
Urbach Hacker Young (UHY) 2008. Doing Business in Nigeria
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Should you require more explanation on this study session, please do not hesitate to contact your e-tutor
via the LMS.
Are you in need of General Help as regards your studies? Do not hesitate to contact the DLI IAG Center
by e-mail or phone on:
iag@dli.unilag.edu.ng 08033366677
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STUDY SESSION 2:
THE BUSINESS ENVIRONMENT
Introduction
In study session 1 we looked at the concept of business, economic foundations on which business
was built and the classification of business. Every business operates within a given environment,
the environment affects business and business also affects the environment. Business and the
environment have a symbiotic relationship. Since business and environment are interrelated, it is
important for you as a business student to understand the inter-relatedness so as to position your
self properly for business decision making in a changing environment. In this study session, you
will be exposed to the meaning of business environment and the components of business
environment. You will also learn the composition of the two major environment (the internal and
external environment) and be able to differentiate between the two. The importance or need for
business managers to understand their environment will also be examined while not leaving out
the characteristics of business environment. Please read on.
After you have carefully studied this Session, you should be able to:
2.1 Define and use correctly all of the key words printed in bold (SAQ 2.1 and 2.3)
2.2 Define Business Environment (SAQ 2.3)
2.3 State the components of business environment (SAQ 2.3)
2.4 Distinguish between internal and external environment (SAQ 2.1)
2.5 Explain the importance of understanding the environment (SAQ 2.2)
2.6 List and explain the three characteristics of business environment (SAQ 2.4)
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Key Terms: Business Environment, Internal environment, External environment,
Organizational resources, Organizational behaviours, macro-Environment
2.1 The Concept of the Environment

We all live in an environment and work in different environments. Some environments are friendly,
others are not. Our environment affects the way we live and work. It is known that the environment
also affects our health or well-being. We need to comprehend our environment in order to live and
operate effectively. For instance, businesses in the south west region of Nigeria tend to be enjoying
more friendly business environment than those in the Niger Delta or the South South region of
Nigeria which has been experiencing unrest, disturbances, kidnap, hostage holding and the likes.
In the recent time, businesses in especially the North Central region of Nigeria may be relocating
or folding up due to killings, bombings, and general unrest existent there now. The environment is
no longer conducive for doing business.
Environment literally means the surroundings, external objects, influences, or circumstances
under which someone or something exists (Kazmi, 1999). The environment within which
something exists exhibits certain characteristics which have been identified by Kazmi (1999) to
be: complexity, dynamism, multifaceted and far-reaching impact. In the context of business, the
environment refers to the sum of internal and external forces operating in an organization.
Define Environment according to Kazmi (1999)
Environment literally means the surroundings, external objects, influences, or
circumstances under which someone or something exists (Kazmi, 1999).
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2.2 The Concept of Business Environment
The business environment is simply the surroundings within which a business exists. Business
environment embraces all institutions, organisations and individuals whose activities have an
impact, whether directly or indirectly, on business behaviour (Ifechukwu, 1986). The type of
business activity that exists in a particular place or community, state or country is to a great extent
determined by the law, beliefs, needs and attitudes of that community. The interrelationship
between business and the community where it operates constitutes the environment. Business
environment differs from state to state, region to region, and country to country. Some
environments may be favourable while others may be hostile.
Define Environment according to Kazmi (1999)
Environment literally means the surroundings, external objects, influences, or circumstances
under which someone or something exists (Kazmi, 1999).
The environment of business cannot be said to be the same in states, regions, and countries.
If you are asked to situate your business in Nigeria choosing from the two regions earlier
mentioned (Southwest and South South) which of the regions, would you prefer and why?
I would prefer the Southwest region for now because of the relative peace which exists
in the environment. The South-South region is still witnessing unrest and disturbances.
2.3 Components of the Business Environment – An overview
Business environment has been classified by different scholars using various bases or criteria.
However, it should be noted that the business environment is made up of the internal and the
external environment. The external environment is further divided into two - Macro and Micro
Environment. The macro environment is regarded as the general environment while the
microenvironment is regarded as the specific or task environment. The internal environment could
17
be termed the controllable environment while the external environment is seen as uncontrollable.
These environments are discussed briefly below.
2.3.1 Internal Environmental Factors
The internal environmental factors refer to those factors over which the management of the
business has control, at least in the short run; this is why it is also called the controllable
environment of the business. The internal environment of business is made up of all those
physical and social factors within the boundaries of the business, which impart strengths or cause
weaknesses of a strategic nature and are taken directly into consideration in the decision-making
behaviour of the business. Strengths are inherent capacities, which a business can use to gain
strategic advantage over its competitors; they are the internal strong points of the business such as:
its core skills, competencies, and expertise. While weaknesses are inherent limitations or
constraints, which create strategic disadvantages, they are the internal factors that are lacking in
the business. A successful manager will find ways of overcoming weaknesses and convert them
into strengths (Ifechukwu, 1986; Kazmi, 1999; Business-Plan, 2010).
The internal environment of the business is made up of micro-environmental factors such as
organizational goals and objectives, specific technologies utilized by component units of the
organization, the size, types and quality of personnel, its administrative units, and the nature of the
organization’s product/service (Ifechukwu, 1986). The nature of a business internal environment
is also determined by the organizational resources, organizational behaviour, strengths,
weaknesses, synergistic relationships and distinctive competence (Kazmi, 1999).
In Kazmi’s (1999) view:
Organizational resources are the physical and human resources used as inputs in the organization
to create outputs.
Organizational behaviour is the manifestation of the various forces and influences operating in
the internal environment of an organization.
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Strengths are inherent capabilities that give strategic advantage.
Weaknesses are inherent limitations or constraints, which create strategic disadvantages.
Synergy is an idea that a combined effort is greater than mere summation of the efforts of the
individual parts. The result of working together of two or more people, organisations, or things is
usually greater than the sum of their individual effects or capabilities.
Distinctive competence: The specific ability possessed by a particular organization that
distinguishes it from others.
Organizational capability: This is the inherent capacity or ability of an organization to use its
strengths, and overcome its weaknesses in order to exploit opportunities and face threats in its
external environment. The component of the environment is depicted in figure 2.1 below.
Fig. 2.1: Components of the Business Environment
Source: http://courseware.finntrack.eu/tutors/strat_cases_teaching.html
2.3.2 External Environmental Factors
An organization operates within the larger framework of the external environment that shapes
opportunities and poses threats to the organization. The external environment is a set of complex,
rapidly changing and significant interacting institutions and forces that affect the organization's
19
ability to serve its customers. External forces are not controlled by an organization but they may
be influenced or affected by the organization. It is necessary for organizations to understand the
environmental conditions because they interact with strategy decisions. The external environment
has a major impact on the determination of marketing decisions. Successful organizations scan
their external environment so that they can respond profitably to unmet needs and trends in the
targeted markets.
Internally, an organization can be viewed as a resource conversion machine that takes inputs
(labour, money, materials and equipment) from the external environment (i.e., the world outside
the boundaries of the organization), converts them into useful products, goods, and services, and
makes them available to customers as outputs. The organization must continuously monitor and
adapt to the environment if it is to survive and prosper. Disturbances in the environment may spell
profound threats or new opportunities. The successful organization will identify, appraise, and
respond to the various opportunities and threats in its environment. The external environment is
divided into two – macro and micro environment. The macro environment is referred to as the
general or remote environment while the micro environment is seen as the specific or task or
operating environment. Read further to see the description of these environments.
2.3.2.1 Macro environment (General or Remote Environment)
The external macro environment consists of all the outside institutions and forces that have an
actual or potential interest or impact on the organization's ability to achieve its objectives. This
includes the economic, technological, political, legal, social, cultural, demographic and ecosystem.
Though non-controllable, these forces require a response in order to keep positive actions with the
targeted markets. An organization with an environmental management perspective takes
aggressive actions to affect the forces in its marketing environment rather than simply watching
and reacting to it.
Economic Environment The economic environment consists of factors that affect consumer
20
purchasing power and spending patterns. Economic factors include business cycles, inflation,
unemployment, interest rates, and income. Changes in major economic variables have a significant
impact on the marketplace. For example, income affects consumer spending which affects sales
for organizations. According to Engel's Laws, as income rises, the percentage of income spent on
food decreases, while the percentage spent on housing remains constant.
Technological Environment The technological environment refers to new techniques or methods
which are used to create new product and market opportunities. Technological developments are
the most manageable uncontrollable forces faced by marketers. Organizations need to be aware of
new technologies in order to turn these advances into opportunities and a competitive edge.
Technology has a tremendous effect on life-styles, consumption patterns, and the economy.
Advances in technology can start new industries, radically alter or destroy existing industries, and
stimulate entirely separate markets. The rapid rate at which technology changes have forced
organizations to quickly adapt in terms of how they develop, price, distribute, and promote their
products.
Political and Legal Environment Organizations must operate within a framework of
governmental regulation and legislation. Government relationships with organizations encompass
subsidies, tariffs, import quotas, and deregulation of industries. You can readily recall the subsidy
removal strategy of the present government (January 2012) and the reasons advanced for it. The
political environment includes governmental and special interest groups that influence and limit
various organizations and individuals in a given society. Organizations hire lobbyists to influence
legislation and run advocacy adverts that state their point of view on public issues. Special interest
groups have grown in number and power over the last three decades, putting more constraints on
businesses. The public expects organizations to be ethical and responsible. In the U.S. for instance,
an example of response by marketers to special interests is the green marketing, the use of
21
recyclable or biodegradable packing materials as part of marketing strategy. The major purposes
of business legislation include protection of companies from unfair competition, protection of
consumers from unfair business practices and protection of the interests of society from unbridled
business behaviour.
Demographic Environment Demographics tell marketers who current and potential customers
are, where they are, and how many are likely to buy what the marketer is selling. Demography is
the study of human populations in terms of size, density, location, age, sex, race, occupation, and
other statistics. Changes in the demographic environment can result in significant opportunities
and threats presenting themselves to the organization. Major trends for marketers in the
demographic environment include worldwide explosive population growth, a changing age, ethnic
and educational mix, new types of households, and geographical shifts in population.
Social/Cultural Environment Social/cultural forces are the most difficult uncontrollable variables
to predict. It is important for businesses as well as marketers to understand and appreciate the
cultural values of the environment in which they operate. The cultural environment is made up of
forces that affect society's basic values, perceptions, preferences, and behaviours. Changes in
social/cultural environment affect consumer behaviour, which affects sales of products. Trends in
the cultural environment include individuals changing their views of themselves, others, and the
world around them and movement toward self-fulfilment, immediate gratification, and secularism.
Ecosystem Environment The ecosystem refers to natural systems and its resources that are needed
as inputs by businesses or that are affected by business activities. Green marketing or
environmental concern about the physical environment has intensified in recent years. To avoid
shortages in raw materials, organizations can use renewable resources (such as forests) and
alternatives (such as solar and wind energy) for non-renewable resources (such as oil and coal).
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Organizations can limit their energy usage by increasing efficiency. Goodwill can be built by
voluntarily engaging in pollution prevention activities and natural resource.
2.3.2.2 Micro (Specific or Task or Operating) Environment

The external microenvironment consists of forces that are part of an organization's marketing
process but are external to the organization. These micro environmental forces include the
organization's market, competitors, producer-suppliers, and its marketing intermediaries. While
these are external, the organization is capable of exerting more influence over these than forces
in the macro environment.
The Market Organizations closely monitor their customer markets in order to adjust to changing
tastes and preferences. A market consists of people or organizations with wants to satisfy, money
to spend, and the willingness to spend it. Each target market has distinct needs, which should be
monitored. It is imperative for an organization to know their customers, how to reach them and
when customers' needs change in order to adjust its marketing efforts accordingly. The market is
the focal point for all marketing decisions in an organization.
Suppliers: Suppliers are organizations and individuals that provide the resources needed to
produce goods and services. They are critical to an organization's marketing success and an
important link in its value delivery system.
Marketing Intermediaries: Like suppliers, marketing intermediaries are an important part of the
system used to deliver value to customers. Marketing intermediaries are independent organizations
that aid in the flow of products from the marketing organization to its markets. The intermediaries
between an organization and its markets constitute a channel of distribution or value chain. These
include middlemen (wholesalers and retailers who buy and resell merchandise). Physical
distribution firms help the organization to stock and move products from their points of origin to
their destinations. Warehouses store and protect the goods before they move to the next destination.
Marketing service agencies help the organization target and promote its products. The agencies
include marketing research firms, advertising agencies, and media firms. Financial intermediaries
23
help finance transactions and insure against risks and include banks, credit unions, and insurance
companies. Figure 1.2 below shows the business in a web of the external environmental factors.
Fig. 2.2: Business and External Environment
Source:http://courseware.finntrack.eu/tutors/strat_cases_teaching.html
In what class of environment would technological and demographic changes fall?
Technological and demographic changes reside within the macro (general or

remote) environment of business.
2.4 Importance of understanding the environment
The Manager’s job cannot be accomplished in a vacuum within the organization. There are a
number of factors both internal as well as external which jointly affect managerial decision-
making. It is therefore very important for the manager to understand and evaluate the impact of the
24
business environment due to the following reasons:
 The present and future viability of an enterprise is impacted by the environment.
For instance no television manufacturer would be expected to survive by making only
Black and White television sets when consumer preference has clearly shifted to colour
television sets.
 The cost of capital and the cost of borrowing - two key financial drivers of any
enterprise are impacted by the external environment. The ability of a business to fund its
expansion plan by raising money from the stock markets depends on the prevalent public
mood towards investment in stock markets.
 The availability of all key inputs like skilled labour, trained managers, raw
materials, electricity, transportation, fuel etc are a factor of the business environment.
 Increasing public awareness of the negative aspects of certain industries like hand
woven carpets (use of child labour), pesticides (damage to environment in the form of
chemical residues in groundwater), and plastic bags (choking of sewer lines) have
resulted in the slow decline of some industries.
 Finally, the environment offers the opportunities for growth and profits. For e.g.
when the insurance and aviation industry was thrown open to the private sector, the new
entrant could easily build on the expectations of the public.
Thinking back at our discussion of the environment, briefly explain the two
major components of business environment.
The two major components of business environment are the internal and the
external environments. The internal environments is regarded as the controllable
environment and consist of those factors (physical and social) within the specific
business, which either strengthens or cause weaknesses of a strategic nature to the
business while the external environments comprise the general or remote as well as
the specific or task environment peculiar to a particular business.
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2.5 Characteristics of Business Environment
The environment of business exhibits the following characteristics:

Dynamism: The business environment is not static. It is dynamic and as such changes
continuously. This is because of the interactions of the various factors that make up the business
environment.
Complexity: The business environment is not simple; it is complex by virtue of the various
components that comprise it and the interactions and interrelationships among these factors.
Multifaceted: The business environment is many-sided. It can be viewed from many angles by the
parties involved. Hence, an occurrence that is viewed as strength to an organization may be
perceived as a weakness by another.
Far-reaching impact: The happenings in the business environment can have enormous impact on
the organization. It could have the ripple effect. This is because the business environment can be
conceived as a system, specifically an open system made up of different components that interact
and interrelate with one another. Hence, once there is a problem or development with one
aspect/sector, it could have far-reaching impact on the other aspects/sectors (Kazmi, 1999).
By virtue of the above characteristics, it is important for the manager to monitor the business
environment constantly. Thus, it is of fundamental importance for the manager to monitor both the
key macro-environmental forces (demographic/economic, technological, political/legal and
social/cultural) and micro-environmental forces (customers, competition, distribution channels,
and suppliers) that will affect their ability to earn profits in the market place (Kotler, 1995). These
macro-environmental forces and micro-environmental forces are the components of the business
environment.
In how many ways can you describe the characteristics of business environment
as proffered by Kazmi (1999)?
26
The characteristics of environment can be described in four ways. The environment
is dynamic, complex, multi-faceted and has far-reaching impact

1. the concept of environment and business environment;
2. the components of business environment as internal and external, while also listing the
characteristics of business environment.
3. the importance of understanding business environment was also treated.
Self-Assessment Questions (SAQs) for Study Session 2
discuss them with your facilitator at the next study centre meeting. You can check your answers at
the end of this course material.

In three sentences distinguish between internal and external environment
Give four reasons why it is important for a manager to understand the environment of business
Define business environment and state the components of the environment
What are the characteristics of business environment? List and explain the four characteristics

Choosing the appropriate options fill in the gaps in the following questions.
1. .............. environment is regarded as the general environment while ............... environment
is regarded as the specific or task environment.
(a) Micro, Macro
(b) Macro, Micro
(c) Micromacro, Macromicro
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(d) Macromicro, Micromacro
2. .................. environment is termed as controllable environment while the ...............
environment is seen as uncontrollable.
(a) External, Internal
(b) Internal, External
(c) None of the above
(d) All of the above
3. ......................literally
means the surroundings, external objects, influences or
circumstances under which someone or something exists.
(a) Society
(b) Environment
(c) Community
(d) Neighbourhood
4. ....................... embraces all institutions, organisations and individuals whose activities

have an impact, whether directly or indirectly, on business behaviour.
(a) Business environment
(b) Economic environment
(c) Political Environment
(d) Sociocultural environment
5. Business environment is made up of ...........................

(a) Internal environment only
(b) External environment only
(c) Internal and External environment
(d) macro environment
Links to OERs
https://openstax.org/details/books/introduction-business
References and Suggestions for futher readings

Business-Plan (2010). “Swotanalyse|SWOTAnalysis”.
http://www.businessplan.co.za/swotanalyze.html
Ifechukwu, J.A.O. (1986), Business Management: Principles and Practice, 2nd Edition,
Goldland Business Co. Ltd., Yaba, Lagos
Kazmi, A. (1999), Business Policy. New Delhi: Tata McGraw-Hill Publishing Co. Ltd.
Kotler, P. (1995). Marketing-Management, Analysis, Planning, Implementation, and
Control. New Delhi; 8th Ed., Prentice Hall of India private Limited.
28
via the LMS.
29
STUDY SESSION 3:
OPPORTUNITIES, THREATS AND BUSINESS FAILURE
Introduction
All organisations are affected by the general components of the external environment we talked
about in challenges of business management. These environments create opportunities or threats
to organisations depending on their ability to utilize their innate strengths rather than weaknesses.
This explains the fact that businesses or organisations function in a closer, more immediate
competitive environment. For us to identify business opportunity or threat requires us to conduct
situational or environmental analysis or be alert to happenings around our environment. A business
should be concerned about opportunities and threats simply to ensure organisational success. This
can be done by formulating and developing an effective strategy. One vital way of doing this is by
consistently conducting a SWOT analysis. SWOT entails asking questions and providing answers
to such questions.
Albert Einstein once said “The important thing is not to stop questioning”. That is, we must continue to
ask questions and continually seek knowledge.
It is very important to examine why certain businesses fail so that we can learn from their mistakes
and take guidance from the successful ones. Many businesses fail because of some common causes
which many entrepreneurs ignore at the onset and in the course of the business. Others fail because
of environmental influences beyond the manager or entrepreneur. These causes of business failure
can be classified into two broad categories – Micro (internal) and Macro (external). Business can
fail because of the micro or macro factors or even a combination of both factors.
30
3.1 Define and use correctly all the key words printed in bold (SAQ 3.1, 3.2 and 3.6 )
3.2 Discuss the meaning of strengths, weaknesses, opportunities, and threats (SWOT) (SAQ
3.1)
3.3 List the indicators of unmet needs (SAQ 3.2)
3.4 Explain the constraints to exploiting business opportunities (SAQ 3.5)
3.5 List institutional sources of business ideas (SAQ 3.4)
3.6 State Macro and Micro causes of business failure (SAQ 3.3)
State strategies for business survival (SAQ 3.6)
Key Terms: Organization’s strength, Weakness, Opportunities, Threat
3.1 What is SWOT?

SWOT is simply an acronym representing Strength, Weakness, Opportunity, and Threat. An
organisation’s strength is its ability, resources, and the weakness of the competitor or the
opposition. The internal strengths include a company’s core competencies, corporate capabilities
and resources that provide the basis for your strategy, e.g. workforce, decision making process,
flexible board, good working environment, and financial capability. The weakness of an
organisation is its failures, defeats (what other people do better than you), losses and inability to
match up with the dynamic situation of the growth of change. This includes the critical parts of
your business you must strengthen or hide from your competitors. Opportunities are possibilities
of what can be done and where effectiveness is possible, the benefits that are likely to accrue from
pursuing your vision. Threats are changes in business environment usually in the PEST forces
which are pitfalls, dangers, variation and exceptions that are present in an environment.
31
When SWOT is carried out, it prompts actions and responses. It helps balance idealism and
pragmatism so you can obtain a balanced perspective of your internal strengths and weaknesses
and external opportunities and threats in order to develop an effective strategy. Successful
entrepreneurs or businesses build on their strengths, correct their weaknesses and protect against
internal vulnerabilities and external threats. They also keep an eye on their overall business
environment and spot and exploit new opportunities faster than competitors.
Business Strength: Strength is an inherent capacity which an organisation can use to gain a
strategic advantage over its competitors. An example of strength is superior research and
development skills which can be used for new product development so that the company gains a
competitive advantage.
Business Weakness: A weakness is an inherent limitation or constraint which creates a strategic
disadvantage. An example of a weakness for a manufacturing company may be over dependence
on a single product line which is potentially risky for a company in times of crisis.
Business Opportunity: An opportunity is a favourable condition in an organisations environment
which enables it to consolidate and strengthen its position. A business opportunity represents a
trend or event that can positively affect the operations and achievement of organisational objectives
under a strategic response. Opportunities are external conditions that are helpful in achieving the
organisational purposes. An example of an opportunity is growing demand for the products or
services that a company provides.
Business Threat: A threat is an unprocurable condition in the organisations environment which
creates a risk for or causes damage to the organisation. A business threat is a trend or event that
would have adverse effects on the operations and achievement of organisational objectives under
a strategic response. Threats can also be external conditions that are harmful to achieving
organisational purposes. An example of a threat is the emergence of strong competitors who are
likely to offer stiff competition to the existing companies in the industry. They come from political,
economic, social and technological forces. For instance, if technology in your line of business is
32
changing and yours is obsolete, then it is a threat. If government is asking for increase in taxation
and source of income has not increased, it is a threat.
An organization that can take good decision but at slower or bureaucratic pace can be
said to have that as its business strength. Discuss?
Such decision making process could be seen as a weakness because faster decision
making competitors would have taken advantage of the situation even before they
know what is happening. It can only be strength if there are no competitors or the
competitors are even slower.
Fig. 3.1: SWOT Analysis
Source: http://blogs.triplealearning.com/2010/10/diploma/dp_busman/the-trouble-with-swot/
An understanding of the external environment in terms of the opportunities and threats and the
internal environment in terms of the strengths and weaknesses is crucial for the growth and
profitability of any organisation.
3.2 Identification of Opportunities

Opportunities can exist for both potential as well as existing businesses. For existing businesses
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whether they want to broaden their investment or diversify, there is need to always search the
environment for information and source for business ideas to identify where opportunities exist.
For potential entrants, their search is drawn according to their interest. Identifying business
opportunities for big corporations could be the functions of the research and development unit or
the strategic business development unit. For others it could be through personal efforts. What is
important however is that the search is to identify unmet needs?
Needs, according to Abraham Maslow, is classified in hierarchies from basic needs which are
physiological (food, water, warmth, shelter) to security, to esteem needs (psychological or learned
needs) such as status, love or belongingness, social recognition, power, prestige, achievement
which are acquired through socialization. From each of these levels of needs, a gap may exist
which portends an opportunity to be tapped, and it only requires identifying that gap and being
able to fill it.
Case Study 3.1 Recapitalization of Banks
Supposing Central Bank of Nigeria imposes another recapitalization exercise on the Banks say to the tune
of N500 billion and insists that banks unable to attain that will be closed. However, option of mergers and
acquisition is available, CBN will also be ready to give a bail out to willing banks following a particular
contract term. Now answer the question below.
Where is the opportunity or threat in this case?
The opportunity lies in the fact that any bank whose capital layout is up to the
stipulated amount would not be closed and can also acquire other banks and get
bigger. However, it will pose a very big threat to banks whose minimum paid up
capital is less than that, and there is no possibility of raising the amount within the
stipulated time.
3.2.1 Indicators of Unmet needs
When we identify trends in our environment through the situational analysis described above or
through observations and discovers there is a ‘gap’ or unsatisfied/unmet needs, it becomes an
34
opportunity to tap in. The indicators of such opportunities as enunciated by Isimoya (2005) are:-
1. Poor delivery of products/services: - where there are complaints and visible problems
faced by customers, one can see it as an opportunity and come up with better method of
delivering such products/services. E.g., in the past, letters, parcels, etc, were handled by
NIPOST, but the courier companies saw the visible complaints and dissatisfaction in
customers and today have taken over the market from NIPOST.
2. Dissonance (lack of Agreement in beliefs) with current means of satisfying existing
needs: If people’s expectations are not met in certain products or services, dissatisfaction
sets in. For instance, when it became obvious that our public or government schools were
no longer meeting the expectations of the populace, the private schools came in. Nigerian
Airways with its abysmal service paved way for private airline operators.
3. Emergent Needs: These are envisaged needs or needs in the early stages of development.
Every need at a point in time was emergent. Tapping into this opportunity has so much to
do with foresight. Your ability to foresee a need to be met in the future, perhaps needs that
may arise through the use or availability of a current product. Nigeria for instance has need
for storage/preservation of our fruits and vegetables especially because they are mostly
seasonal produce. This is a gap identified. If any individual or organisation can come up
with a best approach to preserving these foods so as to have them all round the season, the
business will thrive. The individual will have government and farmers’ support and
patronage. For instance, people foresaw the danger in carrying cash and came up with the
idea of credit cards, ATM cards, and the on-line real-time banking. Another emergent need
is the scraps of old and used cars littered all over. What can be done with them? Is there a
way they can be recycled so as to still put them into good use? Think about this.
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4. Technological Changes: The issue of technology is dynamic, we all agree. An innovative
entrepreneur will always be interested in thinking of ways to improve the existing
technology in its line of operation if he/she has the means of doing so, especially if he/she
feels that a particular technology is becoming obsolete or no longer serving its purpose.
This way he may find it as a business opportunity to launch the better technology which
customers or users may prefer to the existing one. For instance, it took an innovative and
ingenious business men to realize that grinding of tomatoes, pepper, pounding of yam, etc.
which hitherto was done manually through the use of mortar could get a better result using
machines (Blender, Poundo machine). A gap existed there because some career women
have little or no time to pound and a machine was just apt.
5. Envisaged Large Market: When the users of a product are many such that those serving
the market may not be doing that effectively, other businessmen could go into that market,
since it is large enough to accommodate all. For instance, most of the Igbo traders that
bring in radio face the northern market knowing that this group of people especially the
lower status like listening to the radio a lot.
6. Monopoly: Where there is no statutory barrier as to the entry into a particular business, any
interested entrepreneur could go into the line of business, more so if he feels he could make
greater impact, either in service delivery or in the production of the goods or services. The
entrepreneur could also develop a competitive product to create an alternative or allow
customers have choices to that kind of business. NITEL for instance was statutorily created
to provide communication for the nation. No entrepreneur was allowed into the business of
communication until few years past when it became obvious that the issue of
communication needed to be privatized and commercialized. Same is almost applying to
PHCN now as people are calling for private enterprise in the business of power generation.
36
So where a business is seen as monopolizing the production of a particular product or
services, others may step in to enjoy a share of the market.
7. Segmentation: Where an entrepreneur identifies that a particular segment or group of a
market is not served due to their peculiar difference, such entrepreneur has seen a gap or
an unmet need and could close in to exploit the opportunity by tailoring his product or
service toward the market if the capacity to do so is provided. For instance, University of
Lagos started its Distance Learning (DLI) programme having discovered that a particular
segment of the society was almost denied education due to the fact that they were unable
to secure admission through the regular means or didn’t have the opportunity to even seek
education; they felt there should be a second chance for them to live out their dreams.
Several people abound who wants university education but are too busy to come
to
class even on a weekend. NUC noticed this and is introducing Open and Distance
Learning System. What do you think NUC is doing?
NUC discovered there was a gap and an unmet need and decided to close in on
that by encouraging universities to take advantage of the opportunity presented by
this yearning population.
3.3 Institutionalized sources of business

Even though large organisations use their research and development unit to source business
ideas, there are institutionalized sources of business idea according to Isimoya (2005). These
include:
37
i. Universities and Research Institutes
These are centres where students and consultants have done a lot of research on new
businesses and the reports have largely been left to waste. Examples are Federal Institute
of Industrial Research Oshodi (FIIRO), Project Development Agency (PRODA) Enugu,
and all other universities and research bodies. These places could be visited by an
entrepreneur to check the possibility of finding a researched work which will serve as an
opportunity to be cashed upon.
ii. Consulting Firms/Market Researchers

iii. Ministry of Science and Technology
iv. Industrial and business publications
There is very vital information published by business journals /magazines etc. This can help a
searching mind to identify a business opportunity. For instance, Business Day, Financial
times, etc.
v. Banks
Some banks have their in-house journals which discerning minds can identify opportunities in.
The journal mirrors the society and trend of events in it. For instance, UBA in the 80s
and early 90s had what it called the economic digest which reported mostly economic
activities and businesses financed by the bank.
vi. Family Members and Employee
One’s family members and even employees can also be a good source of information for business
opportunities.
3.4 Constraints to the exploitation of business opportunity

1) Economic Factors. These include cost consideration (capital needed, level of competition
in the market, resource availability such as adequate skilled manpower and suitable material
resources, location, and the size of the market.
38
2) Technical factors. Lack of technical know-how to provide such goods and services that
will satisfy customers. From some perspective people will jump at products that can prevent
baldness, loss of sight, death or sickness, but there is no technology to that effect yet.
3) Knowledge factors. This could be a constraint because the right knowledge to the
opportunity or gap may be missing.
List three constraints to exploitation of business opportunity.
Three constraints to business opportunity exploitation are economic factors, technical

factors, and knowledge factors.
3.5 Business Failure

Several factors could be responsible for the failure of a business venture. The possible reasons may
be either due to the entrepreneur’s fault, or because of forces beyond the entrepreneur’s control.
These causes have been classified as micro (internal) and macro (external) causes of business
failure. Read on.
3.5.1 Micro Causes of Business Failure (Internal)
This section looks at the failure of business from the entrepreneur’s point of view or because of the
fault of the owners.
1. Laying more emphasis on product rather than market and marketing
The requirement to identify a market for your idea or the product is more important than the product
itself. You may have a great idea or a product, but if there are no buyers for the product then it
cannot be a success. Smart businessmen and women first identify the market requirement and then
develop products accordingly. For your business idea to succeed you need to first find out if there
is a market for your idea by conducting a market test run. Find out if people want your product,
and how much they are ready to pay for it.
39
2. Laying more emphasis on the company image.
To project a high-profile image for the company by hiring expensive office space and a fancy logo
and website will not do much to facilitate the success of your business. In fact, high overheads,
because of expensive space and website maintenance costs, can drive you out of business very fast.
The golden rule for the success of any business is to keep overheads low especially at the start up
time. At the start up time, keep the overheads low by reducing expenses. Operate from modest
office space. Prospects cannot see where you are operating from and they do not care, anyway. Try
to invest more on your marketing activities, which are likely to increase your revenue and chances
of success.
3. Getting into Undesirable or Bad Business Partnership.
You should get into business partnership only if you find that your ideas match with the probable
partner, because business partnerships are even more difficult to maintain than marriages. Many
partnerships fail because of lack of communication, proper documentation, and deeds. A failed
partnership can lead to bankruptcy and soured relations with the business partner. Avoid
partnerships completely if you possibly can. But if you must get into a business partnership, make
sure the duties and responsibilities of the partners are detailed right from the start and the
partnership deed along with commercial terms is clearly defined
4. Attempting to have a very complex business model
The simpler the business model, the better it is. In a simple and uncomplicated business model,
everybody including your vendors, suppliers, employees, and customers are well aware of their
responsibilities and goals. In a complex model they have to adapt themselves to new roles that they
may not be comfortable with. While devising the business model, follow the rule of "keep it
simple". As the business grows and gets established, you can shift to a more radical or complicated
business model, if required.
5. Attempting to pioneer a new product or industry
Many businesses get into the vicious cycle of trying to pioneer a new product or industry- many a
40
times the whole exercise can drain you and your business completely, without much success. Very
few and limited entrepreneurs succeed in radically new businesses. Even customers at times are
scared off because of a totally new concept or product; hence the chances of success are not
assured, despite all the efforts that you may apply. Try to achieve extraordinary business success
by simply improving the business practices of the existing business, rather than trying your hand
at pioneering a new product. Once the business is established, you can try to get into the pioneering
new product cycle.
6. Poor business planning/financial decisions. Not carrying out feasibility studies.
7. Inadequate capital before commencement of business
8. Bad management
9. Cash flow problems: you spend more than you receive
10. Fall in demand for the product
11. Lack of control of costs/rise in cost
12. Over expansion
13. Ineffective sales force
14. Fraud\fraudulent practices/lack of viable work ethics
15. Failure to meet competition
16. Location of business
17. Inadequate number of workers/staffs
18. Slow season e.g., children’s bags, umbrellas produced
19. Dealing on cheap/substandard products or services
20. Lack of awareness of the business by its target market/environment
21. Not engaging in business promotion/advertisement
22. Corporate maturity: as a firm goes through its normal life cycle and eventually declines.
23. Getting involved in a business lawsuit and bankruptcy. Business lawsuits that are not in your
favour can take away all your assets, including your personal assets like home, property, savings,
41
etc, and make you and your business bankrupt. Always operate a business under the protection of
a corporation, courtesy of which you get a corporate shield. In this way personal liability to the
business is limited to whatever you choose to put in your business. It is always advisable to hire
the services of a lawyer and an accountant to discuss your personal involvement in the business,
with respect to assets and even taxation. If carefully planned, you can eliminate almost 100% of
all potential legal threats which could go against your personal assets.
Outline any five micro causes of business failure
Five micro causes of business failure may include laying emphasis on product instead
of market and marketing; attempting to pioneer a new product; poor business planning,
inadequate capital, and location of business.
3.5.2 Macro causes of Business Failure (External)
1. Political instability
2. Lack of infrastructural development

3. Corrupt practices in society especially among technocrats who thwart government
economic policies
4. Low technological know-how. Most businesses can’t fit in into the latest technologies.
5. Limited sources of capital in issue of access to funds and demand for collateral
6. Labour management face off
7. Poor and inadequate funding of the educational system where future leaders in government
are trained
8. Lack of research
List any five macro causes of business failure
Five macro causes of business failure are Political instability, Lack of

infrastructural development, Corrupt practices in the society especially among
technocrats who thwart government economic policies, Low technological
42
capacity, Limited sources of capital in issue of access to funds and demand for
collateral.
3.6 Survival for Small Scale Businesses

Small businesses can survive if they:
1. Have adequate capital requirement
2. Have innate qualities
3. Engage in customs-made goods since large firms engage in mass production
4. Subsidiary firms
5. Are innovative and ingenuous
6. Have lower capital investment and operating cost
7. Are exempted from corporation tax
8. Source for raw materials locally

1) the concepts of business opportunity, ideas generation and business threat.
2) the definitions of business opportunity and threat, as well as idea generation in business.
Some of the indicators of business opportunities were highlighted as well as institutional
sources of business ideas.
3) the constraints to business opportunity were also investigated.
4) the micro and macro causes of business failure, factors like poor business
planning/financial decisions, not carrying out feasibility studies, inadequate capital before
commencement of business, bad management, cash flow problems (as you spend more than
you receive) were discovered as micro causes while limited access to credit facilities, lack
of infrastructure, political instability may be the macro causes. Survival strategies were also
suggested.
43
Now that you have studied this session, you can assess how well you have achieved its learnig

Define Strengths, weakness, opportunities, and threats
What are the indicators of unmet needs? State five indicators
List and explain five micro causes of business failure
Identify three institutionalized sources of business ideas
State three constraints to exploiting business opportunity
Mention four strategies for business survival

From the alternatives choose the best option
1. Macro causes of business failure include all except

(a) political instability
(b) lack of infrastucture
(c) Bad management
(d) Corrupt practices
2. “Keep it simple” is a rule followed while

(a) devising the business model
(b) attempting to pioneer a new product
(c) laying more emphasis on the company’s image
(d) getting into undesirable business partnership
3. Laying more emphasis on the company’s image may lead to high overheads in business.
(a)True
(b) False
(c) No idea
4. Attempting to pioneer a new product or industry may at times drain the business completely
without much success.
(a) True
(b) False
44
5. One survival strategy is ..................... before venturing into a business.
(a) not having adequate capital
(b) having adequate capital
(c) having adequate product
(d) not having adequate product
6. ..................... for the product may be one of the macro causes of business failure.
(a) Increase in supply
(b) Increase in demand
(c) Fall in demand
(d) inelastic demand
7. ----------- is an unprocurable condition in the organisations environment which creates a risk

for or causes damage to the organisation.
(a) opportunity
(b) threats
(c) difficulty
(d) all of the above
8. ---------- represents a trend or event that can positively affect the operations and achievement
of organisational objectives under a strategic response
(a) threat
(b) opportunity
(c) friendly environment
(d) none of the above
9. The following except one are constraints to exploiting business opportunity

(a) Economic factors
(b) Knowledge factors
(c) Technical Factors
(d) None of the above
10. Indicators of Unmet needs include all except

a) poor delivery of products/services
b) Dissonance
c) Technology changes
d) perfect competition
11.SWOT acronym stands for

a) Strategy Weaknesses Opportunities and Threat
b) stratified Weaknesses Opportunity and Threats
c) Strengths Weaknesses Opportunities and Threats
d) Strength Weakness Opportunity and Strength
Links to OERs
http://www.ukEntrepreneur.com/
45
References/Suggestions for further reading
Isimoya, A. O. (2005). Nigerian Business Environment: An introduction. Lagos.
Concept Pub. Ltd.
Flippo, E. B., Munsinger, G. M. (1982). Management. 5th Edition. Boston. Allyn and
Bacon.http://www.ebay.com/itm/MANAGEMENT-fifth-edition-Flippo-and-Munsinger
/330106375390
Olusemore, G. A. (2006). Essentials of Small Business Management. Lagos; CIBN
Press Ltd.
Pearce, J.A. and Robbinson, R.B. (Jr) (2007). Strategic Management: Formulation,
Implementation and Control. 10th Edition, New York; Mc Graw Hill.
via the LMS.
46
STUDY SESSION 4:
SOCIAL RESPONSIBILITY AND BUSINESS ETHICS
Introduction
The business system is a subsystem of organised society. Business is a creation of society. It helps
in the responsibility of achieving societal objectives/expectations. The responsibility of business
traditionally is to produce and distribute goods and services in return for a profit. This definition
is no longer tenable as the increasing size and complexity of societies’ needs make it narrow. The
notion of social responsibility and ethics of business has emerged out of dynamism (frequent
changes) of relationship between business and society, business and its environment, and business
and its participants. Corporate enterprises have grown in size, the level of education has
significantly increased and people now ask a lot more questions about their rights, their privileges
and their responsibilities. Related to this is the fact that the awareness of the social impact of
business activities on the society as a whole is enormous, both overtly and covertly, directly and
indirectly.
Every organisation is part of an interactive system which has several stakeholders. The most
prominent of them are the managers, owners, employees, consumers and society at large. The
management of an organisation cannot afford to ignore or short-change any of the groups if it wants
to succeed. It has to be socially responsible.
Society expects reasonable ethical conduct on the part of business executives as they make
decisions which affect the lives of other people. Ethics emanates from a Greek word “ethika” and
from “ethos”, meaning character, or custom. Ethics is a branch of philosophy that deals with the
morality of human actions. It is a subject that deals with the ‘goodness’ or ‘wrongness’ of human
47
conduct. It is a normative subject hence it is defined differently by societies and groups. Therefore,
what is considered a virtue in one society could be a vice in another society, a case of “one man’s
meat being another man’s poison”. It is about contemporary norms or standards of conduct that
govern the relationships among human beings and their institutions. It is argued that improvements
in ethical conduct have led and will continue to lead to increases in the level of social responsibility
among business firms.

4.1 Define and use correctly all the keywords printed in bold (SAQ 4.1, 4.4)
4.2 Define social responsibility (SAQ 4.1)
4.3 Identify the arguments for and against social responsibility (SAQ 4.2)
4.4 List the various stakeholders or interest groups in social responsibility (SAQ 4.7)
4.5 Mention the benefits of social responsibility to the organization (SAQ 4.3)
4.6 Define ethics and state the causes of ethical compromise and influences (SAQ 4.4)
4.7 Describe ethical issues in business and factors encouraging compliance to ethics (SAQ 4.5)
4.8 Explain measures to ensure ethical practices are followed (SAQ 4.6)
Key Terms: Social responsibility, Organization, ethical compromise, ethics, Safety

Policy, Fair dealing, Financial Statement Integrity, Conflict of Interest, Honesty,
and Fairness.
4.1 Definition of Social Responsibility
Ferrell, Hirt, and Ferrell (2008) defines social responsibility as a business’s obligation to maximize
its positive impact and minimize its negative impact on society. Pearce and Robinson (2007)
describe corporate social responsibility as the idea that business has a duty to serve society in
general as well as the financial interests of stockholders. Schermerhorn (2002) defines social
responsibility as an obligation of the organization to act in ways that serve both its own interests
48
and the interests of its many external stakeholders. Oldroyd in Isimoya (2005) sees it as the
obligation to protect and improve the welfare of society as well as its own interest. Dibb et al in
Isimoya (2005) describes social responsibility as having to do with the impact of the organisation’s
decision on the society. Essentially, social responsibility is an obligation of organisations and
companies to participate in the development and impact positively on the environment in which
they do or operate their business. It is an attempt to pay the society back for the profit they make,
hence the name Corporate Social Responsibility (CSR).
These definitions imply that social responsibility fundamentally refer to actions taken by a
business (corporate body) which in some ways or to some extent assist the society to achieve one
or more of its objectives and help people to live better lives. Such actions are considered socially
responsible actions. Corporate Social Responsibility is not backed by compulsion of the law,
therefore companies are at liberty to undertake it or leave it.
Do you think a situation where government through law forces firms to put aside a
setting percentage of their income aside from the tax they pay is an act of
encouraging social responsibility?
No. It is not an act of social responsibility because social responsibility is not

backed by compulsion or law. It is voluntary.
4.1.1 Basic Assumption about Socially Responsible Business Organization
Awareness: Managers of such organizations are aware of the firm’s obligation to solve some of
the problems facing society.
Willingness: There is willingness on the part of the firm to help solve some of these social
problems, even though not all the problems of society can be solved by business organisations.
Commitment of Resources: Such organisations attempt to make decisions and actually commit
resources of various kinds in some of the following problem areas:
i. Pollution problems: air, water, solid waste, land and noise
49
ii. Poverty and discrimination problems: minority groups and women, black capitalism,
urban problems
iii. Consumerism: Product safety, misleading advertising, consumer complaints etc.
iv. Other social problems
Most socially responsible organizations are assumed to have basic characteristics.

Mention them.
Technological and demographic changes reside within the macro (general or remote)
environment of business.
4.1.2 Is There Really Need for Social Responsibility?
This leads to a very vital question. Should business be socially responsible? We have two schools
of thought. One says, ‘yes’ the other says ‘no’. There are those for and against social responsibility
of businesses. So, there are two sides to the argument.
4.1.3 Arguments in Favour Of Social Responsibility
This argument is championed by Robert F. Hansberger, T.G.P Rogers and others.
1. Business is unavoidably involved in social issues. That business corporation are an entity
of society, allowed by society to exist and if society does not exist, organisations will also
not exist. Thus, when there is a change in societal expectations about business, so should
their actions change. Without society to buy organisations’ products or services, the aims
of production and consequently profitability will be defeated.
2. Corporate businesses have the obligation and resources to help solve some of the
problems facing society. The society as we know includes its customers, owners,
employees, creditors, government, community, and the society at large which business has
a relationship with. The firm must attempt to make decisions and commit resources of
50
various kinds in some of the society’s problematic areas for the long run attainment of
business goals. According to Peter F. Drucker, “a healthy business cannot exist in a sick
society”.
3. Organisations tap their natural, material, and human resources used for production
from the environment (society), it therefore behoves them to be socially responsible in
return.
4. A better society means a better environment for doing business.
5. A favorable image of the organisation in the eyes of the public is of great importance to
the enterprise as socially responsible businesses will ward off future government
interventions and regulations. According to George Champion of Chase National Bank,
USA, business must learn to look upon its social responsibilities as inseparable from its
economic function. If it fails to do so, it leaves a void that will be quickly filled by others
– usually by the government.
6. Being socially responsible is a moral and right thing to do since most business activities
create some form of problem for the society e.g., pollution of water, land, etc. And taking
up social actions to ameliorate public outcry is welcomed.
4.1.4 Arguments Against
This is essentially advocated by Milton Friedman and others.
1. Business is an economic institution, and the only determinant of organisational
performance is economic values – profit maximisation. To fill a social role in addition to
making profits will eventually use up the capital of business firms thereby endangering the
profit-making motive.
2. The Social responsibility of business is to use its resources and engage in activities
designed to increase its profits. So long as it stays within the game, “competition without
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deception or fraud”. For these scholars, profit maximization ensures the efficient use of
society’s resources and entail been responsible.
3. The classic view holds that business acts in a socially responsible manner if it utilizes
as efficiently as possible the resources at its disposal in meeting the goods and services
that the society wants at prices consumers were willing to pay. That is, the idea of social
responsibility is incongruent or incompatible with the concept of a free-market economy
and hence a free society.
4. As an economic institution, business lacks the ability to pursue social goals because
business is not equipped to handle social matters. Moreover, managers are economically
production-oriented and as such do not have the necessary expertise (social skills) to make
social decisions.
5. It is a subtle socialist idea. That is an indirect way of using political mechanism as
opposed to market mechanisms, as the most appropriate means of allocating scare
resources.
6. In a free enterprise system, a manager as an employee has the sole objective of making
as much profit as possible for stockholders. If business becomes socially responsible, it
detracts attention from its responsibilities to stockholders. They are saying in essence that
business managers are not elected; they are therefore not directly accountable to the people,
but to the stockholder.
7. Business managers already have power. If they are allowed the freedom to use
organisational resources for the good of society, rather than strictly upholding the interest
of the owners, such managers are being conferred with arbitrary and dangerous powers
which they may misuse.
8. Since enterprises pay taxes to government, it would be exploitative to expect the same
organisation to also use part of their earnings in a socially responsible manner. Government
can only increase taxation on profit and let organisations focus on their major duty of being
52
responsible to their owners, thus allowing government to tackle social development
programmes.
9. Being socially responsible is an attempt to encourage a socially irresponsible government
to shirk its responsibility.
10. No matter how much is done in terms of social responsibility, many organisations will still
have problems with their locality. It is better not to start at all, as the request and desire
for more is endless and would further increase the misunderstanding between business
enterprises and the local countries. Society should appreciate that government is solely
responsible for their development and business enterprise.
Do you think social responsibility is necessary? If yes, give two reasons. If not
give two reasons also.
Yes, it is necessary because organisations tap their natural, material, and human
resources from the society so they should be responsible. Again, a better and healthy
society means a better environment for doing business. No. It is not necessary
because business organisations pay tax to government who should use that for
developmental purposes, it is therefore exploitative to ask them to be socially
responsible. Secondly, being socially responsible is an indirect way of encouraging
government to be socially irresponsible
4.1.5 Factors Responsible for Consideration of Social Responsibilities by business
i. Increased Awareness/Public opinion: There is increased awareness and people’s
opinion has changed about the role of business. Society is willing to ask a lot more
questions about the impact of business organisation on their lives.
ii. The presence of the labour movement
iii. The development of moral values and social standards applicable to businessmen.
iv. Recognition of human factors (employees) contributing to the long-term interests of
business.
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v. The development of a professional managerial class with different motive and point of
view due to the separation of ownership from management. Business managers are also
concerned citizens.
Why do you think businesses consider being socially responsible? Give two
reasons.
The two reasons are that the society has increased knowledge about business
activities and are asking a lot more questions: and secondly the presence of labour
movement.
4.1.6 Interest Groups in Social Responsibility
These are the specific public that may lay claim to returns from the business - Stakeholders of a
business. The stakeholders are groups of people who have committed something to a business
enterprise and therefore have expectations from it. It may also be a person or persons who affect
or can be affected by the company actions. They are:
i. Consumers/Customers: To these set of groups, goods and services must be provided
at fair prices. Unethical and unfair trade practices must be avoided as consumers have
protective legislation and consumer movements termed consumerism. Where required,
after-sales services should be provided. Adequate information concerning essential
features of a product or service should be made known to consumers. Businesses must
avoid planned product obsolescence or pushing out expired goods to the consumers.
Products and services must always be provided according to consumers’ wants and
demands. Providing consumer product protection through simple but adequate
labelling/instruction especially where illiterates are predominant. Not making deceptive
and exaggerated claims of products or services.
ii. Employees: This pertains to wages and salaries, working condition, relationship
between superiors and subordinates, the work environment, as well as general employee
welfare. For instance carrying the union along in matters concerning staff welfare,
giving workers equal opportunities in hiring, pay and promotion, providing adequate
opportunity for management employee communication, providing adequate training
and development opportunity.
54
iii. Shareholders (Owners): It is the obligation of companies to ensure a fair return on
investment in terms of profit, dividend declaration, bonus, etc. In essence, the
declaration of adequate profit on capital invested ensures the survival of the company
and the delivery of the desired reward on shareholders’ risk (capital). Again, it must
also ensure equitable and fair treatment of different classes of shareholders in the
business and ensure the safety of the capital invested. Owners must be furnished with
relevant and timely information relating to the business present and proposed activities.
iv. Government: To the government, business enterprises must be law abiding, pay their
taxes and other dues fully and regularly, honestly, and when due. It should provide
accurate statistical data to the government for planning and decision making. It must
not attempt to hold back information. Get involved in research and development.
Support and contribute toward the developmental programmes of the government.
Support government policies and cause.
v. Community: Organizations owe the community the duty of ensuring the environment
is protected and not polluted, conserving the natural resources and not helping in the
extinction of vulnerable animals or materials. Employing the socially handicapped or
physically challenged and the underprivileged or deprived persons. Helping in rural
development, provision of immediate relief to victims of disasters and natural
calamities. In essence, helping in contributing towards the better life of the people in
the community through the provision of essential economic amenities such as
employment, scholarships, recreational facilities, infrastructures like good road, water,
electricity, health facilities/drugs, schools, etc. They should also donate equipment and
funds to hospitals, schools, craft villages, orphanages, endow chairs to the universities,
create and maintain good relationships within the general and local area of operation.
It is also necessary for businesses to help in the revival of the culture and heritage of
the community where they operate.
vi. Suppliers: These stakeholders must be paid promptly and in accordance with the terms
of the contract. A proper notice of specification and requirement must be given to avoid
distortion.
vii. Creditors: The creditors are those the business owns; these set of people need to be
paid promptly and according to the agreed terms so as to enable the business enjoy
credit benefits in future.
In conclusion, the objective of a business firm is no longer single (profit) but multiple in nature.
This is because the aforementioned interest groups would have to be taken care of. Peter F. Drucker
55
once said “To manage a business is to balance a variety of needs and goals”, and the company’s
management is usually at the centre to equitably distribute the rewards or resources among each of
the interest groups.
Identify any five interest groups in social responsibility
Five interest groups are the employees, shareholders, customers, government, and
Suppliers.
4.1.7 Benefits of Social Responsibility to the Organisation
The following benefits are likely to accrue to organizations practising social responsibility.
1) A better awareness of the organisation is created
2) Public opinion sways in favour of such organisation
3) There is increase in profit as more customers/public patronizes the organization
4) The organization is likely to attract socially conscious investors.
4.2 Business Ethics
4.2.1 Definition of Ethics
Pearce and Robinson (2007) refer to ethics as the moral principles that reflect society’s beliefs
about the actions of an individual or a group that are right and wrong. Ethics are principles or
standards of human conduct, sometimes called morals (Latin ‘mores’ ‘customs’), and by extension
the study of such principles is sometimes called moral philosophy. Longmans Dictionary of
Contemporary English defines Ethics as “Moral rules or principles of behaviour for deciding what
is right or wrong”. Ethics is concerned with the questions of right or wrong. For instance, ethical
questions could be “Is this act right”? “Is this act wrong”? Again, it determines the standards of
good and bad.
However, the values of one individual or group, or society may be at odds with the values of
56
another individual, group or society. Ethical standards do not reflect a universally accepted code,
but rather the product of a process of defining and clarifying the nature and content of human
interaction.
4.2.2 Ethics and the Various Aspects of Human Life
Every profession specifies some code of ethics for their members. Once you become a member
you are bound to obey or adhere, otherwise you will be sanctioned. There are certain things which
lawyers, medical doctors or accountants cannot do while practicing their professions. Usually, most
professional bodies forbid their members from advertising their services. It is believed that the
quality of the service they render should advertise them.
In the same vein, every organisation whether public or private has a code of ethics guiding them.
The codes may state how a member should conduct himself in the discharge of his official duty,
the do’s and don’ts of the organization and what they probably consider as the culture of the
organisation that must be adhered to by every member of the organisation. Conformity or
obedience to such codes is compulsory within the period the official is still in employment of the
organisation.
4.2.3 State of Ethical Standards in Nigeria
The norm in Nigeria in the past before 1999 had been that of a businessman or woman
compromising his ethical standards before getting things done. Corruption was common as it
seemed that the only way to succeed in business is the demonstration of a good understanding of
the language of bribery. Those in charge of awarding contracts in both the government and private
sectors demand gratification from contractors before doing their jobs (Olusemore, 2006). The bank
manager demands a certain percentage of money from you before granting your request for a bank
loan. For instance, an official of the defunct National Electric Power Authority (NEPA) expects
you to bribe him before fixing a damaged electric line. The police and customs officers mount
unauthorized roadblocks in order to extort money from motorists. It looked then like we had lost
57
our sense of value and justice. However, Obasanjo’s government, especially since 2003 staged a
headlong war against corruption and this is beginning to bring some measure of sanity into the
entire system (Olusemore, 2006). Today, we cannot claim corruption has been totally eradicated
in Nigeria, but within the private sector to an extent it is reduced especially with the shakeup in the
financial industry. Same cannot be said of the public sector operation even though from
government perspective they have what they call “due process” in place for the awarding of
contracts and sale of public goods; but this is yet to yield visible fruits more so as actions from
government quarters and even social comments both in the electronic and print media, have it that
high level of corruption is still evident within government and the public sector. However, recent
happenings and fall outs of the premium motor spirit (petrol) subsidy removal point to the fact that
in not too distant a time, corruption would be reduced to the barest minimum while ethical conducts
are stepped up because the society is asking lot more questions.
How would you explain the term “ethics"
Ethics are the principles or standards guiding human conduct. They are moral
rules which determine the right or wrong of a behavior.
4.2.4 Factors Encouraging Compliance to Ethics
Several reasons or factors could be adduced as to why ethical norms are followed by members of
a professional body or organizations as they perform their duties. These may be because of:
i. Their personal value system
ii. Religious beliefs
iii. The law
iv. Public opinion
v. Fear of punishment
The pressure from the sources above, among others, compel organisation’s members to confine
58
their ethical conduct within acceptable or tolerable organisational standards.
4.2.5 Causes of Ethical Compromise and Influences
There are several reasons why businesspeople compromise the value system. A businessman or
woman who always sees himself as the industry leader may want to do everything possible to
preserve the cherished position (Olusemore, 2006). That is to say, the pressure of competition often
leads people to engage in unethical practices. It may also mean that the person’s company is in bad
shape and he wants to keep it going.
Secondly, if people in the past had broken similar ethical standards and were not punished by law,
other people may likely go into it since nothing will happen. That is, if the judicial process is weak
and people can get away with any type of crime committed, then many more will be encouraged
to go into unethical practices.
Again, as the popular saying goes, “one man’s meat is another’s poison”; what is considered a vice
in one setting may be a value in another; and so, people with wrong sense of value and who engage
in unethical practice do not see certain action as a vice. Olusemore (2006), states that the wish to
succeed in a society that does not recognize hard work as a means of success can make some
businessmen to be unethical in their business behaviour.
4.2.6 Ethical Issues in Business
Olusemore (2006) identified some ethical issues in business thus.
1. Conflict of Interest: In this context a worker allows his or her personal interest to override
the official obligation.
2. Honesty and Fairness: Where dishonesty and inequity become the norm in a business
organisation as they deal with the stakeholders.
3. Communications: Ethics demand that there should not be deceitful or exaggerated claims
in any contact or communication with the public; instead, vital facts that can assist third
parties to take decisions should be disclosed.
59
4. Respect in the Workplace: Business ethics emphasizes the establishment of a work
environment in which all individuals are treated with respect and dignity. All forms of
discriminatory practices e.g. sexual harassment should be avoided. Employees on their own
should treat one another with respect.
5. Safety Policy: In an ethical organisation, the safety of the workers and customers is
paramount. The company should cultivate safety practices and put in place measures of
protection and insurance policy.
6. Fair dealing: Business operators should not take undue advantage or exert undue influence
on people through manipulation, concealment, abuse of privilege or confidential
information, misrepresentation of material facts, fraudulent behaviour or any other unfair
dealing practice.
7. Financial Statement Integrity: Business ethics states that a company should follow strict
accounting principles and standards to report financial information accurately and
completely. There should be internal checks to ensure that accounting information complies
with standard regulations and laws.
8. Compliance with the law: Businesses should comply with appropriate commercial laws
of the land such as money laundering act; exchange control regulations, etc.
There are ethical issues in business. State three
Three ethical issues in business are financial statement integrity, safety policy, and
fair dealing
Other manifestations of unethical practices include:

i. Falsification of documents
ii. Inflation of contracts
iii. Receiving payments for goods and materials not delivered or contracts not executed
iv. Forgery of payment vouchers and cheques with the assistance of some staff
60
v. Abuse of tendering procedure
vi. Printing of government security documents illegally and using same for
perpetration of fraud
vii. Selling of materials illegally withdrawn from government stores
viii. Offering gratification to public officers in order to secure a benefit
ix. Conniving with government officials by executing contracts in a shoddy manner in
order to reduce cost
x. Abandonment of contract after collecting payment.
4.2.7 Measures to Ensure Ethical Practices Are Followed
Flippo and Munsinger (1982) state that if good ethical practice must be maintained in an
organisation, management must ensure that:
a) The Code of ethics is written and not oral. This code should specify what is added to be
right or wrong within the organisation.
b) Information relating to ethical practice is not centred only on cost and profit
c) The establishment of specific job positions responsible for enforcing the ethical codes of
their organisation.
Top management act as strong role models for lower-level personnel

1. the various definitions of social responsibility as well as the basic assumption about socially
responsible business organizations.
2. the arguments for and against social responsibility as posited by the different scholars
championing them and identified interest groups in social responsibility and what the
organization owes them.
3. the reason why organizations may likely consider socially responsible actions was also
examined as well as benefits of social responsibility to practicing companies.
61
4. the definition of business ethics,
5. the state of ethical standards in Nigeria, and factors encouraging compliance to ethics
6. the causes of ethical compromise and influence
7. ethical issues in business and measures to ensure ethical practices in the organizations.

SAQ 4.1 (tests Learning Outcomes 4.1, 4.2 )

In two sentences define social responsibility
Compare the arguments for and against social responsibility
State the benefits accruing to a socially responsible organisation
Define ethics and state at least three causes of ethical compromise and influence
Identify four ethical issues in business and two factors encouraging compliance to ethics
Describe measures to ensure ethical practices are followed in the organisation
List at least five stakeholders or interest groups in Social Responsibility

From the options choose the best suited for each question.
1. Most of the socially responsible organisations are:

(a) Aware, Willing and Committed
(b) Unaware, willing, and committed
(c) Aware, lack commitment and willing
(d) unwilling, unaware, and uncommitted
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2. According to Peter Drucker, to manage a business is to
(a) balance a variety of needs and goals
(b) make profit only
(c) be socially responsible only
(d) to produce product or service only
3. The argument against social responsibility was propounded by:

(a) Milton Friedman and others
(b) Robert F. Hansberger and Milton Friedman
(c) T.G.P Rogers and Robert F. Hansberger
(d) None of the above.
4. Social responsibility includes all except

(a) providing social amenties to the community
(b) creating a healthy environment
(c) sponsorship of sporting events
(d) non payment of taxes to government
5. Interest groups in social reponsibility include all except

(a) Consumes/customer
(b) Employees
(c) State governors
(d) Community
6. ................ states that the company should follow strict accounting principles and standards
to report financial information accurately and completely.
(a) Financial Statement Integrity
(b) Respect in the workplace
(c) Safety Policy
(d) Fair dealing
(e) Compliance with the law
7. Society expects .............................. on the part of business executives as they make

decisions which affects the lives of other people.
(a) High ethical standard
(b) Low ethical standard
(c) high numerical knowledge
(d) high management skills
8. .............. principles or standards of human conduct, sometimes called morals (Latin

‘mores’ ‘customs’) and by extension the study of such principles, sometimes called moral
philosophy
(a) Ethics
(b) Rights
(c) Justice
(d) ethics and justice
9. Top management act as strong role models for lower level personnel
(a) True
(b) False
(c) Not sure
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10. The pressure of competition often leads people to engage in
(a) unethical practices
(b) Ethical practices
(c) social reponsibility
(d) high quality product
Links to OERs
References/Suggestions for Further Readings

Isimoya, A. O. (2005) Nigerian Business Environment: An Introduction. Lagos.
Concept Publications Ltd.
Brealey, M. M. (2004) Fundamentals of Corporate Finance New York. McGraw-Hill.
Cole, E. A. (2008) Essential Economics. Ibafo Nigeria. Tonad Publishers.
via the LMS.
64
STUDY SESSION 5:
ENTREPRENEURSHIP DEVELOPMENT
Introduction
This session introduces you to entrepreneurship skills. The concept of entrepreneurship has
developed over the years. An exposure to entrepreneurship skills will stimulate you and others
towards different opportunities besides wage employment. Many factors have contributed to the
high unemployment rate as formal wage employment is shrinking very fast. Self-employment, also
called entrepreneurship is increasing and offering more job opportunities for people. The session
will expose you to who an entrepreneur is, characteristics of an entrepreneur, success nuggets for
entrepreneurs and types of employment and advantages of self-employment among others. As an
individual, you should endeavour to learn the basic skills involved in entrepreneurship to help you
set up your own business or enterprise. I hope you will enjoy this session. Besides, the skills you
will acquire should guide your everyday work and develop your entrepreneurial traits, motivate
you to establish your own enterprise and subsequently create jobs for others and improve upon
your quality of life and that of your families and the society at large through better job
opportunities. This session is interesting and practical. You can use the ideas and skills in your
everyday life. You will surely enjoy it!
5.1 Define and use correctly all the key words printed in bold (SAQ 5.1, 5.2, and 5.3)
5.2 Differentiate between Entrepreneur and Entrepreneurship (SAQ 5.1)
65
5.3 State the characteristics of successful Entrepreneur (SAQ 5.1)
5.4 Describe the early and modern stages of entrepreneurship development in Nigeria (SAQ
5.4)
5.5 State the success nuggets for entrepreneurs (SAQ 5.3)
Key Terms: Self-employment, Entrepreneurship, Development, Entrepreneur
5.1 What is entrepreneurship?

Entrepreneurship is the attempt to create value through recognition of business opportunities, the
management of risk-taking appropriate to the opportunities, and through the communicative and
management skills to mobilize human, financial and material resources necessary to bring a project
to fruition (Olusemore, 2006).
Entrepreneurship is known as the capacity and attitude of a person or group of persons to undertake
ventures with the probability of success or failures. Entrepreneurship demands that the individual
should be prepared to assume a reasonable degree of risks, be a good leader in addition to being
highly innovative. (Onwubiko,2007).
How will you describe entrepreneurship?
Entrepreneurship is the ability of a person or group of people to embark on

ventures of creating wealth with the possibility of succeeding or failing.
5.2 Who is an entrepreneur?

An entrepreneur is a person who develops a new idea and takes the risk of setting up an enterprise
to produce a product or service which satisfies customer needs. All entrepreneurs are
businesspersons, but not all businesspersons are entrepreneurs. Let us now think of why all
businesspersons are not entrepreneurs. Think of a woman who sits by the roadside leading to your
66
home and who has been selling the same type of food, from the same size of saucepan or pot, from
the same tabletop, and may not have been able to change her standard of living to any appreciable
extent. Such a woman may be a businessperson but not an entrepreneur. The entrepreneur on the
other hand is the businessperson who is not satisfied with his/her performance and therefore always
finds ways to improve and grow.
An entrepreneur is one of the key factors of production as seen by economists and brings together
other factors of production such as land, money, materials, manpower and methods to produce
goods and services. He is a person who initiates or finances new commercial enterprises. The
Chamber’s English Dictionary defines an entrepreneur as “one who undertakes an enterprise
especially a commercial one, often at a personal financial risk”. This implies that committing his
financial resources to a project may turn out to be a failure or success. An entrepreneur could be
an inventor or innovator or both, an inventor when he invents a new product unknown in the history
of man or within his environment, an innovator when he adapts an existing invention to solve a
peculiar need.
Contillion in Isimoya (2005) defines entrepreneur as one who is the risk bearer, has the capacity
economically to produce goods and services; organizes and supervises production; and introduces
new methods and new products, and searches for new materials.
Entrepreneurs have the following motives as suggested by Schumpeter in Isimoya (2005): an innate
desire to be independent, a craving for challenge, need for self-fulfillment and glamour attached to
entrepreneurship i.e. the joy of creating wealth.
Amongst these three who is an entrepreneur? The Accountant, General Manager

or the owner?
An entrepreneur is a person who develops a new idea and takes the risk of setting
up an enterprise to produce a product or service which satisfies customer needs.
The owner is an entrepreneur.
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5.3 The History of Entrepreneurship in Nigeria.
The Early Stage: Entrepreneurship started when people produced more products than they
needed, as such, they had to exchange these surpluses. For instance, if a blacksmith produced
more hoes than he needed, he exchanged the surplus he had with what he had not but needed;
might be he needed some yams or goat, etc; he would look for someone who needed his products
to exchange with. By this way, producers came to realize that they could concentrate in their
areas of production to produce more and then exchange with what they needed. Through this
exchange of products, entrepreneurship started. A typical Nigerian entrepreneur is a self-made
man who might be said to have strong will to succeed; he might engage the services of others like
friends, mates, in-laws, etc; to help him in his work or production. Through this way, Nigerians
in the olden days were engaged in entrepreneurship. Early entrepreneurship was characterized by
production or manufacturing in which case the producer most often started with a small capital,
most of it from his own savings. Early entrepreneurship started with trade by barter even before
the advent of any form of money.
People of the Ibo community in Nigeria are considered one of the oldest entrepreneurs in history,
their expertise stretching back to times before modern currency and trade models had developed
elsewhere on the planet (Osalor 2010). In the more recent past, Nigerians adapted their natural
talents to evolve traditional businesses and crafts that have sustained most of the country's rural
and urban poor for the better part of the last half century. While the oil boom of the '70s brought
in billions of petrodollars, most of the country's population remained untouched by the new-found
prosperity, because of widespread political corruption and catastrophic economic mismanagement.
Because of these and other factors, the World Bank estimates that 80% of oil revenues benefited
just 1% of the population (Osalor, 2010).
The Modern Stage: Modern entrepreneurship in Nigeria started with the coming of the colonial masters
who brought in their wares and made Nigerians their middlemen. In this way, modern entrepreneurship
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was conceived. Most of the modern entrepreneurs were engaged in retail trade or sole proprietorship.
One of the major factors that have in many ways discouraged this flow of entrepreneurship
development in Nigeria is the value system brought about by formal education. For many decades,
formal education has been the preserve of the privileged. With formal education, people had the
opportunity of being employed in the civil service because in those days the economy was large
enough to absorb into the prestigious occupation all Nigerians with formal education. As such, the
system made Nigerians to be dependent on the colonial masters.
Again, the contrast between Nigerian and foreign entrepreneurs during the colonial era was very
detrimental and the competitive business strategy of the foreign entrepreneurs was ruinous and
against moral standards established by society. They did not adhere to the theory of “live and let
live”. For instance, the United African Company (UAC) that was responsible for a substantial
percentage of the import and export trade of Nigeria, had the policy of dealing directly with
producers and refused to make use of the services of Nigerian entrepreneurs. The refusal of the
expatriates to utilize the services of local businessmen inhibited their expansion and acquisition of
necessary skills and attitude. Because of this, many eventually folded up. Those that folded up built
up resentment against business which became very demoralizing to other prospective
entrepreneurs. As a result, the flow of entrepreneurship in the country was slowed down. But, with
more people being educated and the fact that the government could no longer employ most school
leavers, economic programmes to encourage individuals to go into private business and be self-
reliant were initiated. Such economic policy programmes that are geared towards self-reliance for
individuals are programmes like Open Apprenticeship Scheme, Graduate Employment
Programmes, the National Directorate of Employment, etc. Other policies that encourage or make
it easy for entrepreneurs to acquire the needed funds and train others are Peoples Bank of Nigeria,
Funds for Small-Scale Industries (FUSSI), Co-operative societies, etc, which were established to
assist entrepreneurs in Nigeria.
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5.4 Characteristics of Successful Entrepreneurs
Now let us consider the characteristics or some special qualities and strengths which make an
entrepreneur different from a businessperson. It is important for us to note that a successful
entrepreneur possesses the following characteristics.
Initiative: An entrepreneur takes actions that go beyond job requirements or the demand of the
situation
Opportunity seeking: An entrepreneur is quick to see and seize opportunities. He/she does
things before he/she is asked to work by people or forced by situation.
Persistence: An entrepreneur is not discouraged by difficulties and problems that come up in the
business or his/her personal life. Once she sets a goal she is committed to the goal and will
become completely absorbed in it.
Information seeking: An entrepreneur undertakes personal research on how to satisfy customers
and solve problems. He/she knows that different people have different capabilities that can be of
help to him/her. He/she seeks relevant information from his/her clients, suppliers, competitors
and others. He/she always wants to learn things which will help the business to grow.
Demand for quality and efficiency: An entrepreneur is always competing with others to do
things better, faster, and at less cost he/she strives to achieve excellence.
Risk taking: Are you afraid of uncertainties? Then you cannot be an entrepreneur. Entrepreneurs
are not high-risk takers. They are also not gamblers; they calculate their risks before acting. They
place themselves in situations involving moderate risk, so they are moderate risk takers.
Goal setting: An entrepreneur sets meaningful and challenging goals for him/herself. An
entrepreneur does not just dream. He/she thinks and plans what he/she does. He/she is certain or
has hope for the future.
Commitment to work: An entrepreneur will work long hours often into the night just to be able
to keep his/her promise to his/her client. He/she does the work together with his/her workers to get
a job done. He/she knows how to make people happy to work for him/her due to his/her dynamic
leadership.
Systematic planning and monitoring: An entrepreneur plans for whatever he/she expects in the
business. He/she does not leave things to luck. He/she plans by breaking large tasks down into
small once and sets time limits against them. Since an entrepreneur knows what to expect at any
time, he/she can change plans and strategies to achieve what he/she aims at.
Persuasion and networking: An entrepreneur acts to develop and maintain business contacts by
establishing good working relationships then uses deliberate strategies to influence others.
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Independence and self confidence: Most entrepreneurs start business because they like to be their
own boss. They are responsible for their own decisions.
We could sum up their characteristics as follows.

1. Having a high need for achievement,
2. Very optimistic and passionate about what they do,
3. Very dynamic and flexible in outlook,
4. Very innovative,
5. Very courageous,
6. Hardworking and diligent,
7. Very visionary,
8. Good decision making skill,
9. Firm determination and strong commitment,
10. Very confident,
11. Good leadership/managerial skills,
12. Creative thinking, and
13. Good persuaders.
5.5 Nigeria, Youth and Entrepreneurship

The development process of any country is determined by the way the production forces in and
around the economy is organized. For most countries, the development of industry had depended
a great deal on the role of the private sector. Entrepreneurship has played a major role in this regard.
Entrepreneurship is known as the capacity and attitude of a person or group of persons to undertake
ventures with the probability of success or failure. Entrepreneurship demands that the individual
should be prepared to assume a reasonable degree of risks, be a good leader in addition to being
highly innovative. Since entrepreneurship must deal with leadership, leadership ability always
determines a person’s level of effectiveness. Personal and organizational effectiveness is
proportionate to the strength of leadership and there is no success in any entrepreneurship venture
without leadership.
Entrepreneurship in business management is regarded as the “prime mover” of a successful
enterprise just as a leader in any organization must be the environmental change agent. Many young
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Nigerians aspire to be successful entrepreneurs. But due to certain constraints, the ability of many
prospective youth to find avenues to utilize their opportunities and skills has proved futile.
Entrepreneurship in Nigeria is perceived as a major avenue to increase the rate of economic growth,
create job opportunities, reduce import of manufactured goods and decrease the trade deficits that
result from such imports. Two approaches have been used for entrepreneurship development in
Nigeria. One of the approaches is concerned with the provision of generous credit facilities for
small – scale industrialists. The aim of this scheme was to give the entrepreneur seed money.
The second approach was the establishment of the training centre known as Industrial Development
Centre (IDC). The idea of this Centre was to provide facilities for on- the –job training of
entrepreneurs, especially those in the informal sector which include petty traders, artisans, peasant
farmers, etc, and to train them in various aspects of industrial management. Unfortunately, due to
certain factors like absence of infrastructural facilities e.g., power, bad roads, etc, accessibility to
capital, inadequate security, low standard of education, lack of training and unethical behaviour on
the part of some officials and beneficiaries of some of the programmes among others, these and
some other initiatives did not achieve the desired results (Onwubiko, 2007).
5.6 Role of Government in Entrepreneurship Development in Nigeria

Economic growth rates are often attributed to the role of the duo of government and entrepreneurs
which is complementary and not mutually exclusive.
In Nigeria, like some other economies, government helps to develop transportation, power,
financial inducement, subsidies, and other utilities to encourage entrepreneurship development.
Furthermore, the government provides security to safeguard life and property, maintaining law and
order and freedom to do business.
According to Eshiobo (2009) the role of government in entrepreneurship development in Nigeria
became significant only after the Nigeria civil war (1967-70). From the mid-1980s there has been
increased commitment of government to entrepreneurship development especially after the
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introduction of the Structural Adjustment Programme (SAP) in 1986. In addition, we have had the
establishment of the National Directorate of Employment (NDE), National Open Apprenticeship
Scheme (NOAS), Small and Medium Enterprise Development Agency of Nigeria (SMEDAN),
Small and Medium Enterprise Equity Investment Scheme (SMEEIS) etc (Eshiobo, 2009).
Basically, the Nigerian government should promote entrepreneurial culture through initiatives that
build business confidence, positive attitude, pride in success, support and encouragement of new
ideas, social responsibility, providing technological supports, encouraging inter-firm linkages and
promotion of R&D. Others are cheap financial resources, free access to market; prompt
registration/advisory service to businesses, promotion of entrepreneurial skills acquisition through
education and manpower development, production of infrastructure, export incentives, stable
macroeconomic environment, security of investment, stable political climate, etc. In early 2000s,
entrepreneurship studies have been introduced into the Nigerian educational system especially
higher institutions as a mandatory course. The Centre for Entrepreneurship Development (CED),
which has the objective of teaching and gingering students of higher institutions (especially in
science, engineering, and technology (SET)) to acquire entrepreneurial, innovative, and
management skills, was established. This is to make the graduates self-employed, create job
opportunities for others and generate wealth. The UNESCO-TVE Programme in Nigeria is aimed
at fostering linkage and cooperation between higher institutions and industries such that academic
research findings can readily be taken up by industries for production and product development.
What can government do to aid entrepreneurship development in Nigeria?
Government can provide infrastructures like good roads, power, financial assistance and
security of lives and properties.
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5.7 Employment and types of employment
Employment is working to earn a living. Payment could be in the form of wages or salaries
depending on the nature of the work. Knowledge of the background to employment situation in
Nigeria will enhance your decision on your employment if you are not already employed.
The Nigerian economy has been growing; however, unemployment has become a social and
economic problem as many of our youths end up on the urban streets hawking and selling
consumables. Wage employment in the formal sector of the economy is facing decreasing
prospects even though it used to be generally responsible for the employment of graduates from
our educational institutions. As a result, many people who are preparing for wage employment will
end up unemployed, creating serious social problems for the country.
My dear learner, I do not think you want to be one of those who will be trained and end up on the
streets selling.
5.7.1 Types of Employment
Introducing you to types of employment is to help you take decisions as to the type of employment
you will want for yourself if you are not already employed, but essentially to open your eyes to the
other type of employment available. Before proceeding there is need for you to take time to ponder
over these questions.
• Who is responsible for your school fees?

• What kind of jobs do people do for the government, companies and other individuals and
get paid for regularly?
• Mention some of the activities by which people earn their own living?
There are two types of employment:
1. Self-employment: Self-employment means owning your own business alone or in

partnership with others or with members of your family. It is the alternative to wage
employment
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2. Wage employment: Working for someone, an organisation or a company and getting paid
for the work done.
5.7.2 Motives for self-employment:
Self-employment has some motives which you need to know. You may contact somebody or
people who are already in self-employment to learn about them. However, here are a few
suggested motives for self-employment.
1. A person chooses to be self-employed if he/she has a particular interest in the trade or
business.
2. Follows a family tradition: “my grandmother was a renowned caterer. My mother and elder
sisters also are and therefore, I also want to be a caterer”.
3. Has no other option of earning a living.
4. Meeting the present and future needs.
5.7.3 Advantages of self-employment
Self-employment has several advantages. Can you think of some of them? Your list may include
any of the following. Being self-employed enables a person to:
1. lead rather than follow.
2. be creative and implement ideas.
3. have the potential for increased income with hard work.
4. be independent.
5. take initiative, make own decision at own pace;
6. control his/her own workplace and the work that needs to be done;
7. continue to learn more about business each day and this could provide an opportunity for
self-fulfillment.
8. be in business beyond retiring age, etc.
If Nigeria is to achieve the millennium goals, we need to consider going into self-employment -
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becoming an entrepreneur.
5.8 Success Nuggets for Entrepreneurs

The following tips according to Olusemore (2006) will help make you a successful entrepreneur.
Need for a vision: You must understand what potentials, gifts and talents God has given you.
These are things you think you can do and doing very well. The vision should be written on your
heart, and you always meditate on it. Do not go into a business simply because it is the one that is
in vogue. Start a business in which you have a keen interest; you can only have an enduring success
in a business that gives your personal satisfaction.
Need for effective planning: There is no substitute to effective planning. To achieve a lot within
the time available, organize your work, plan your time, have time schedule for your work, state
what you will achieve per day, per week, per month, per year. Make a habit of ticking through what
you have achieved each day.
Need for discipline: Have a purpose and goal. Be determined to follow your plan through. Stick
to your goal despite setbacks and challenges. Discipline yourself as to the use of time and financial
resources. Organise yourself, work and plan your time. Have a time schedule for what you will
like to achieve per period and avoid time-wasters like too much time spent on telephone
conversations, unwanted visitors, unplanned social engagements, etc.
Need to endure initial hardships: You should know that visions are not achieved overnight. It is
a long term thing. Do not be in a hurry. Try and endure the initial hardships. Anything of a lasting
value would usually have a gestation period – a waiting period, a time lag between sowing and
reaping.
Need to think big but start small: Have a vision, dream big, but you can start small and watch
your enterprise grow to your dream. Do not lose sight of your mission and avoid indiscriminate
expansion of your business. Do not be attracted too often by short-term gains.
Need for courage: You need courage to succeed in life. There will always be disappointments;
when they happen, you must learn to forge ahead. A temporary setback should not discourage you;
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only examine thoroughly where you have missed the mark and correct yourself.
Need to have a mentor: In every profession or field of human endeavour, there are always
trailblazers; there are pioneers of something. These could be people who have succeeded in
different fields and could offer advice or guidance on the new venture you intend to go into.
Need to have faith in God: You need a quantum of faith in God for you to move mountains. Men
of faith in history are always successful in their endeavours. Things may be rough and tough but
with faith and holding on to God, you can succeed.
1) The concept of entrepreneurship and entrepreneur, special qualities and strengths which
make an entrepreneur different from a businessperson. With this as the focus, we deem it
necessary that you identify your strongest traits as you prepare to start your own business.
Tips for becoming a successful entrepreneur have also been discussed.
2) that there are two types of employment: wage and self-employment.
3) The advantages of self-employment are to lead rather than to follow, be creative, take
initiative, be independent and be in business beyond retiring age.
4) Unemployment is a social and economic problem; there is a need for more entrepreneurs
or the self-employed

discuss them with your facilitator at the next study centre meeting. You can check your answers at
the end of this course material.
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SAQ 5.1 (tests Learning Outcomes 5.1, 5.2, and 5.3)
Define entrepreneur and state five characteristics of a successful entrepreneur

In not more than two sentences differentiate between entrepreneur and entrepreneurship

List and explain four success nuggets for entrepreneurs

Write short notes of not more than three sentences each on the early and modern stages of
entrepreneurship development

From the options given, choose the most appropriate option to fill in the gaps.
1. ---------- demands that the individual should be prepared to assume a reasonable degree of
risks, be a good leader in addition to being highly innovative.
(a) entrepreneur
(b) entrepreneurship
(c) business man
2. ----------- is a person who develops a new idea and takes the risk of setting up an enterprise
to produce a product or service which satisfies customer needs.
(a) Business man
(b) entrepreneurship
(c) entrepreneur
3. ................ means owning your own business alone or in partnership with others or with members
of your family. (a) Self-employment (b) paid employment (c) Temporary umemployment (d)
Voluntary unemployment
4. Entrepreneurs have the following motives except

(a) innate desire to be independent
(b) craving for challenge
(c) need for self-fulfilment
(d) withdrawal in the face of difficulty.
5. Entrepreneurship is known as the capacity and attitude of a person or group of persons to

undertake ventures with the probability of success or failures.
(a) True
(b) False
Links to OERs
http://EzineArticles.com/3562102
78
References/Suggestions for Further Readings
Olusemore, G. A. (2006). Essentials of Small Business Management. Lagos; CIBN Press
Ltd.
Eshiobo, S. S. (2009) Entrepreneurship In Innovation, Phenomena Growth Of
EnterprisesAnd Industrial Organisations In Nigeria.
www.icennig.org/ENTREPRENEURSHIP%20IN%20INNOVATION.doc
Osalor, P. O. (2010). Entrepreneurial Development in Nigeria.
http://EzineArticles.com/3562102
Onwubiko, C. M. (2007). Entrepreneurship and leadership: “Nigeria and the

Imperative for Youth Entrepreneurial Development”.
www.cipe.org/programs/women/EssaysForWeb/Onwubiko.pdf
via the LMS.
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STUDY SESSION 6:
ORGANIC FUNCTIONS AND FEASIBILITY
Introduction
In study sessions 1 to 5 you have learned about business and its environment, examined some forms
of business ownership and entrepreneurship development. In this study session, you will be taken
through the various parts of business that exist together in a seemingly natural relationship that
makes for organized efficiency. Whatever kind of business organization you have chosen to set up
even if it is the least - sole proprietorship, you will find these parts existing and working together
(may be in smaller measures and ways peculiar to the bu0siness) so that the motive for business
will be achieved. These functions include marketing, production, finance and human resources.
Businesses integrate the various functions of these departments to form an organic whole called
the business organization. In a business organization, every business idea including farming should
have a feasibility study conducted to determine the viability of the idea before proceeding with the
development of the business. Determining early that a business idea will not work saves time,
money, and heartache later.
6.1 Define and use correctly all the key words printed in bold (SAQ 6.1, 6.2, 6.3,and 6.4)
6.2 Describe the organic functions of business (SAQ 6.1, 6.2, 6.3)
6.3 State the various functions of the organic units (SAQ 6.2 and 6.3)
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6.4 Explain feasibility study and its uses (SAQ 6.4, 6.5)
6.5 Outline the basic contents of a feasibility study (SAQ 6.4, 6.5)
Key Terms: Organic functions, feasibility, Business, Organization, Marketing,
Production, Finance, and Human Resources (HR) functions, Feasibility study
6.1 The Organic Functions of Business

A business organization has various parts working together to achieve organizational objectives.
The various functions of these departments are integrated to form an organic whole called the
business organization. These various parts of business that exist together are called the organic
business functions. The functions include marketing, production, finance, and human resources.
6.1.1 The Marketing Function
Marketing is defined as the management process which identifies, anticipates and supplies
customer requirements efficiently and profitably. This definition implies that marketing is more
than selling as the marketer must ensure that the goods or services offered must conform to
customer requirements. Marketing management is Demand management. The task of a marketing
manager therefore is to: create demand where none exists, revitalize a sagging demand, attempt to
smooth out an uneven demand, and reduce overflowing demand.
The Marketing function involves the identification of consumer needs which initiates the business
cycle. Market research is a tool for identifying and assessing consumer needs. Market research
is the process of gathering, recording, and analyzing facts and data concerned with the market, that
is:
a) What can be sold in each market?
b) Where can they be sold?

c) Who are the buyers?
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d) What quantity can they buy?
e) What price can they pay?
f) Where can they get the product?
These questions must be answered before the product can be developed and for the business to
succeed. Hence, the marketing function embraces a wide range of sub-functions requiring special
skills.
Box 6.1 Some Sub-Functions in Marketing
Market Research
Product Planning
Public Relations
Sales and Physical Distribution
Product Advertising
Product Promotion
In any company, the marketing department and management are teamwork, and the effectiveness
of the team depends on the qualities of the team members. Let us look at two of the sub functions
in marketing.
Sales and physical distribution
The main function of a sales department is to attract and retain customers. The sales department
generates and closes deals, educates prospects, fill needs, and satisfy wants of consumers
appropriately. The sales function implies that whatever product or service an organisation decides
to provide for the satisfaction of peoples’ needs there must be ways of getting it across to the
prospective customers at a cost. In many companies, sales and distribution are a joint operation.
However, before any distribution can take place, a selling process must be evolved. The sales
department requires an imaginative or creative centre based on the marketing plan.
Customer satisfaction is very important hence the selling function includes after-sales service and
warranties, which must be well managed to eliminate buyer’s dissatisfaction. The sales department
therefore, is a living mouthpiece for any company and must be extrovert in nature to of marketing
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channel like the intensive distribution, selective distribution, and exclusive distribution.
Product Promotion
This is an act of showcasing a good or service manufactured by a firm with the sole aim of
increasing sales within the short or long run. Companies use different techniques and
communication mediums to promote their products. They can advertise on TV, Radio, Newspaper
or use billboards or better still do personal (one on one) selling. Today, we cannot say there is one
better or best communication medium. The most effective medium will be based on what type of
product you are promoting and how you have packaged it.
In recent times, many companies have been trying to make use of online social media to promote their
product. Some of these online social media are Facebook, Twitter, and YouTube. Through these online
social media networks, companies can advertise and promote their products to anyone, at anytime and
anywhere in the world. Some companies have recorded great success marketing their products to younger
people who may not have had the opportunity of seeing them in TV or newspaper.
A business organisation uses its middlemen to ensure its product gets to customers in
various geographical locations. What organic function of business does that represent?
It represents a sub function of the marketing organic function which is sales and
distribution of goods.
6.1.2 The Production Function
Production is the process of converting raw materials into finished products. Production
function in economics is an equation that expresses the relationship between the quantities of
productive factors (such as labour and capital) used and the amount of product obtained. That is,
the production function relates the output of a firm to the amount of inputs. It states the amount
of product that can be obtained from every combination of factors, assuming that the most
efficient available methods of production are used.
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The production function can thus answer a variety of questions. It can, for example, measure the
marginal productivity of a particular factor of production (i.e., the change in output from one
additional unit of that factor). It can also be used to determine the cheapest combination of
productive factors that can be used to produce a given output (Encyclopædia Britannica, 2012).
The decision to convert raw materials into finished product is taken after careful consideration of
many variables such as proximity to raw materials, availability of skilled labour, and ease of
transportation to market. The choice of location also affects the effectiveness of the production
function.
Types of Production Systems
Essentially, there are four types of production system. These are: Job Shop Production, Batch
production, Mass production and Process production. Each of these is explained below.
Job Shop Production System: this involves the production of a single product in line with specific
requirements. Each product is a one-off job which may not be repeated. An example is building a
ship for a client.
Box 6.2 Features of job production systems
Relatively high-priced product,

Involves the use of highly skilled labour,
Low capital cost, and
Centralization of management.
What organic business function will ensure that products and services reach the
customers and that sales or customer base increases through awareness?
The marketing organic function
Batch Production System: This involves the production of a batch or quantity of a product to
meet a specific need e.g., production of goods for stocks, such as components for the motor car
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industry or aero plane. Here, production operatives are less skillful than the job production
operatives.
Mass Production System is the production of products that are uniform and standardized in
nature. Production is continuous and the units produced are the same and specialized. Examples
are toilet soaps, ball pens and rulers. Mass production system is a large-scale production. It
therefore requires the existence of a well-developed marketing organization to make continuous
production possible.
Box 6.3 Features of Batch Production System
Relatively low price,

High capital cost,
Little flexibility,
High population of semi and unskilled labour required, and
Less centralization in management.
Process Production System: This is where the production is continuous but with a high degree
of automation than in mass production e.g. oil and chemical industries. It is highly capital
intensive.
Scope of Production Function

Depending on the organization, the production function can be subdivided into: Production
Administration, Production Design, Production Management and Production Ancillaries.
An organisation intends to determine the amount of product that can be obtained

from a given combination of factors of production. Recommend what organic
business function will handle that.
I will recommend the Production organic function whose duty is to relate the
output of a firm to the number of inputs.
6.1.3 The Finance Function
The basic objective of the finance function is to formulate policies ensuring that the most effective
use is made of the financial resources of the organization. It assists the company to make use of
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the funds at its disposal and to select the most favourable sources of additional funds to finance
future operations.
Accounting provides the source of information for financial analysis and planning. Accountants
measure such variables as performance, sales expenses, profits, assets and liabilities and express
their findings in numerical terms. This is then communicated to individuals, management and all
interested parties both in and outside the enterprise.
Financial Accounting is part of the finance function. It takes care of preparing the company’s
balance sheet, profit and loss account and the manufacturing accounts in the case of manufacturing
companies.
Balance Sheet: indicates the wealth of a company at a certain point in time. It presents the picture
of the cause of profit or loss over the period of one balance sheet data to another. It is used for the
calculation of liability for corporate tax, dividends to shareholders and changes in retained profits.
Profit & Loss Account: This shows the addition to wealth which has been made over a period. It
is a statement of operations over a defined period of time and shows the revenue earned during the
period i.e., 12 months, cost of goods sold, other expenses incurred, taxes and rates paid, and the
profit or loss resulting from the operation at that period.
1.1.4 The Human Resources Function
Human Resources (HR) deal with people at work and their relationship within the working
environment. The Human Resources approach further deals with the employee’s entire working
life in the company, and not just their contractual relationship with it. It is also involved with
values and aims of their commitment to management goals.
The HR function (Personnel Management and Industrial Relations) is a critical function performed
in any organization of human effort. Plants, office computers and machines are unproductive
except for human effort and direction. Managing the human component is the central and most
important part because everything depends upon how well it is done.
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The Human Resources function involves:
• Recruitment and Selection,
• Training and Retraining,
• Remuneration of employees,
• Formulating of personnel policies and procedures,
• Acting as a clearing house for information about employee’s conducts, attitude towards
management, the job and the firm,
• Assisting line managers with employee problems e.g. promotions, transfers, demotions,
discharges, etc
• Prepare job analysis and evaluation for each position in the firm, and
• Collective bargaining negotiation
Name five functions of the Human Resources department of an organization.
The Human Resources department is responsible for remuneration of workers; preparing

job analysis and evaluation for each position; recruitment and selection; training and
retraining; and formulation of personnel policies and procedures
6.2 Feasibility Study and Business

Feasibility study is a preliminary study undertaken to determine and document the viability of a
project. Project here could mean a fresh business idea, or an identified opportunity. It is a thorough
evaluation of how practicable a business project would be. Feasibility study provides information
about the various elements or characteristics which form the basis of the business proposal. It is an
analysis of how worthwhile a business idea is. The feasibility study focuses in helping to answer
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essential questions such as “Should we proceed with the proposed project idea?”
A feasible business venture is one where the business will generate adequate cash flow and profits,
withstand the risks and challenges it will encounter, remain viable in the long term and meet the
goals of the founders/owners. The venture can be a new start up business, the purchase of an
existing business, an expansion of current business operation or a new enterprise for an existing
business.
A business man approaches you, tells you of his intention to take advantage of a
presumed opportunity but is entertaining fear on the success or otherwise of it.
Advise him.
I will advise him to conduct a feasibility study as that is the only way to determine
the success/viability or otherwise of any business venture.
6.2.1 Role or Uses of Feasibility Study
1. A feasibility report helps to determine the viability of the project and the degree of risk
associated with investing in it.
2. Evaluates alternatives. After a business entrepreneur has discussed series of business
ideas or scenarios, the feasibility study helps to ‘frame’ and ‘flesh-out’ specific business
alternatives so they can be studied in depth and the best alternatives chosen.
3. Aids decision making in terms of financing the project.
4. Is used to evaluate the profitability and technical practicability of the project.
5. It guides the general implementation of the project plan.
6. Is used to seek for business loan from bank. An organization may not be granted credit
if it is unable to produce a convincing feasibility report stating the future plans of
income for the organization. This is because banks expect that the business will repay
the loan from the future streams of income as stated in the feasibility study.
Outline three roles or uses of feasibility study.
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Feasibility study could be used to aid decision making especially concerning
financing of the project. It could also be used to determine if a project is profitable
and practicable, and it guides the general implementation of the project.
6.2.2 Contents of a Business Feasibility Study
The success of a feasibility study depends on the careful identification and assessment of all the
important issues for business success. Bear in mind that the premise of feasibility study is to
determine the potential for success of a proposed business venture.
The following outline can help you create your study. Not all feasibility studies are alike. The
elements to include in a feasibility study vary according to the type of business venture and the
market, therefore the listing below may not be a complete listing of the factors that should be
considered in your specific situation but may aid you to think and add further issues that needs to
be assessed in your own specific business. These are:
Brief Description of the Project and its Objective

Describing the project and its objective briefly entails stating the name of the business, the type of
business (partnership, sole proprietorship, Limited Liability Company, etc) and the industry to
which the business belongs e.g. food and beverage industry, agricultural industry, textile and
clothing industry, banking industry among others.
Ownership
Here, you are expected to provide the name(s) of the promoters or proprietors of the business, their
origin (whether indigenes or foreigners), their business experience, what they do currently, their
skills and ability. This element will also include the ownership structure in case more than one
person owns the organisation.
The Product or Service

This entails describing the product or service you want to deliver to the consumers and the nature
of the product or service. You need to state whether it is a consumer good or an industrial good,
whether it is an intermediate or final product, the uses of the product or its importance to the
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consumer, and the particular segment of the market it will serve.
Production Process and Production Plan

In this segment, you will need to state the production process you wish to adapt whether large or
small scale depending on the business and the machines to be used. The production plan should
highlight how and where the machinery and raw materials are to be procured; give full description
of the raw materials required, the quantity required to produce certain units, capacity of the
machine(s) in terms of volume of production, and also address quality standards and controls, etc.
The Market for the Product

It is necessary to describe the market you want to operate in. Will it be the wholesale or retail, local
or international market? There is need to also state the current situation of the market? Is it a
growing or saturated market? Who are the major competitors and major buyers in the market?
What market niche do you want to carve for the product?
The Marketing Plan/Strategy

Having known the characteristics of the market you want to operate in, you should describe how
you want to compete in the market. How do you intend to obtain a reasonable share of the market?
What is the distribution and promotion plans you wish to adopt? How do you make consumers
who have been buying similar or substitute products prefer your product and spend their money on
your product? State also the medium of promotion and publicity you intend to use and the pricing
policy you wish to adopt.
Technical Feasibility
How do you get the right technical people and workers to match the kind of organization you have
in mind and the machines. This entails determining facility needs e.g. The size and type of
production machines, how suitable are they? Are they reliable? Who are the experts to man the
machine and how do you intend to employ them? What are the constraints or limitations of the
technology? Is the technology likely to contribute to pollution or otherwise damage the
environment?
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Land/Property
Do you need land or property? What acre or size of the virgin land do you require? What is the
location you are targeting? What is the estimated cost? What security does the land/property have
e.g. Certificate of Occupancy, Deed of Assignment/Conveyance? Will the land be suitable for the
business? If it is a property, what is the size you need? Where should it be located? What kind of
infrastructure do you expect around that area to suit your business needs.
Organization and Management

This will explain how the business will be organized, the kind of structure or chart to be put in
place e.g. drawing out the organizational chart detailing the line of report and authority and the
various departments. For instance, figure 4.3.1 may represent the structure of an organization in
terms of layers and levels.
MD
GM
Manager Manager Manager Manager

Administration Product Accounts personnel
Administrative Product Account HR

Officers supervisor Officers Officers
Fig. 6.1: Organizational Structure/Chart
It is also necessary to state the members’ background and work experience of members of the
management as this is important to assess if they are capable of managing the business and
performing their assigned roles or otherwise. This is also important because the financiers are
interested in knowing that the management team is highly rated and there is market for the
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product/service. You should also talk about the workforce (labour), the number of senior or junior
staff required etc.
Economic or Financial Feasibility

This requires stating the estimated total capital needs or requirements which is divided into capital
expenditure & working capitals. Capital expenditure takes care of capital items like plant and
machinery, land and building, tools, office furniture and fixtures, motor vehicles, etc. The working
capital or startup capital which is the anticipated expenditure before revenues are realized will also
be stated. This includes anticipated payment for labour (wages and salaries), utilities, rent,
suppliers, repairs, raw materials, administration expenses, production overhead and other expenses
at the initiation of business. Financial feasibility also entails making financial projections and
profitability analysis, that is, having a budget of the estimated expected costs and revenue or returns
and stating the profit margin and expected net profit. It also requires estimating the unit of sales
needed to break even, estimating the returns under various production price and sales level, and
identifying the “best case” or “worst case” scenarios. Again, you need to state the reliability of the
underlying assumptions of the financial analysis.
Generally, there should be a projected income statement or cash flow statement. This income
statement summarizes the estimated operating expenses and operating revenue, and shows the net
profit or loss. The net profit is the return on investment. When it is lower than the expected level,
the project might be termed unviable or not feasible.
1) the four basic organic functions of business. These are marketing, production, finance and
the human resources. The marketing function is responsible for meeting consumer’ desires
in terms of product and services, ensuring that products get to the end users and that goods
and services get adequate promotion.
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2) the production function ensures that input yields the required output and the method of
production is also determined by it. Finance function ensures that funds are judiciously
used in order to attain organizational objective. The Human resources coordinates the use
of all other resources. In essence, in the execution of all these functions, the human resource
has a central role to play and must give necessary training and development. In addition
3) the meaning of feasibility study and identified it as a veritable tool for determining the
viability, practicability and profitability or otherwise of a business project. The role of
feasibility study which includes using it as a means of securing loans from banks and the
evaluation of alternative ideas among others.
4) the basic content of a feasibility study which includes ownership, finance, market,
marketing plans, product, and production plan.

SAQ 6.1 (tests Learning Outcomes 6.1, and 6.2)
Discuss briefly the four organic functions of business.
The marketing function embraces a wide range of sub-functions requiring special skills.
State three of such sub-functions
List and explain the four subdivisions of the production function.
What are the basic contents of a feasibility study? Itemize and write short notes on at least
three using not more than two sentences each.
State briefly the contents of a financial statement in a feasibility study

From the alternatives provided, choose the most appropriate option
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1. One of the following is not a function of marketing:
(a) market research
(b) product planning
(c) physical goods distribution
2. This involves the production of a uniform and standardized nature.

(a) Batch production
(b) Mass Production
(c) Few Production
3. Managing the ..............component is the central and most important part of an organization
because everything depends on how well it is done.
(a) Marketing
(b) Human
(c) Production
(d) Financial
4. ........ involves the production of a batch or quantity of a product to meet a specific needs.
(a) Mass production
(b) Process production
(c) Batch production
(d) Tailor-made production.
5. In this production system, production is continuous but with a high degree of automation than
in mass production
(a) Batch Production
(b) Job shop production
(c) Process Production
6. In feasibility study .......... will explain how the business will be organized, the kind of structure
or chart to be put in place.
(a) Organization & Management
(b)Economic and Financial analysis
(c) Market for the product
(d) Marketing plan
7. -------- provides information about the various elements or characteristics which form the basis
of the business proposal.
(a) Feasibility study
(b) Business plan
(c) organised study
8. Capital expenditure include all except

(a) Marchenery
(b) Building
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(c) land
(d) wages and salary
9. ............................... requires stating the estimated total capital needs or requirements which
is divided into capital expenditure & working capitals.
(a) Financial feasibility
(b) Capital feasibility
(c) profit and loss feasibilty
(d) balance sheet feasibility
10. ........................... is the process of determining facility needs through showing size and type
of production machines, stating its suitability as a production technology, and showing how reliable
it is are part of the requirements for effective operations.
(a) Economic feasibility
(b) Technical feasibility
(c) Budgeting feasibility
(d) business plan
Links to OERs

Ifechukwu, J.A.O. (2006). How To Prepare A Feasibility Report and Establish your
own Business. 3rd Edition. Lagos. Goldland Business Co. Ltd.
Isimoya, A. O. (2005). Nigerian Business Environment: An introduction. Lagos;
Concept Pub. Ltd.
Encyclopaedia Britannica (http://www.britannica.com/EBchecked/topic/477999/production-
function). Accessed March 2012
via the LMS.
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STUDY SESSION 7:
CHALLENGES OF MANAGING BUSINESS IN NIGERIA
Introduction
The factors affecting the smooth operation of business in an environment could be regarded as the
challenges faced in managing such business. These challenges differ from business to business as
well as from environment to environment. In the Nigerian environment we will like to look at those
peculiar challenges that most business managers have to deal with in their day-to-day operation.
The relevant words here are: Challenges, Business and Management. It will be appropriate to
understand the meaning of these words before proceeding.
7.1 Define and use correctly all the key words printed in bold (SAQ 7.1, 7.2 and 7.3)
7.2 Describe the challenges of business management (SAQ 7.3)
7.3 Explain the factors that affect business operation in Nigeria (SAQ 7.2)
Key Terms: Business management, challenges, management, environment, sole

proprietorship, Poor Infrastructure, Unstable Government Policy, Irregular Power Supply,
High rate of Inflation.
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7.1 Definition
Let us make an effort to define each of the relevant word identified by starting with challenges.
There are several definitions to the word. For our study, we would use the third definition of the
Longman Dictionary of Contemporary English which gives the meaning of Challenges as “The
test of the abilities of a person, or thing”. So, we assume that anything that tests one’s ability to do
something (say a kind of job) must be challenging. Normally things we are used to doing, no longer
tests our abilities because it is established that we can do it. Therefore, we could further say that
challenges are obstacles, obstructions, difficulties, opposition, hindrances, hurdles that
businesspeople face. Most people claim they like challenges, and so you won’t be surprised to hear
people say such things as “I’d like a challenging job”; “I like to study something only if it really
challenges me”; etc. So, whatever this sort of person wants to get involved in, will really have to
test their ability to achieve or overcome. In the past, businesses were faced with the challenges of
land, labour, and capital but all that has changed now. See what IBM CEO Louis V. Gerstner Jr
once said.
“The age-old levers of competition which are land, labour capital is being supplemented by knowledge.
Only firms that can exploit knowledge and act fast or with speed can succeed”.
Business as a word has also been defined in various ways by various people. Some have defined
Business “As an organisation set up to make profit”; others describe it as “an organization
consisting of a person or a group of persons who produce and distribute goods and services for
profit”. Karimu (1992) defines business as “the sum of all the legal activities involved in the
creation and distribution of goods and services for private profit”. Therefore, business is any legal
means of satisfying human wants with the motive of profit.
Management as a term or word means different things to different people depending on its usage.
Some refer to it as “Those at the top level of an organisation”, that is, the decision makers in an
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organisation. Mary Parker Follet defines management as “art (i.e. skill, ability) of getting things
done through other people”. However, the definition of Mondy et al will suffice here. Mondy,
Holmes and Flippo (1983) defined management as the process of planning, organizing,
influencing, and controlling to accomplish organisational goals through the coordinated use of
human and material resources. We could then visualize management from two perspectives –
people at the top level/decision makers (managers) who ensure that organizational objectives are
achieved through the efforts of people (workers) and other relevant resources.
Challenges of business management therefore are those issues, factors, conditions, situations,
uncertainties which test the abilities of business managers as they work towards satisfying
human wants and in return make profit.
Environmental uncertainties entails that there is lack of complete information regarding what
developments will occur in the external environment. This makes it difficult to predict future
situation and to understand their potential implications. For instance, the current world recession
that started in 2007 in the US from real estate (housing market), affected banks and led to layoff
of workers, resulted to low credit within the economies thereby making it impossible for businesses
to secure loans. It also affected the stock market and so many lost their investments while the
unemployment rate increased generally.
Isimoya (2005) has said that managing business organisations in Nigeria is not for the faint-hearted.
Business in Nigeria is for those who are willing to take risks or face challenges and also savour the
benefits that result from such successful undertaking. Olusemore (2006) added that “the Nigerian
Environment has always been challenging and no one should use it as excuse for business failure”.
So, if anyone cannot face challenges or take risks (as they have always been there and would
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continue to be there) that person should not go into business. And if one is in business and fails,
the person shouldn’t say it’s because of the challenges faced, as challenges were there even before
embarking upon the business.
7.2 Types of Business Organization
What are the types of business organizations? Remember you learned something about
types of business organisations in study session 4.
The types of business organisations are sole proprietor, partnership, Limited Liability
Company, corporation, and cooperative societies.
There are various types of business organisations as we were told in the previous module viz: Sole
Proprietorship, partnership, limited liability companies, public corporations, cooperative societies
etc. In a sole proprietorship, the key person or the manager is usually the owner of the setup. In
a partnership, the active managers are likely to be the owners except where there is an agreement
to employ somebody other than the partners. Limited Liability Companies are divided into two –
Public and Private. The private companies are usually family-owned businesses while the public
companies are the multinationals with public quoted shares. Public corporations are government
established enterprises or owned companies. The most prevalent in our country are the first two –
sole proprietorship and partnership, that is to say, mostly small scale businesses.
Businesses as we know do not operate in a vacuum. They operate within a given environment and
these environments influence business just as business influences the environment. To help you
recall we have two types of environments viz; the internal and external environments.
The internal environments are generally regarded as the controllable environment, which is
otherwise termed the strengths and weaknesses of an organization. They include such factors like
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resources (financial and material), the employees, product, price, promotion, place of distribution,
work ethics (prompt response to customer needs, after sales service), the work climate (how
friendly and conducive it is), the leadership style/decision making process, communication style,
structure of the organization (who reports to who) size of the organization, and organizational
culture.
The external environment is regarded as the uncontrollable environment otherwise seen as the
opportunities and threats of an organisation. The external environment is divided into two: Macro
(General Environment) and Micro (Specific or Task Environment). The Macro environment must
deal with the environment that applies to all businesses in general. For instance, the political,
economic, social, technological issues that is common to all kinds of businesses. For instance, the
issue of computerization in all spheres of business is a general environment under technological
issues that is affecting virtually all business as managers’ work hard to make the running of their
business easy and faster using computers. Any organisation that should be using a computer for its
operation currently that is not doing so will have itself to blame as the customer may not want to
listen to excuses. Microenvironment has to do with the stakeholders of a particular business. That
is, people or persons, or groups, institutions who are affected by the performance of the
organisation. Consequently, the external environment includes factors such as government
regulations through its regulating agencies, cultural or social changes, economic conditions in
terms of market forces (supply and demand), sources of funds, income, population increase or
decrease, customers, technological changes, competitors, trade union activities, suppliers,
distributors, etc.
Environmental factors as we know vary from country to country, even region to region. The
environment of business, therefore, is an extremely complex and dynamic one and the challenges
of business management lies essentially in the external factors or the uncontrollable factors, since
an organization may have control over its internal factors. For instance, an organization can alter
or modify factors such as the workforce or personnel, physical facilities, organizational and
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functional means like the marketing mix to suit the environment, but may not be able to alter
external factors like interest rate, inflation rate, policies on import and export, etc.
7.3 Factors militating against Business Operations in Nigeria

The success or otherwise of a business entity depends to a large extent on its adaptability to the
external environment. If a business could properly design and adjust the internal (controllable)
variables to take advantage of the opportunities that exists in the external environment and manage
the threats, such business has a higher tendency to succeed.
Of the two environments (internal and external) which is likely to drive an organisation
out of business and why?
The external environment is likely to drive an organisation out of business since it cannot
control it. If for instance there is an economic policy that’s unfavourable to business,
business needs to modify its internal resources to adapt to the policy, where it cannot do
so, business may fail.
Some of the peculiar challenges faced by Nigerian business operators as enunciated by Olusemore
(2006) which could be grouped under the external environments mentioned above are:
i. Unstable Government Policy: Government policies are often unstable and
inconsistent especially in the past because of political instability. This affects planning
and decision making. Examples are policies on import and export, fiscal and monetary
policies, policies on licensing, monopolies, foreign investment, distribution and pricing
and their controlling, customer protection policies, etc. Business organizations need to
be on their toes and keep their ears to the ground in order to know when policies that
will impact on their businesses are to be changed. This challenge could be grouped
under political and regulatory environment.
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ii. Poor Infrastructure: Facilities such as roads, rail, air transport, schools, health
facilities, water, etc, if not in good shape will affect everyone whether a businessperson
or not. As for businesspeople, bad roads, deficient rail or air system, lack of usable or
portable water will affect the cost of doing business. Bad roads for instance, will cause
heavy traffic jams thereby increasing the number of hours spent going for a business
deal as well as put the vehicles under stress and thereby reducing the life span of
vehicles. It will also increase the cost of transportation thereby adding to the cost of
doing business. If the roads are good and smooth and the rail system is fixed, business
operators can have a choice of cheaper transport to use so as to reduce cost of business
as well as prices of goods or services pushed to the society. Again, a healthy people or
nation in other words means a healthy environment for doing business. An uneducated
nation is blind and would not appreciate business provisions. Lack of water means
incurring cost by business operators as boreholes will be sunk, pumping machines,
tanks, and generators for operating the machines will be bought. This automatically
adds to the cost of doing business. Poor infrastructure falls under the economic
environment.
iii. Irregular Power Supply: Most businesses currently operate on generator almost
twenty-four hours daily. Notwithstanding that there has been a change in name from
National Electric Power Authority (NEPA) to Power Holding Company of Nigeria
(PHCN), there is no change in services or in supply. Business has to cope with the cost
of purchasing generator, powering with the appropriate petroleum product (cost of
products unstable), servicing and maintaining it, and of course repairing when it is
faulty. All of these will add to the cost of the final product or service to the end users.
This factor can be classified under economics.
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iv. Inflation/High Cost of Doing Business: Inflation is the pervasive and sustained rise
in the aggregate level of prices measured by an index of the cost of various goods and
services. Repetitive price increases erode the purchasing power of money and other
financial assets with fixed values, creating serious economic distortions and
uncertainty. The Nigerian government since 1999 has been making efforts to control
the high rate of inflation from two-digit inflation to one-digit inflation. This has been
difficult probably due to the fact that they say one thing and mean another. For instance,
the government has gradually been withdrawing subsidies in the power and petroleum
sector which has in turn led to increase in power tariffs and pump price of petroleum
products and general increase in production or business overheads. Constant increase
in petroleum product prices neutralizes government efforts in reducing inflation and
cost of doing business rates. Illicit roadblocks or check points and toll collection by
various law enforcement agencies and private revenue collection groups which makes
the movement of goods and services very difficult also add to overhead costs.
v. Low level of Savings/Spending: Economic growth is slow even though government is
working through the National Economic Empowerment and Development Strategy
(NEEDS) to stimulate growth. Price levels are high and people only spend on essential
goods and services (food, shelter, clothing, education etc.); therefore, little or nothing
is reserved for savings. The level of savings and spending is low and this is not good
enough for business, especially those who are into some of the goods and services
considered not-too-essential for human survival. Again, low savings implies that the
interest rate on lending will be very high. Business people who will like to borrow funds
from banks will have to repay with so much interest, and at the end of the day, they will
add the cost of funds to their total cost and that in essence shoots up the prices of their
commodities or services to the users.
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Would you consider as challenges of business operation in Nigeria, the inability of
a company to get its product across to its very many consumers because of lack of
medium or means of transportation and in the process lose some customers to
competitors?
The duty of a company to make its product and services available to its end users
is purely an internal one and cannot be seen as a real challenge because they can
improve on their distribution process if they so desire.
vi. Multiple Taxes/Levies: The probability of receiving different types of bills from local
and state governments when you set up a shop or business is not favourable. This is
outside of the compulsory business income tax and utility bills paid. For instance, if
you operate where there is pipe borne water, you will need to pay water rate, you will
also pay electricity bills which of course in some instances are estimated bills especially
if you do not have a meter (as there appears to be no standard measures for estimating
energy consumption). In cases even where there is meter, PHCN may still bring
estimated bills that are in most instances greater than what should be the actual
consumption for a month and could proceed to disconnect electricity supply based on
one’s inability to pay such estimates. Business operators aggregate all these costs and
add them to the final prices rolled out to the consumers.
vii. Inability to access Bank Funds: The claim by many that it is difficult especially for
small businesses to access commercial bank loans to a large extent is correct. This is
since call for collaterals often pose difficulties to the borrower who is unable to gather
the requirements. Again, banks were more comfortable trading on the funds on a short-
term basis than lending to the real sector. The reason for this may not be far-fetched
since before the beginning of the CBN imposed recapitalization and consolidation
exercise of 2005, the income of banks was largely on a short term basis (e.g. tenured
funds of 30, 60, and 90 days) and so, banks cannot grant long term loans (which are
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what manufacturers and real business people need) when they receive short term funds
from depositors. Currently, with the recapitalization exercise, it is likely that banks are
more poised to lend long term since their shareholding base has increased.
viii. Security: The issue of insecurity of the business property and place has necessitated
the employment of security men and security gadgets like burglary proofs, CCTVs,
high fenced walls etc. Ordinarily in secured economies, the normal locking of a
business premises should suffice; but where costs must be incurred on further security
measures, this adds up to the cost of doing business. Therefore, the issue of security is
a big challenge to business managers in Nigeria as there may be need to further secure
their business through the employment of security guards and putting other security
measures in place. This belongs to the social environment.
ix. Competitors: The activities of competitors also pose a challenge to businesses. Except
if a business is monopolistic, it is sure to have competitors who will spare nothing to
ensure they have a firm grip of the market. Therefore, business managers must be
careful the kind of decision they make toward their customers, for example, in raising
of commodity prices and distribution of their products and services. Competitors may
take advantage of the situation. More so, there are influxes of fake products nowadays:
businesses will always strive to distinguish their products as genuine and give their
customers reason to believe and prefer their products.
x. Suppliers: Any business of production or manufacturing cannot long operate
effectively unless it is continually supplied with needed raw materials. Lack of adequate
and prompt supply can reduce or even cause cessation of operations even though the
firm has sufficient capital and employees. A supplier’s inability to meet material
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specification and supply deadlines (e.g. where there is a lead time) is a great challenge
to business owners.
xi. Customers: These are the people who use a firm’s product and services. They are
considered very important in the existence of an organization. Their satisfaction is
paramount in the organization’s activities. It is important that business should always
endeavor to sniff out customers’ needs and what satisfies them. It demands being
innovative and creative in modifying products and services. It also means giving them
quality goods at low costs. Business also needs to ensure that their practices or activities
do not in any way antagonize or put off any section or segment of the market it serves
whether in its product, price, place (distribution) or promotion and even in its
employment practices. For instance, the MTN’s “Mama na boy” advert triggered some
sentiments among the female activists who called for a stop to that advert and threatened
to mobilize against MTN for acknowledging the boy child like it is the more important
of gender. Trying to meet the ever-changing taste of customers is crucial as customers
are constantly demanding high quality products and improved services. Failure to do
so will cause the firm to cease its existence. Against this background, customers are a
very big challenge to business and every business worth its salt will always work
towards the dictate of its customers.
xii. Corruption: The issue of corruption cuts across all facets of society of which business
is a sub-set. Corruption could pose a challenge to business as sometimes those into
supply or contract business will have to pay more to secure or get a contract. In the
banking industry way back in the 80s and 90s for instance, business cannot secure loans
from banks except they are willing to pay the bank manager some percentages. So, it
was also with the government ministries where 10% or more will have to be paid by
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the contractor before he could be awarded the contract or supply. This usually adds to
the cost of doing business.
xiii. Trade Union: The issue of unionism may apply to businesses and organizations with
large numbers of staff. Trade union consists of employees who have joined together for
the purpose of presenting a united front in dealing with management. Unions are a
challenge to organizations because they essentially become a third party when dealing
with the organisation. It is the union rather than the individual employee that negotiates
the agreement with the firm. Their activities often run contrary with that of
management. Agitations by unions and the actions thereafter may jeopardize the
successful achievement of objectives. For instance, NLC in 2007 went about picketing
some organizations over casualization of staff. Other actions include strikes, work to
rule, etc. The activities of unions therefore pose a challenge to the organization. Its
ability to manage and contain union activities will assist in not giving the organisation
a bad name or image.
A company that produces goods used by both male and female customers is insisting on
having in its employ only male workers. What do you think might happen to that business
if care is not taken?
It might face resentment of its products by female customers since their action might be
viewed from gender angle. They can mobilize and ask female customers to stop
patronizing the company.
xiv. Stockholders or Shareholders: These are individuals who own and share in an
organisation’s profit or loss. These people are vitally interested in the firm’s operating
efficiency. The price of the stock and the dividends paid are also of major concern to
stockholders. The managers may operate the firm, but they must constantly be sensitive
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to the stockholders needs since in the real sense they own the company. Shareholders
are a challenge because they have monetary investment in the firm and are interested in
value added to their shares. Stockholders may at times challenge programmes
considered beneficial to the organization by management. They want to know how the
new programme will grow their funds, translate to higher dividends etc. So, business
managers may be forced to justify the merits of a particular programme in terms of how
it will affect future projects, otherwise shareholders may engage in stockholder activism
by forming cliques to alter the project. Businesses must then strive to carry shareholders
along with them always.
xv. Technology: Every business organisation must be mindful of the changes prevalent in
the technology that affects its business. Technology is very dynamic and should be
taken seriously. Any business operating in the past whilst its technology has gone
forward would be doing a disservice to itself as it is heading toward extinction. For
instance, the issue of on-line, real-time banking swept on the banks like a wind; and
both the new and old generation banks had to follow otherwise they would lose most
of their customers to the vibrant banks.
xvi. Area of Business Operation: The socio-cultural issue of the population a business is
serving is very important. The area where the business is cited matters so much in the
activities and survival of a business. The area of business operation poses a great
challenge to business managers especially if it is a volatile area where it is difficult to
determine what happens next. For instance before Zamfara state became a sharia state,
there were hospitality businesses existing there, but as soon as it was proclaimed a
sharia state and alcohol and drinks were banned in the state, such businesses had to
relocate or change their line of business. Again, businesses in the Niger Delta region
may have greater challenge as kidnapping, hostage taking, vandalization etc, make it
difficult for business operation.
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1) that managers of businesses face challenges in the cause of using the resources at their
disposal to meet organizational objectives.
2) that businesses need to properly design and adjust their internal (controllable) environment
to be able to take advantage of the opportunities that exist in the external environment as
well as overcome the challenges or threats posed by the environment since it cannot control
it.
3) the success or otherwise of a business entity depends to a large extent on its ability to stand
tall to the identified challenges.


Briefly explain the following concepts, challenges, business and management

List and discuss five of the external factors affecting business operation in Nigeria
Define challenges of business management as a phrase
Choose the most correct options.
1. Shareholders/Stockholders are all except

(a) invested in an organization
(b) share in the profit and loss
(c) attend AGM meeting
(d) participate in the management of the company
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2. The activities of competitors will not pose a challenge to business if only it is
(a) perfect competition
(b) monopolistic competition
(c) Monopolistic
(d) oligopolistic competition
3. The challenges of business management lie in all exept

(a) unstable political environment
(b) complexity of the external environment
(c) stability of the environment
(d) inconsistencies in government policies
4. .................... are considered very important in the existence of any organization.

(a) customers
(b) managers
(c) Suppliers
(d) Government
5. Following are some of the factors that militate against businesss operations in Nigeria
except.
(a) unstable government policy
(b) poor intrastructure
(c) constant electric supply
(d) low level of savings/spending
Links to OERs
References and Suggestions for further reading

Concept Pub. Ltd.
Karimu, B. O. (1992). Business Management: An introduction. Lagos. Mufab (Nig.)
Press ltd.
Mondy, R. W., Holmes, R. E., and Flippo, E. B. (1983). Management, concepts and
practices. 2nd Edition. Boston. Allyn and Bacon
Olusemore, G. A. (2006). Essentials of Small Business Management. Lagos; CIBN Press
Ltd.
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via the LMS.
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STUDY SESSION 8:
OPPORTUNITIES, THREATS, AND BUSINESS FAILURE
Introduction
All organizations are affected by the general components of the external environment we talked
about in challenges of business management. These environments create opportunities or threats
to organizations depending on their ability to utilize their innate strengths rather than weaknesses.
This explains the fact that businesses or organizations function in a closer, more immediate
competitive environment. For us to identify business opportunity or threat requires us to conduct
situational or environmental analysis or be alert to happenings around our environment. A business
should be concerned about opportunities and threats simply to ensure organizational success. This
can be done by formulating and developing an effective strategy. One vital way of doing this is by
consistently conducting a SWOT analysis. SWOT entails asking questions and providing answers
to such questions.
Box 8.1
Albert Einstein once said “The important thing is not to stop questioning”. That is, we must continue to
ask questions and continually seek knowledge.
It is very important to examine why certain businesses fail so that we can learn from their mistakes
and take guidance from the successful ones. Many businesses fail because of some common causes
which many entrepreneurs ignore at the onset and in the course of the business. Others fail because
of environmental influences beyond the manager or entrepreneur. These causes of business failure
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can be classified into two broad categories – Micro (internal) and Macro (external). Business can
fail as a result of the micro or macro factors or even a combination of both factors.
8.1 Define and use correctly all the key words printed in bold (SAQ 8.1, 8.2 and 8.6 )
8.2 Discuss the meaning of strengths, weaknesses, opportunities and threats (SWOT) (SAQ
8.1)
8.3 List the indicators of unmet needs (SAQ 8.2)
8.4 Explain the constraints to exploiting business opportunities (SAQ 8.5)
8.5 List institutional sources of business ideas (SAQ 8.4)
8.6 State Macro and Micro causes of business failure (SAQ 8.3)
8.7 State strategies for business survival (SAQ 8.6)
Key Terms: Strength, weakness, threats, opportunities
8.1 What is SWOT?

SWOT is simply an acronym representing Strength, Weakness, Opportunity, and Threat. An
organisation’s strength is its ability, resources, and the weakness of the competitor or the
and resources that provide the basis for your strategy, e.g. workforce, decision making process,
flexible board, good working environment, and financial capability. The weakness of an
organisation is its failures, defeats (what other people do better than you), losses and inability to
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match up with the dynamic situation of the growth of change. This includes the critical parts of
your business you must strengthen or hide from your competitors. Opportunities are possibilities
of what can be done and where effectiveness is possible, the benefits that are likely to accrue from
pursuing your vision. Threats are changes in business environment usually in the PEST forces
which are pitfalls, dangers, variation and exceptions that are present in an environment.
When SWOT is carried out, it prompts actions and responses. It helps balance idealism and
pragmatism so you can obtain a balanced perspective of your internal strengths and weaknesses
and external opportunities and threats in order to develop an effective strategy. Successful
entrepreneurs or businesses build on their strengths, correct their weaknesses and protect against
internal vulnerabilities and external threats. They also keep an eye on their overall business
environment and spot and exploit new opportunities faster than competitors.
Business Strength: Strength is an inherent capacity which an organisation can use to gain strategic
advantage over its competitors. An example of strength is superior research and development skills
which can be used for new product development so that the company gains a competitive
advantage.
Business Weakness: A weakness is an inherent limitation or constraint which creates a strategic
disadvantage. An example of a weakness for a manufacturing company may be over dependence
on a single product line which is potentially risky for a company in times of crisis.
Business Opportunity: An opportunity is a favourable condition in an organisations environment
which enables it to consolidate and strengthen its position. A business opportunity represents a
trend or event that can positively affect the operations and achievement of organisational objectives
under a strategic response. Opportunities are external conditions that are helpful in achieving the
organisational purposes. An example of an opportunity is growing demand for the products or
services that a company provides.
http://www.blogs.triplealearning.com/2010/10/diploma/dp_busman/the-trouble-with-swot/
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Business Threat: A threat is an unprocurable condition in the organisations environment which
creates a risk for or causes damage to the organisation. A business threat is a trend or event that
would have adverse effects on the operations and achievement of organisational objectives under
a strategic response. Threats can also be external conditions that are harmful to achieving
organisational purposes. An example of a threat is the emergence of strong competitors who are
likely to offer stiff competition to the existing companies in the industry. They come from political,
economic, social and technological forces. For instance, if technology in your line of business is
changing and yours is obsolete, then it is a threat. If government is asking for increase in taxation
and source of income has not increased, it is a threat.
An organization that can take good decision but at slower or bureaucratic pace can
be said to have that as its business strength. Discuss?
Such decision making process could be seen as a weakness because faster decision
making competitors would have taken advantage of the situation even before they
know what is happening. It can only be strength if there are no competitors or the
competitors are even slower.
Fig. 8.1: SWOT Analysis
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Source: http://blogs.triplealearning.com/2010/10/diploma/dp_busman/the-trouble-with-swot/
An understanding of the external environment in terms of the opportunities and threats and the
internal environment in terms of the strengths and weaknesses is crucial for the growth and
profitability of any organisation.
8.2 Identification of Opportunities

Opportunities can exist for both potential as well as existing businesses. For existing businesses
whether they want to broaden their investment or diversify, there is need to always search the
environment for information and source for business ideas in order to identify where opportunities
exist. For potential entrants, their search is drawn according to their interest. Identifying business
opportunity for big corporations could be the functions of the research and development unit or the
strategic business development unit. For others it could be through personal efforts. What is
important however is that the search is to identify unmet needs?
Needs, according to Abraham Maslow, is classified in hierarchies from basic needs which are
physiological (food, water, warmth, shelter) to security, to esteem needs (psychological or learned
needs) such as status, love or belongingness, social recognition, power, prestige, achievement
which are acquired through socialisation. From each of these level of needs, a gap may exist which
portends an opportunity to be tapped, and it only requires identifying that gap and being able to fill
it.
Case Study 8.1 Recapitalization of Banks
Supposing Central Bank of Nigeria imposes another recapitalization exercise on the Banks say to the tune
of N500 billion and insists that banks unable to attain that will be closed down. However, option of
mergers and acquisition is available, CBN will also be ready to give a bail out to willing banks following
a particular contract terms. Now answer the question below.
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Where is the opportunity or threat in this case?
The opportunity lies in the fact that any bank whose capital layout is up to the stipulated
amount would not be closed down and can also acquire other banks and get bigger.
However, it will pose a very big threat to banks whose minimum paid up capital is less
than that, and there is no possibility of raising the amount within the stipulated time.
8.2.1 Indicators of Unmet needs
When we identify trends in our environment through the situational analysis described above or
through observations and discovers there is a ‘gap’ or unsatisfied/unmet needs, it becomes an
opportunity to tap in. The indicators of such opportunities as enunciated by Isimoya (2005) are:-
Poor delivery of products/services:- where there are complaints and visible problems
faced by customers, one can see it as an opportunity and come up with better method of
delivering such products/services. E.g. in the past, letters, parcels, etc, were handled by
NIPOST, but the courier companies saw the visible complaints and dissatisfaction in
customers and today have taken over the market from NIPOST.
Dissonance (lack of Agreement in beliefs) with current means of satisfying existing
Emergent Needs: These are envisaged needs or needs in the early stages of development.
Every need at a point in time was emergent. Tapping into this opportunity has so much to
do with foresight. Your ability to foresee a need to be met in the future, perhaps needs that
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may arise through the use or availability of a current product. Nigeria for instance has need
for storage/preservation of our fruits and vegetables especially because they are mostly
seasonal produce. This is a gap identified. If any individual or organisation can come up
with a best approach to preserving these foods so as to have them all round the season, the
business will thrive. The individual will have government and farmers support and
patronage. For instance, people foresaw the danger in carrying cash about and came up
with the idea of credit cards, ATM cards, and the on-line real-time banking. Another
emergent need is the scraps of old and used cars littered all over. What can be done with
them? Is there a way they can be recycled so as to still put them into good use? Think about
this.
Technological Changes: The issue of technology is dynamic, we all agree. An innovative
entrepreneur will always be interested in thinking of ways to improve the existing
technology in its line of operation if he/she has the means of doing so, especially if he/she
feels that a particular technology is becoming obsolete or no longer serving its purpose.
This way he may find it as a business opportunity to launch the better technology which
customers or users may prefer to the existing one. For instance, it took an innovative and
ingenious business men to realize that grinding of tomatoes, pepper, pounding of yam, etc.
which hitherto was done manually through the use of mortar could get a better result using
machines (Blender, Poundo machine). A gap existed there because some career women
have little or no time to pound and a machine was just apt.
Envisaged Large Market: When the users of a product are many such that those serving
the market may not be doing that effectively, other business men could go into that market,
since it is large enough to accommodate all. For instance most of the Igbo traders that bring
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in radio face the northern market knowing that this group of people especially the lower
status like listening to the radio a lot.
Monopoly: Where there is no statutory barrier as to the entry into a particular business, any
interested entrepreneur could go into the line of business, more so if he feels he could make
greater impact, either in service delivery or in the production of the goods or services. The
entrepreneur could also develop a competitive product to create an alternative or allow
customers have choices to that kind of business. NITEL for instance was statutorily created
to provide communication for the nation. No entrepreneur was allowed into the business of
communication until few years past when it became obvious that the issue of
communication needed to be privatized and commercialized. Same is almost applying to
PHCN now as people are calling for private enterprise in the business of power generation.
So where a business is seen as monopolizing the production of a particular product or
services, others may step in to enjoy a share of the market.
Segmentation: Where an entrepreneur identifies that a particular segment or group of a
market is not served due to their peculiar difference, such entrepreneur has seen a gap or
an unmet need and could close in to exploit the opportunity by tailoring his product or
service toward the market if the capacity to do so is provided. For instance, University of
Lagos started its Distance Learning (DLI) programme having discovered that a particular
segment of the society was almost denied education due to the fact that they were unable
to secure admission through the regular means, or didn’t have the opportunity to even seek
education; they felt there should be a second chance for them to live out their dreams.
Several people abound who wants university education but are too busy to come to
class even on a weekend. NUC noticed this and is introducing Open and Distance
Learning System. What do you think NUC is doing?
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NUC discovered there was a gap and an unmet need and decided to close in on
that by encouraging universities to take advantage of the opportunity presented by
this yearning population.
8.3 Institutionalized sources of business

Even though large organisations use their research and development unit to source for business
ideas, there are institutionalized sources of business idea according to Isimoya (2005). These
include:
i. Universities and Research Institutes
a. These are centres where students and consultants have done a lot of research on new
businesses and the reports have largely been left to waste. Examples are Federal
Institute of Industrial Research Oshodi (FIIRO), Project Development Agency
(PRODA) Enugu, and all other universities and research bodies. These places could
be visited by an entrepreneur to check the possibility of finding a researched work
which will serve as an opportunity to be cashed upon.
ii. Consulting Firms/Market Researchers
iii. Ministry of Science and Technology
iv. Industrial and business publications
a. There are very vital information published by business journals /magazines etc. This
can help a searching mind to identify a business opportunity. For instance, Business
Day, Financial times, etc.
v. Banks
Some banks have their in-house journals which discerning minds can identify opportunities in.
The journal mirrors the society and trend of events in it. For instance, UBA in the 80s
and early 90s had what it called the economic digest which reported mostly economic
activities and businesses financed by the bank.
vii. Family Members and Employee
One’s family members and even employees can also be a good source of information for business
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opportunities.
8.4 Constraints to the exploitation of business opportunity

1) Economic Factors. These include cost consideration (capital needed, level of
competition in the market, resource availability such as adequate skilled manpower and
suitable material resources, location and the size of the market.
2) Technical factors. Lack of technical know-how to provide such goods and services
that will satisfy customers. From some perspective people will jump at products that
can prevent baldness, loss of sight, death or sickness, but there is no technology to that
effect yet.
List three constraints to exploitation of business opportunity.
Three constraints to business opportunity exploitation are economic factors, technical

factors, and knowledge factors.
8.5 Business Failure

Several reasons could be responsible for the failure of a business venture. The possible reasons
may be either due to the entrepreneur’s fault, or because of forces beyond the entrepreneur’s
control. These causes have been classified as micro (internal) and macro (external) causes of
business failure. Read on.
8.5.1 Micro Causes of Business Failure (Internal)
This section looks at the failure of business from the entrepreneur’s point of view or as a result of
the fault of the owners.
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1. Laying more emphasis on product rather than market and marketing
The requirement to identify a market for your idea or the product is more important than the product
itself. You may have a great idea or a product, but if there are no buyers for the product then it
cannot be a success. Smart businessmen and women first identify the market requirement and then
develop products accordingly. For your business idea to succeed you need to first find if there is a
market for your idea by conducting a market test run. Find out if people actually want your product,
and how much they are ready to pay for it.
2. Laying more emphasis on the company image.
To project a high-profile image for the company by hiring expensive office space and a fancy logo
and website will not do much to facilitate in the success of your business. In fact, high overheads,
because of expensive space and website maintenance costs, can drive you out of business very fast.
The golden rule for the success of any business is to keep overheads low, especially at the start up
time. At the start up time, keep the overheads low by reducing expenses. Operate from modest
office space. Prospects cannot see where you are operating from and they do not care, anyway. Try
to invest more on your marketing activities, which are likely to increase your revenue and chances
of success.
3. Getting into Undesirable or Bad Business Partnership.
You should get into business partnership only if you find that your ideas match with the probable
partner, because business partnerships are even more difficult to maintain than marriages. Many
partnerships fail because of lack of communication, proper documentation and deeds. A failed
partnership can lead to bankruptcy and soured relations with the business partner. Avoid
partnerships completely, if you possibly can. But if you must get into a business partnership, make
sure the duties and responsibilities of the partners are detailed right from the start and the
partnership deed along with commercial terms is clearly defined
4. Attempting to have a very complex business model
The simpler the business model, the better it is. In a simple and uncomplicated business model,
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everybody including your vendors, suppliers, employees, and customers are well aware of their
responsibilities and goals. In a complex model they have to adapt themselves to new roles that they
may not be comfortable with. While devising the business model, follow the rule of "keep it
simple". As the business grows and gets established, you can shift to a more radical or complicated
business model, if required.
5. Attempting to pioneer a new product or industry
Many businesses get into the vicious cycle of trying to pioneer a new product or industry- many a
times the whole exercise can drain you and your business completely, without much success. Very
few and limited entrepreneurs succeed in radically new businesses. Even customers at times are
scared off because of a totally new concept or product; hence chances of success are not assured,
despite all the efforts that you may apply. Try to achieve extraordinary business success by simply
improving business practices of the existing business, rather than trying your hand at pioneering a
new product. Once the business is established, you can try to get into the pioneering new product
cycle.
6. Poor business planning/financial decisions. Not carrying out feasibility studies.
7. Inadequate capital before commencement of business
8. Bad management
9. Cash flow problems: you spend more than you receive
10. Fall in demand for the product
11. Lack of control of costs/rise in cost
12. Over expansion
13. Ineffective sales force
14. Fraud\fraudulent practices/lack of viable work ethics
15. Failure to meet competition
16. Location of business
17. Inadequate number of workers/staff
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18. Slow season e.g. children’s bags, umbrellas produced
19. Dealing on cheap/substandard products or services
20. Lack of awareness of the business by its target market/environment
21. Not engaging in business promotion/advertisement
22. Corporate maturity: as a firm goes through its normal life cycle and eventually declines.
23. Getting involved in a business lawsuit and bankruptcy. Business lawsuits that are not in your
favour can take away all your assets, including your personal assets like home, property, savings,
etc, and make you and your business bankrupt. Always operate a business under the protection of
a corporation, courtesy of which you get a corporate shield. In this way personal liability to the
business is limited to whatever you choose to put in your business. It is always advisable to hire
the services of a lawyer and an accountant to discuss your personal involvement in the business,
with respect to assets and even the taxation. If carefully planned, you can eliminate almost 100%
of all potential legal threats which could go against your personal assets.
Outline any five micro causes of business failure
Five micro causes of business failure may include laying emphasis on product instead of
market and marketing; attempting to pioneer a new product; poor business planning,
inadequate capital, and location of business.
8.5.2 Macro causes of Business Failure (External)
1) Political instability
2) Lack of infrastructural development

3) Corrupt practices in society especially among technocrats who thwart government
economic policies
4) Low technological know-how. Most businesses can’t fit in into the latest technologies.
5) Limited sources of capital in issue of access to funds and demand for collateral
6) Labour management face off
7) Poor and inadequate funding of the educational system where future leaders in
government are trained
8) Lack of research
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List any five macro causes of business failure
Five macro causes of business failure are Political instability, Lack of infrastructural
development, Corrupt practices in the society especially among technocrats who thwart
government economic policies, Low technological capacity, Limited sources of capital in
issue of access to funds and demand for collateral.
8.6 Survival for Small Scale Businesses

Small businesses can survive if they:
2. Have innate qualities
4. Subsidiary firms
5. Are innovative and ingenuous
6. Have lower capital investment and operating cost
7. Are exempted from corporation tax
8. Source for raw materials locally
9. Have an effective sales force

1) the concepts of business opportunity, ideas generation and business threat.
2) the definitions of business opportunity and threat, as well as idea generation in business.
Some of the indicators of business opportunities were highlighted as well as institutional
sources of business ideas. Constraints to business opportunity were also looked into.
3) the micro and macro causes of business failure were examined, factors like poor business
planning/financial decisions, not carrying out feasibility studies, inadequate capital before
commencement of business, bad management, cash flow problems (as you spend more than
you receive) were discovered as micro causes while limited access to credit facilities, lack
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of infrastructure, political instability may be the macro causes. Survival strategies were also
suggested.


Define Strengths, weakness, opportunities, and threats

From the alternatives choose the best option
1. Macro causes of business failure include all except

(a) political instability
(b) lack of infrastucture
(c) Bad management
(d) Corrupt practices
2. “Keep it simple” is a rule followed while

(a) devising the business model
(b) attempting to pioneer a new product
(c) laying more emphasis on company’s image
(d) getting into undesirable business partnership
3. Laying more emphasis on company’s image may lead to high overheads in business. (a)True
(b) False
(c) No idea
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4. Attempting to pioneer a new product or industry may at times drain the business completely
without much success.
(a) True
(b) False
5. One survival strategy is ..................... before venturing into a business.

(a) not having adequate capital
(b) having adequate capital
(c) having adequate product
(d) not having adequate product
6. ..................... for the product may be one of the macro causes of business failure.
(a) Increase in supply
(b) Increase in demand
(c) Fall in demand
(d) inelastic demand
7. ----------- is an unprocurable condition in the organisations environment which creates a risk

for or causes damage to the organisation.
(a) opportunity
(b) threats
(c) difficulty
(d) all of the above
8. ---------- represents a trend or event that can positively affect the operations and achievement
of organisational objectives under a strategic response
(a) threat
(b) opportunity
(c) friendly environment
(d) none of the above
9. The following except one are constraints to exploiting business opportunity

(a) Economic factors
(b) Knowledge factors
(c) Technical Factors
10. Indicators of Unmet needs include all except

a) poor delivery of products/services
b) Dissonance
c) Technology changes
d) perfect competition
11.SWOT acronym stands for

a) Strategy Weaknesses Opportunities and Threat
b) stratified Weaknesses Opportunity and Threats
c) Strengths Weaknesses Opportunities and Threats
d) Strength Weakness Opportunity and Strength
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Links to OERs
http://www.ebay.com/itm/MANAGEMENT-fifth-edition-Flippo-and-Munsinger
/330106375390
http://www.ukEntrepreneur.com/
http://EzineArticles.com/?expert=Craig_Dawber

Flippo, E. B., Munsinger, G. M. (1982). Management. 5th Edition. Boston. Allyn and
Bacon.
Isimoya, A. O. (2005). Nigerian Business Environment: An introduction. Lagos.
Concept Pub. Ltd.
Olusemore, G. A. (2006). Essentials of Small Business Management. Lagos; CIBN
Press Ltd.
Pearce, J.A. and Robbinson, R.B. (Jr) (2007). Strategic Management: Formulation,
via the LMS.
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STUDY SESSION 9:
SOCIAL RESPONSIBILITY AND BUSINESS ETHICS
Introduction
The business system is a subsystem of an organized society. Business is a creation of society. It
helps in the responsibility of achieving societal objectives/expectations. The responsibility of
business traditionally is to produce and distribute goods and services in return for a profit. This
definition is no longer tenable as the increasing size and complexity of societies’ needs make it
narrow. The notion of social responsibility and ethics of business has emerged out of dynamism
(frequent changes) of relationship between business and society, business and its environment, and
business and its participants. Corporate enterprises have grown in size, the level of education has
significantly increased, and people now ask a lot more questions about their rights, their privileges
and their responsibilities. Related to this is the fact that the awareness of the social impact of
business activities on society is enormous, both overtly and covertly, directly, and indirectly.
Every organization is part of an interactive system which has several stakeholders. The most
prominent of them are the managers, owners, employees, consumers, and society at large. The
management of an organization cannot afford to ignore or short-change any of the groups if it
wants to succeed. It must be socially responsible.
Society expects reasonable ethical conduct on the part of business executives as they make
decisions which affect the lives of other people. Ethics emanates from a Greek word “ethika” and
from “ethos”, meaning character, or custom. Ethics is a branch of philosophy that deals with the
morality of human actions. It is a subject that deals with the ‘goodness’ or ‘wrongness’ of human
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conduct. It is a normative subject hence it is defined differently by societies and groups. Therefore,
what is considered a virtue in one society could be a vice in another society, a case of “one man’s
meat being another man’s poison”. It is about contemporary norms or standards of conduct that
govern the relationships among human beings and their institutions. It is argued that improvements
in ethical conduct have led and will continue to lead to increases in the level of social responsibility
among business firms.
9.1 Define and use correctly all the keywords printed in bold (SAQ 9.1, 9.4)
9.2 Define social responsibility (SAQ 9.1)
9.3 Identify the arguments for and against social responsibility (SAQ 9.2)
9.4 List the various stakeholders or interest groups in social responsibility (SAQ 9.7)
9.5 Mention the benefits of social responsibility to the organization (SAQ 9.3)
9.6 Define ethics and state the causes of ethical compromise and influences (SAQ 9.4)
9.7 Describe ethical issues in business and factors encouraging compliance to ethics (SAQ
9.5)
9.8 Explain measures to ensure ethical practices are followed (SAQ 9.6)
Key Terms: Ethics, compliance, social responsibility, business, Honesty and

Fairness, Conflict of Interest, Communications.
9.1 Definition of Social Responsibility

Ferrell, Hirt, and Ferrell (2008) define social responsibility as a business’s obligation to maximize
its positive impact and minimize its negative impact on society. Pearce and Robinson (2007)
describe corporate social responsibility as the idea that business has a duty to serve society in
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general as well as the financial interests of stockholders. Schermerhorn (2002) defines social
responsibility as an obligation of the organization to act in ways that serve both its own interests
and the interests of its many external stakeholders. Oldroyd in Isimoya (2005) sees it as the
obligation to protect and improve the welfare of society as well as its own interest. Dibb et al in
Isimoya (2005) describes social responsibility as having to do with the impact of the organisation’s
decision on the society. Essentially, social responsibility is an obligation of organisations and
companies to participate in the development and impact positively on the environment in which
they do or operate their business. It is an attempt to pay the society back for the profit they make,
hence the name Corporate Social Responsibility (CSR).
These definitions imply that social responsibility fundamentally refer to actions taken by a
business (corporate body) which in some ways or to some extent assist the society to achieve one
or more of its objectives and help people to live better lives. Such actions are considered socially
responsible actions. Corporate Social Responsibility is not backed by compulsion of the law,
therefore companies are at liberty to undertake it or leave it.
Do you think a situation where government through law forces firms to put aside a
setting percentage of their income aside from the tax they pay is an act of
encouraging social responsibility?
No. It is not an act of social responsibility because social responsibility is not

backed by compulsion or law. It is voluntary.
9.1.1 Basic Assumption about Socially Responsible Business Organisation
i. Awareness: Managers of such organisations are aware of the firm’s obligation to solve
some of the problems facing society.
ii. Willingness: There is willingness on the part of the firm to help solve some of these social
problems, even though not all the problems of society can be solved by business
organisations.
iii. Commitment of Resources: Such organisations attempt to make decisions and commit
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resources of various kinds in some of the following problem areas:
iv. Pollution problems: air, water, solid waste, land, and noise
v. Poverty and discrimination problems: minority groups and women, black capitalism,
urban problems
vi. Consumerism: Product safety, misleading advertising, consumer complaints etc.
vii. Other social problems
Most socially responsible organizations are assumed to have basic characteristics.

Mention them.
They are aware, willing and ready to commit their resources
9.1.2 Is There Really Need For Social Responsibility?
This leads to a very vital question. Should business be socially responsible? We have two schools
of thought. One says, ‘yes’ the other says ‘no’. There are those for and against social responsibility
of businesses. So, there are two sides to the argument.
9.3 Arguments in Favour of Social Responsibility

This argument is championed by Robert F. Hansberger, T.G.P Rogers and others.
1) Business is unavoidably involved in social issues. That business corporations are an entity
of society, allowed by society to exist and if society does not exist, organisations will also not
exist. Thus, when there is a change in societal expectations about business, so should their
actions change. Without society to buy organizations’ products or services, the aims of
production and consequently profitability will be defeated.
2) Corporate businesses have the obligation and resources to help solve some of the problems
facing society. The society as we know includes its customers, owners, employees, creditors,
government, community, and the society at large which business has relationship with. The
firm must attempt to make decisions and commit resources of various kinds in some of the
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society’s problematic areas for the long run attainment of business goals. According to Peter
F. Drucker, “a healthy business cannot exist in a sick society”.
3) Organisations tap their natural, material, and human resources used for production from
the environment (society), it therefore behaves them to be socially responsible in return.
4) A better society means a better environment for doing business.
5) A favourable image of the organisation in the eyes of the public is of great importance to the
enterprise as socially responsible businesses will ward off future government interventions and
regulations. According to George Champion of Chase National Bank, USA, business must
learn to look upon its social responsibilities as inseparable from its economic function. If it
fails to do so, it leaves a void that will be quickly filled by others – usually by the government.
6) Being socially responsible is a moral and right thing to do since most business activities
create some form of problem for the society e.g. pollution of water, land, etc. And taking up
social actions to ameliorate public outcry is welcomed.
9.1.4 Arguments Against
This is essentially advocated by Milton Friedman and others.
1. Business is an economic institution and the only determinant of organisational
performance is economic values – profit maximisation. To fill a social role in addition to
making profits will eventually use up the capital of business firms thereby endangering the
profit-making motive.
2. The Social responsibility of business is to use its resources and engage in activities
designed to increase its profits. So long as it stays within the game, “competition without
deception or fraud”. For these scholars, profit maximization ensures the efficient use of
society’s resources and entail been responsible.
3. The classic view holds that business acts in a socially responsible manner if it utilizes as
efficiently as possible the resources at its disposal in meeting the goods and services that
society wants at prices consumers were willing to pay. That is, the idea of social
responsibility is incongruent or incompatible with the concept of a free-market economy and
hence a free society.
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4. As an economic institution, business lacks the ability to pursue social goals because
business is not equipped to handle social matters. Moreover, managers are economically
production-oriented and as such do not have the necessary expertise (social skills) to make
social decisions.
5. It is a subtle socialist idea. That is an indirect way of using political mechanism as opposed
to market mechanisms, as the most appropriate means of allocating scare resources.
6. In a free enterprise system, a manager as an employee has the sole objective of making as
much profit as possible for stockholders. If business becomes socially responsible, it detracts
attention from its responsibilities to stockholders. They are saying in essence that business
managers are not elected; they are therefore not directly accountable to the people, but to the
stockholder.
7. Business managers already have power. If they are allowed the freedom to use
organisational resources for the good of the society, rather than strictly upholding the interest
of the owners, such managers are being conferred with arbitrary and dangerous powers which
they may misuse.
8. Since enterprises pay taxes to the government, it would be exploitative to expect the same
organisation to also use part of their earnings in a socially responsible manner. Government
can only increase taxation on profit and let organisations focus on their major duty of being
responsible to their owners, thus allowing government to tackle social development
programmes.
9. Being socially responsible is an attempt to encourage a socially irresponsible government to
shirk its responsibility.
10. No matter how much is done in terms of social responsibility, many organisations will still
have problems with their locality. It is better not to start at all, as the request and desire for
more is endless and would further increase the misunderstanding between business enterprises
and the local countries. Society should appreciate that government is solely responsible for
their development and business enterprise.
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Do you think social responsibility is necessary? If yes, give two reasons. If not
give two reasons also.
Yes, it is necessary because organisations tap their natural, material, and human
resources from the society so they should be responsible. Again, a better and
healthy society means a better environment for doing business. No. It is not
necessary because business organisations pay tax to government who should use
that for developmental purposes, it is therefore exploitative to ask them to be
socially responsible. Secondly, being socially responsible is an indirect way of
encouraging government to be socially irresponsible
9.1.5 Factors Responsible for Consideration of Social Responsibilities by business
i. Increased Awareness/Public opinion: There is increased awareness and people’s
opinion has changed about the role of business. The society is willing to ask a lot more
questions about the impact of business organisation on their lives.
ii. The presence of the labour movement

iii. The development of moral values and social standards applicable to businessmen.
iv. Recognition of human factors (employees) contributing to the long term interests of
business.
v. The development of a professional managerial class with different motive and point of
view due to the separation of ownership from management. Business managers are also
concerned citizens.
Why do you think businesses consider being socially responsible? Give two
reasons.
The two reasons are that the society has increased knowledge about business
activities and are asking a lot more questions; and secondly the presence of labour
movement.
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9.16 Interest Groups in Social Responsibility
These are the specific public that may lay claim on returns from the business - Stakeholders of a
business. The stakeholders are groups of persons who have committed something to a business
enterprise and therefore have expectations from it. It may also be a person or persons who affect
or can be affected by the company actions. They are:
i. Consumers/Customers: To these set of group, goods and services must be provided at
fair prices. Unethical and unfair trade practices must be avoided as consumers have
protective legislation and consumer movements termed consumerism. Where required,
after-sales services should be provided. Adequate information concerning essential
features of a product or service should be made known to consumers. Business must
avoid planned product obsolescence or pushing out expired goods to the consumers.
Products and services must always be provided according to consumers’ wants and
demands. Providing for consumer product protection through simple but adequate
labelling/instruction especially where illiterates are predominant. Not making deceptive
and exaggerated claims of products or services.
ii. Employees: This pertains to wages and salaries, working condition, relationship between
superiors and subordinates, the work environment, as well as general employee welfare.
For instance carrying the union along in matters concerning staff welfare, giving workers
equal opportunities in hiring, pay and promotion, providing adequate opportunity for
management employee communication, providing adequate training and development
opportunity.
iii. Shareholders (Owners): It is the obligation of companies to ensure a fair return on
investment in terms of profit, dividend declaration, bonus, etc. In essence, the declaration
of adequate profit on capital invested ensures the survival of the company and the delivery
of the desired reward on shareholders’ risk (capital). Again, it must also ensure equitable
and fair treatment of different classes of shareholders in the business, and ensure the safety
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of the capital invested. Owners must be furnished with relevant and timely information
relating to the business present and proposed activities.
iv. Government: To the government, business enterprise must be law abiding, pay their taxes
and other dues fully and regularly, honestly and when due. It should provide accurate
statistical data to government for planning and decision making. It must not attempt to hold
back information. Get involved in research and development. Support and contribute
toward the developmental programmes of the government. Support government policies
and cause.
v. Community: Organizations owe the community the duty of ensuring the environment is
protected and not polluted, conserving the natural resources and not helping in the
extinction of vulnerable animals or materials. Employing the socially handicapped or
physically challenged and the underprivileged or deprived persons. Helping in rural
development, provision of immediate relief to victims of disasters and natural calamities.
In essence, helping in contributing towards the better life of the people in the community
through the provision of essential economic amenities such as employment, scholarships,
recreational facilities, infrastructures like good road, water, electricity, health
facilities/drugs, schools, etc. They should also donate equipments and funds to hospitals,
schools, craft villages, orphanages, endow chairs to the universities, create and maintain
good relationship within the general and local area of operation. It is also necessary for
businesses to help in the revival of the culture and heritage of the community where they
operate.
vi. Suppliers: These stakeholders must be paid promptly and in accordance with the terms of
contract. A proper notice of specification and requirement must be given to avoid distortion.
vii. Creditors: The creditors are those the business owes; these set of people need to be paid
promptly and according to the agreed terms so as to enable the business enjoy credit
benefits in future.
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In conclusion, the objective of a business firm is no longer single (profit) but multiple in nature.
This is because the aforementioned interest groups would have to be taken care of. Peter F. Drucker
once said “To manage a business is to balance a variety of needs and goals”, and the company’s
management is usually at the centre to equitably distribute the rewards or resources among each of
the interest groups.
Identify any five interest groups in social responsibility
Five interest groups are the employees, shareholders, customers, government, and
Suppliers.
9.1.7 Benefits of Social Responsibility to the Organisation
1) A better awareness of the organisation is created
2) Public opinion sways in favour of such organisation
3) There is increase in profit as more customers/public patronizes the organization
4) The organization is likely to attract socially conscious investors.
9.2 Business Ethics
9.2.1 Definition of Ethics
standards of human conduct, sometimes called morals (Latin ‘mores’ ‘customs’), and by extension
the study of such principles is sometimes called moral philosophy. Longmans Dictionary of
Contemporary English defines Ethics as “Moral rules or principles of behaviour for deciding what
is right or wrong”. Ethics is concerned with the questions of right or wrong. For instance, ethical
questions could be “Is this act right”? “Is this act wrong”? Again, it determines the standards of
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good and bad.
However, the values of one individual or group, or society may be at odds with the values of
another individual, group, or society. Ethical standards do not reflect a universally accepted code,
but rather the product of a process of defining and clarifying the nature and content of human
interaction.
9.2.2 Ethics and the Various Aspects of Human Life
Every profession specifies some code of ethics for their members. Once you become a member
you are bound to obey or adhere, otherwise you will be sanctioned. There are certain things which
lawyers, medical doctors or accountants cannot do while practising their professions. Usually, most
professional bodies forbid their members from advertising their services. It is believed that the
quality of the service they render should advertise them.
In the same vein, every organisation whether public or private has a code of ethics guiding them.
The codes may state how a member should conduct himself in the discharge of his official duty,
the do’s and don’ts of the organization and what they probably consider as the culture of the
organisation that must be adhered to by every member of the organisation. Conformity or
obedience to such codes is compulsory within the period the official is still in employment of the
organisation.
9.2.3 State of Ethical Standards in Nigeria
The norm in Nigeria in the past before 1999 had been that of a businessman or woman
compromising his ethical standards before getting things done. Corruption was common as it
seemed that the only way to succeed in business is the demonstration of a good understanding of
the language of bribery. Those in charge of awarding contracts in both the government and private
sectors demand gratification from contractors before doing their jobs (Olusemore, 2006). The bank
manager demands a certain percentage of money from you before granting your request for a bank
loan. For instance, an official of the defunct National Electric Power Authority (NEPA) expects
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you to bribe him before fixing a damaged electric line. The police and customs officers mount
unauthorized roadblocks to extort money from motorists. It looked then like we had lost our sense
of value and justice. However, Obasanjo’s government, especially since 2003 staged a headlong
war against corruption and this is beginning to bring some measure of sanity into the entire system
(Olusemore, 2006). Today, we cannot claim corruption has been totally eradicated in Nigeria, but
within the private sector to an extent it is reduced especially with the shakeup in the financial
industry. Same cannot be said of the public sector operation even though from government
perspective they have what they call “due process” in place for the awarding of contracts and sale
of public goods; but this is yet to yield visible fruits more so as actions from government quarters
and even social comments both in the electronic and print media, have it that high level of
corruption is still evident within government and the public sector. However, recent happenings
and fall outs of the premium motor spirit (petrol) subsidy removal point to the fact that in not too
distant a time, corruption would be reduced to the barest minimum while ethical conducts are
stepped up because the society is asking lot more questions.
How would you explain the term “ethics"
Ethics are the principles or standards guiding human conduct. They are moral
rules which determine the right or wrong of a behavior.
9.2.4 Factors Encouraging Compliance to Ethics
Several reasons or factors could be adduced as to why ethical norms are followed by members of
a professional body or organizations as they perform their duties. These may be as a result of:
i. Their personal value system
ii. Religious beliefs
iii. The law
iv. Public opinion
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v. Fear of punishment
The pressure from the sources above, among others, compel organization’s members to confine
their ethical conduct within acceptable or tolerable organizational standards.
9.2.5 Causes of Ethical Compromise and Influences
There are several reasons why businesspeople compromise the value system. A businessman or
woman who always sees himself as the industry leader may want to do everything possible to
preserve the cherished position (Olusemore, 2006). That is to say, the pressure of competition often
leads people to engage in unethical practices. It may also mean that the person’s company is in bad
shape, and he wants to keep it going.
Secondly, if people in the past had broken similar ethical standards and were not punished by law,
other people may likely go into it since nothing will happen. That is, if the judicial process is weak
and people can get away with any type of crime committed, then many more will be encouraged
to go into unethical practices.
Again, as the popular saying goes, “one man’s meat is another’s poison”; what is considered a vice
in one setting may be a value in another; and so people with wrong sense of value and who engage
in unethical practice do not see certain action as a vice. Olusemore (2006), states that the wish to
succeed in a society that does not recognize hard work as a means of success can make some
businessmen to be unethical in their business behaviour.
9.2.6 Ethical Issues in Business
Olusemore (2006) identified some ethical issues in business thus.
Conflict of Interest: In this context a worker allows his or her personal interest to override the
official obligation.
Honesty and Fairness: Where dishonesty and inequity become the norm in a business organisation
as they deal with the stakeholders.
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Communications: Ethics demand that there should not be deceit or exaggerated claims in any
contact or communication with the public; instead, vital facts that can assist third parties to take
decisions should be disclosed.
Respect in the Workplace: Business ethics emphasizes the establishment of a work environment
in which all individuals are treated with respect and dignity. All forms of discriminatory practices
e.g. sexual harassment should be avoided. Employees on their own should treat one another with
respect.
Safety Policy: In an ethical organisation, safety of the workers and customers is paramount. The
company should cultivate safety practices and put in place measures of protection and insurance
policy.
Fair dealing: Business operators should not take undue advantage or exert undue influence on
people through manipulation, concealment, abuse of privilege or confidential information,
misrepresentation of material facts, fraudulent behaviour or any other unfair dealing practice.
Financial Statement Integrity: Business ethics states that a company should follow strict
accounting principles and standards to report financial information accurately and completely.
There should be internal checks to ensure that accounting information complies with standard
regulations and laws.
Compliance with the law: Businesses should comply with appropriate commercial laws of the
land such as money laundering act; exchange control regulations, etc.
There are ethical issues in business. State three
Three ethical issues in business are financial statement integrity, safety policy, and
fair dealing
Other manifestations of unethical practices include:

i. Falsification of documents
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ii. Inflation of contracts
iii. Receiving payments for goods and materials not delivered or contracts not executed
iv. Forgery of payment vouchers and cheques with the assistance of some staff
v. Abuse of tendering procedure
vi. Printing of government security documents illegally and using same for
perpetration of fraud
vii. Selling of materials illegally withdrawn from government stores
viii. Offering gratification to public officers in order to secure a benefit
ix. Conniving with government officials by executing contracts in a shoddy manner to
reduce cost
x. Abandonment of contract after collecting payment.
9.2.7 Measures to Ensure Ethical Practices Are Followed
Flippo and Munsinger (1982) state that if good ethical practice must be maintained in an
organization, management must ensure that:
a) The Code of ethics is written and not oral. This code should specify what is adduced to be
right or wrong within the organization.
b) Information relating to ethical practice is not centred only on cost and profit
c) The establishment of specific job positions responsible for enforcing the ethical codes of
their organization.
Top management act as strong role models for lower-level personnel
In this Study session, you have learnt:

1) the various definitions of social responsibility as well as the basic assumption about socially
responsible business organizations.
143
2) the arguments for and against social responsibility as posited by the different scholars
championing them and identified interest groups in social responsibility and what the
organization owes them.
3) The reason why organizations may likely consider socially responsible actions was also
examined as well as benefits of social responsibility to practicing companies. In this session
the definition of business ethics was given,
4) the state of ethical standards in Nigeria was described, and factors encouraging compliance
to ethics was listed.
5) The causes of ethical compromise and influence was identified while ethical issues in
business and measures to ensure ethical practices are followed in the organizations were
explained.


Compare the arguments for and against social responsibility
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From the options choose the best suited for each question.
1. Most of the socially responsible organisations are:

(a) Aware, Willing and Committed
(b) Unaware, willing, and committed
(c) Aware, lack commitment and willing
(d) unwilling, unaware, and uncommitted
2. According to Peter Drucker, to manage a business is to

(a) balance a variety of needs and goals
(b) make profit only
(c) be socially responsible only
(d) to produce product or service only
3. The argument against social responsibility was propounded by:

(a) Milton Friedman and others
(b) Robert F. Hansberger and Milton Friedman
(c) T.G.P Rogers and Robert F. Hansberger
4. Social responsibility include all except

(a) providing social amenties to the community
(b) creating a healthy environment
(c) sponsorship of sporting events
(d) non payment of taxes to government
5. Interest groups in social reponsibility include all except

(a) Consumes/customer
(b) Employees
(c) State governors
(d) Community
6. ................ states that company should follow strict accounting principles and standards to
report financial information accurately and completely.
(a) Financial Statement Integrity
(b) Respect in the workplace
(c) Safety Policy
(d) Fair dealing
(e) Compliance with the law
7. Society expects .............................. on the part of business executives as they make decision
which affects the lives of other people.
(a) High ethical standard
(b) Low ethical standard
(c) high numerical knowledge
(d) high management skills
8. .............. principles or standards of human conduct, sometimes called morals (Latin

‘mores’ ‘customs’) and by extension the study of such principles, sometimes called moral
philosophy
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(a) Ethics
(b) Rights
(c) Justice
(d) ethics and justice
9. Top management act as strong role models for lower level personnel
(a) True
(b) False
(c) Not sure
10. The pressure of competition often leads people to engage in
(a) unethical practices
(b) Ethical practices
(c) social reponsibility
(d) high quality product
Links to OERs
References and Suggestions for further Reading

Flippo, E. B. and Munsinger, G. M. (1982). Management. 5th Edition. Boston. Allyn and
Bacon.http://www.ebay.com/itm/MANAGEMENT-fifth-edition-Flippo-and-
Munsinger-/330106375390
Concept Pub. Ltd.
Pearce, J.A. and Robbinson, R.B. (2007). Strategic Management: Formulation,
Schermerhorn, J. R. (2002). Management. 7th Ed. New York. John Wiley & Sons Inc.
146
via the LMS.
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STUDY SESSION 10:
GOVERNMENT ROLE AND ECONOMIC POLICIES
Introduction
Government has the constitutional duty of managing the economy and ensuring the full
employment of its citizens and the maximum utilization of all productive factors, capacities, and
platforms in the economy. Thus, government is expected to put in place a sound macroeconomic
policy framework and introduce well thought-out economic policies and development blueprints
and institute business and investor friendly business policies to drive the development of the
economy. The Nigerian government has over the years issued decrees and policies which had some
measures of success. Some of those decrees and their various schedules will be discussed in this
study session.
In the recent times, one issue that has generated a lot of argument is whether government should
have any direct involvement in running business in Nigeria. While some argue that government
has no business in business, some others are saying government should be involved because of the
peculiarity of the environment. Those who are saying government should not have any direct
involvement in business based their argument on the fact that all public corporations established
and run by government in the past have failed to meet the expectations of both the government and
the people. Examples of such are Nigerian Telecommunication (NITEL), Nigerian Railway
Corporation, National Shipping Line, Nigerian Airways, and Power Holding Company of Nigeria
(PHCN).
It is important however to point out that in every nation, no matter what the form of the government,
the type of economic system, who controls the government, or how rich or poor the country is,
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these basic economic questions must be answered. They are: (i) What and how much will be
produced? This is usually within the available scarce resources. (ii) How will it be produced? A
decision must be taken either to use more labour (labour intensive) and less capital, or vice versa.
(iii) For whom will it be produced? A mechanism must exist that distributes finished products to
the ultimate consumers and (iv) At what price? The ultimate aim of any business is to make profit.

10.1Define and use correctly all the key words printed in bold (SAQ 10.1, 10.3,10.6, 10.7 and
10.8)
10.2Explain the regulatory and facilitating roles of government in business (SAQ 10.1)
10.3Give reasons for government control of business (SAQ 10.2)
10.4State the objectives of the Nigerian Enterprises Promotion Decree (SAQ 10.3)
10.5List the benefits of the NEPD (SAQ 10.4)
10.6Describe the various schedules of the decrees (SAQ 10.5)
10.7Discuss Structural Adjustment Programme (SAP) (SAQ 10.6)
10.8Explain the commercilization and privatization policies (SAQ 10.7 and 10.8)
Key Terms: Capitalism, Socialism, Communism, Mixed Economy, Statutes,

Administrative Agency, Commercialization, Privatization
10.1 Economic Systems

One way to define economic systems is to classify them according to whether they are Market
Systems or Command Systems. In a market system, individuals own the factors of production and
individually decide how to use them. In contrast, a command system is one in which decision
making is centralized. In a command system, the government controls the factors of production
and makes all decisions about their use and about the consumption of output.
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In a market system, the interaction of supply and demand for each good determines what and how
much to produce. For example, if the highest price consumers are willing to pay is less than the
lowest cost at which a good can be produced, output will be zero. In addition, the efficient use of
scarce inputs determines how much output will be produced. In a market economy, individuals
make the choice about what is purchased; however, the ability to pay, as well as the consumer’s
willingness to purchase the good or service, determine that choice.
On the one hand, in a command system the central planners determine what and how much will be
produced by first forecasting an optimal level of consumption for a future period and then
specifically allocating resources projected to be sufficient to support that level of production. The
central planner also determines how production will take place and for whom the product is
produced.
Critics, however, commonly argue that in market system the rich tend to be richer while the poor
end to be poorer. The system also leads to selfish behaviour rather than socially desirable outcomes.
In the case of command economy, critics commonly argue that because planned economies cannot
effectively process as much relevant information as a market does, it cannot coordinate economic
activity or satisfy consumers’ demand as well as market forces do.
Capitalism: Under a capitalist economic system, individuals own all resources, both human and
non-human. Governments intervene only minimally in the operation of markets, primarily to
protect the private-property rights of individuals. The demand of consumers combined with the
supply of producers determines what and how much will be produced. Thus, individuals decide
how, what and for whom to produce and at what price.eg Canada, USA and Western Europe.
Socialism: Under a socialist economic system, individuals own their own human capital, and the
government owns most other non-human resources, i.e. most of the major factors of production are
owned by the state. It is a form of command economy. Economic decisions about what and how
much, how and for whom are all made by the state through its central planning agencies.
Communism: Under this system, all resources, both human and non-human are owned by the
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state. The government takes on a central planning role directing both production and consumption
in a socially desirable manner. e.g former Soviet Union and East Germany.
Mixed Economy: is a system where there is a blend of some elements of both market and
command economies in answering the three fundamental economic questions.
10.1.1 The Role of Government in Business
It is visible that the government of Nigeria plays a significant role in business at least in the
current dispensation. The government’s role can be seen from two angles which are regulatory
and facilitating.
(a) The regulatory role of Government is carried out through the agencies set up by the
government. These agencies exist at the Federal and State levels and they have responsibility
over the legislation for different sectors of the economy. Examples are;
i. Corporate Affairs Commission – regulates and supervises the formation, incorporation,
management and winding up of companies in Nigeria.
ii. Economic and Financial Crime Commission (EFCC) – set up to handle financial crime in
the country.
iii. Security and Exchange Commission (SEC) – Stores information on all publicly traded
companies. This data provides earnings data and annual reports on public companies.
iv. National Broadcasting Commission (NBC) – set up to regulate the activities of
broadcasting organizations in Nigeria.
If a government official or an individual loots the state’s treasury what arm of

government agency is expected to carry out this regulatory role?
The Economic and Financial Crimes Commission (EFCC) is the arm of

government agency expected to address this issue.
The facilitating roles of government are meant to provide favorable business environment which
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will be attractive to investors. This is also called the Promotional role. Some of the ways the
roles are carried out are:
i. Provide tax and custom duties incentive to business institutions to encourage them to
develop and compete favourably with their foreign counterpart.
ii. Promote free competition in the economy
iii. Put in place laws that bring stability into the economy especially the financial sector as
done recently by the central bank of Nigeria.
10.1.2 Why do Governments Regulate/Control Business?
Governments regulate and control business to:
i. Maintain free competition
ii. Protect public health and safety i.e. the welfare of the people.
iii. Ensure adequate service at reasonable rates by businesses deemed essential to the public
welfare
iv. Raise revenue through collection of taxes
v. Protect infant industries against dumping
vi. Conserve the nations’ resources such as minerals and wildlife.
What are the reasons why government regulate business? State at least two.
Government regulates businesses so as protect infant industries and ensure adequate

service at reasonable rate to the public.
10.1.3 Methods of Control
There are various methods of control including:
i. Statutes: A formal written enactment of a legislative authority that governs a local
government, state, or country. It commands or prohibits kinds of activity within a specific
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geographical area. Before it becomes a law, it must have been passed by a parliament,
council, state assembly, or national assembly. Penalty for breaking the law is also stated
in the statutes.
ii. Charter: is the grant of authority or rights, stating that the granter formally recognizes
the prerogative of the recipient to exercise the right specified. However, the granter must
retain superiority and the recipient admits a limited status within the relationship.
iii. Administrative Agency: There are specialized agencies such as NAFDAC and BON to
control types of economic activity. The agencies set standards of operations, grant
licenses to operate and supervise operation in general.
• NAFDAC has ordered that every producer of sachet water must have a NAFDAC number
other it will be closed. What method of control is this?
• This is known as Administrative Agency method of control
10. 2 Nigeria Enterprises Promotion Decree (NEPD)

The Nigeria enterprises promotion decree popularly known as the indigenization decree was
promulgated in 1972 but has since been amended many times. The overall aim of the decree was
to give Nigerians a sense of belonging and control over largely the commercial sector and the small
and medium scale sector of the economy, where initial capital requirement and required technical
and managerial skills were within the reach of Nigerians.
The decree initially had two schedules, but this was increased to three schedules in the 1977
amendment to expand the scope of Nigerians in the economy even further.
The details of the three schedules are listed below, as contained in the 1977 amendment:
Schedule One: The enterprises in this schedule were to be exclusively reserved for Nigerian
citizens and associations, provided the capitalization was less than N20 million. Foreigners were
free to invest in these enterprises provided their investment was more than N20 million. Some of
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the items in schedule 1 are:
• Advertising
• Public relation business
• Assembling of radios, television
• Bottling alcoholic drinks
• Baking cake and bread etc
Schedule Two: The enterprises listed in this schedule are those in which Nigerians were expected
to have a majority ownership of at least 60 per cent. These include:
• Banking (commercial banks merchants banks and development banks)
• Basic iron and steel manufacturing
• Beer brewing
• Clearing and forwarding agencies
Schedule Three: This comprises enterprises in which Nigerians were expected to have a minimum
of forty per cent ownership. These are:
• Distilling and blending of spirits such as ethyl alcohol, whiskey, brandy, etc
• Fertilizer production
• Manufacturing of basic industrial chemicals
• Manufacturing of tobacco
Although the intention of those who promulgated the decree was patriotic and noble, there were
notable pitfalls in its implementation, which included the following:
1. The new social challenge of creating a class off nouveau riche at the expense of the larger
populace.
2. Poor access to funds by interested Nigerian entrepreneurs.
3. Dearth of trained manpower, managerial skills, and technical know-how to run the
enterprises
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To address these shortcomings the government took necessary action by putting in place the
following measures:
 The establishment of the Nigerian Bank for Commerce and Industry (NBCI) to provide
loans to small and medium sized enterprises.
 The Nigeria Enterprises Promotion Board was established to implement the decree and
achieve the people’s aspiration as far as the decree was concerned.
 The Nigerian Industrial Development Bank (NIDB) was established to handle the
financing of larger ticket industrial projects.
 The Federal Government also established the Council for Management Education and
Training to address the challenge of the paucity of managerial know how and skills
10.2.1 Objectives of Nigerian Enterprises Promotion Decree
The following were the objectives for which the indigenization decree was instituted:
1. To create more employment for Nigerians.
2. To allow Nigerians have a larger say over the running of the economy.
3. To obviate foreign undue dominance and safeguard the best interests of the Nigerian
economy.
4. To create greater opportunities for training indigenous personnel in the art of
management.
5. To maximize local retention of profits.
10.2.2 Benefits of the Nigerian Enterprises Promotion Decree
1. More employment opportunities have been created for Nigerians in various levels.
2. Nigerians now have a greater stake and thereby better securing the nation’s economic
interests.
3. There has been increased local retention of profit.
4. A pool of indigenous personnel with better technical and management skills have
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emerged.
10.2.3 A Revised Economic Climate
With the benefit of hindsight, it is reasonable to say that the Nigerian Enterprises Promotion Decree
was ill-conceived and probably did more harm than good to the best interests of the Nigerian
economy. It is safe to assume that a civilian democratic regime could never have enacted such a
law, which ended up driving away and dispossessing foreign investors of investments, businesses,
and assets they have spent many years acquiring and nurturing, thereby sending the wrong signal
to the international business community that foreign investment was not welcome in Nigeria.
Nigeria could have achieved the same objective by encouraging Nigerian entrepreneurs to learn
and operate their businesses alongside their foreign counterparts, with adequate financial and
technical support and training from government and government institutions set up for that
purpose.
It is heartwarming to note that Nigeria has retraced its step in its attitude to foreign investors and
Nigeria now has one of the most foreign investment friendly business environments in Africa and
the world, whereby foreigners are allowed to invest in any sector and repatriate 100 per cent profit
if they so desire.
• What is expected of a foreigner who wants to take advantage of Schedule I as contained
in the 1977 amendment of the NEPD.
• Schedule I was an exclusive reserve for Nigerians. However, foreigners who want to take
advantage of it must be ready to invest more than N20 million in the enterprise.
10.3 Structural Adjustment Programme

The Structural Adjustment Programme (SAP) was introduced by the General Ibrahim Babaginda
regime on July 1, 1986, in a bold move to squarely address the structural basis of the economic
impasse that had for some years faced Nigeria and which seemed to defy all solutions hitherto
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employed to deal with it. Though the programme officially terminated in June 1988, its
implementation in fact continued throughout the life of the regime to 1993.
Some of the structural imbalances that informed the introduction of the Structural Adjustment
Programme included the following:
• Poor foreign exchange earnings due to poor price of crude oil
• An overvalued currency and an import dependent economy
• High levels of subsidies
• Bloated government expenditure/high budget deficits
• Poor agricultural prices
Measures taken to address the structural imbalances included the following:
• Depreciation of the naira
• Attempt to reduce budget deficits/demand management.
• Removal/reduction of subsidies
• Abolition of commodity boards and increase in agricultural products prices
The consequences of SAP in Nigeria included collapse of local import-substitution industries, high
rate of unemployment, higher costs of living and generalized hardship. In the national debate that
ensued for nearly a year before the introduction of the Structural Adjustment Programme,
Nigerians rejected both the devaluation of the naira and the taking of an International Monetary
Fund (IMF) loan. However, although the SAP programme was drafted by Nigerian technocrats,
it was inspired by the IMF-World Bank structural adjustment paradigm or theoretical construct or
framework. In terms of economic policy prescriptions, Nigeria really had very limited policy
options. So, in the final analysis, Nigeria unavoidably hoisted on itself a home-grown IMF
structural adjustment programme, without the benefit of an IMF loan and technical support
programme. The Structural Adjustment Programme was perhaps the most controversial economic
policy framework Nigeria has ever adopted and understandably so. The effect of SAP especially
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on vulnerable groups like workers, women and children was extensive and devastating. A large
number of manufacturing firms closed down and large number of people were thrown into the
labour market. With the sharp depreciation of the naira, raw materials became very expensive,
leading to some level of backward integration which benefited the economy. But on the whole,
high cost of imported raw materials led to the collapse of the manufacturing sector as well as
imported inflation. The reduction of subsidies on petroleum products and the outright removal of
subsidies on some other items, though necessary to curtail government spending, further added to
the hardship of the vulnerable groups in the society. On the contrary, policy makers who initiated
SAP did not share in the burden or hardship of structural adjustment, hence the social inequity.
They lived in government houses, drove in government-fuelled vehicles and were generally
shielded from the adverse effects of SAP.
Overall, the political risks of SAP were borne by national governments. The International
Monetary Fund, which prescribed and inspired these programmes, was far-removed from the arena
of the political turmoil engendered by the hard pills of SAP. This was one of the draw-backs of
SAP, as far as its implementation was concerned.
However, the SAP remains basically a sound and brilliant economic blue-print for economic
adjustment and recovery. Furthermore, the tale has not always been one of woe. Ghana, our next-
door neighbor, successfully implemented its SAP programme. The failure of SAP in Nigeria was
a result of the great opposition to it, which gave it a little chance of success, and even more
importantly, its poor implementation by the General Ibrahim Babangida regime, which was part of
the reason it was greatly opposed.
The SAP was not just introduced for the fun of it. Some imbalances were identified.
Mention any two of such imbalances
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Some of the imbalances were (i) overvalued currency and import dependent
economy, and (ii) bloated government expenditure/high budget deficits
10.4 Commercialization
Commercialization is the introduction of performance or efficiency-based principles in the running
of public or state-owned enterprises in a way that makes their operation self-sustaining and better
able to achieve the objectives for which they were established, without constituting a drain on the
public treasury. Commercialization requires state-owned enterprises to mimic private sector
enterprises in the way they undertake their operations and render service to their customers or
clients, thereby enhancing their value and justifying the huge amount of tax payers’ money used
to set them up. When government commercializes any of its enterprises, it retains full ownership
of the assets of the enterprise, the primary objective being to enhance the efficiency of the
enterprise and make it more effective in delivering on the mandate for which it was set up. This is
as contrasted with privatization, when government sells off the assets of the company or transfers
its equity interests in the company to private investors. As owners of a commercialized state-owned
enterprise, government still appoints all the members of the board of directors and the executive
management of the enterprise.
The following are the requirements for the successful commercialization of a public enterprise:
• The reduction or elimination of subvention to the enterprise
• Reduction to the barest minimum or elimination of political interference by the supervising
government ministry in the day to day running of the enterprise.
• Appointment of a reputable board of directors and commitment to sound corporate
governance principles.
• The appointment of a competent management team
• Principle self-accounting, financially autonomous and self-funding
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• Increases in the prices of goods and services so as to enable it cover its costs and make a
reasonable surplus
• Better customer-oriented approach in the rendering of services and a competitive spirit.
10.4.1 Objectives of Commercialization
The objectives of commercialization include:
• Improved efficiency or reduction of waste, thereby ensuring that organizational resources,
i.e., man, materials, machines, and money are utilized in the most judicious manner to
achieve optimal results, with minimal use of time. It also requires that managers manage
well and are adept in motivating their staff and getting the required results through them in
a congenial working environment, with a healthy working relationship among and between
managers and employees.
• Budgetary savings and the payment of net surpluses into government treasury. First
government saves money which can be put to other use. Thus, if commercialization
succeeds, the enterprise at the end of the financial year would be able to generate a
reasonable surplus which is paid into government coffers, thereby justifying the huge initial
investment by government and also expanding the budgetary base of government and
enhancing its ability to provide social services to the people.
10.4.2 Assessment of Commercialization Programmes in Nigeria
Commercialization of government enterprises in Nigeria has been an abysmal failure. Using
government utility companies like the erstwhile National Electric Power Authority (NEPA) and
Nigerian Telecommunications Limited (NITEL) as cases in point, the introduction of
commercialization into these enterprises only resulted in higher tariffs and their abilities to pay
their employees better salaries, without a commensurate improvement in the quality of services
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rendered by them. Reasons for the continued poor performance of these state-owned enterprises
were continued interference in day to day operations by supervising ministries, the patronage
system, politically compromised employment practices, the absence of a merit driven human
resource policies and practices, rent-seeking behaviour and a corruption-ridden system.
In conclusion, though government policy on commercialization may be laudable, politicians and
supervising ministries lacked the required political will to enable the commercialization process to
succeed.
Power Holding Company of Nigeria (PHCN) as a state-owned enterprise is expected by
government to make profit and sustain itself like the private sectors do. How would you
explain this action of government?
What government has done is barely commercialize PHCN. This is done in order to
introduce efficiency based principles in the running of the enterprise.
10.5 Privatization
Privatization is the selling of government owned economic assets to private investors or the
transfer by government of its equity interests in state-owned enterprises or commercial enterprises
to private investors by way of direct sale. Privatization could also take the form of handing over or
bringing state-owned economic assets under the direct control and operation of private
entrepreneurs for usually a considerable period of time, under a concessioning arrangement.
Nigeria has recorded considerable experience in privatization in the last three decades or so under
the Bureau of Public Enterprises (formerly Technical Committee on Privatization and
Commercialization). At the inception of the privatization and commercialization programme in the
late 1980s, under TCPC, the emphasis was initially on commercialization, because government
then did not have the political will to privatize. Besides, Nigeria was realistically not ready for
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privatization for two reasons. First the people were not willing to let go of public enterprises which
they saw as national heritage; and secondly, the required diffusion of skills necessary for successful
privatization transactions were yet not resident in Nigeria. To compound this was the extensive
vested interest in maintaining status – there were just too many people benefiting from government
ownership of huge public enterprises who did not want to let go. These included politicians, civil
servants, the management of the enterprises and employees, to mention a few. To be sure, a few
small companies which made very little impact on the economy were sold off in the early days of
TCPC, but the privatization of large public enterprises with assets spread all over the country and
employing tens of thousands of people was to wait until decades later. However, a major point to
note is that privatization is as much political as well as technically and financially demanding.
There are methods by which privatization can take place. Mention three of such methods.
Privatization can take place through One hundred asset sale, Liquidation, or through
concessioning.
10.5.1 Types or Methods of Privatization
The following are the methods that the Bureau of Public Enterprises has been using to privatize
government economic assets in Nigeria:
1. One hundred per cent asset sale – used to privatize small public enterprise like Nigerian
Yeast Company Ltd.
2. Core Investment Approach – used in selling large commercial enterprises like oil and gas
marketing companies, telecommunication and power companies, etc. This was the method
used by the Federal Government through the BPE to dispose of its investments in National
Oil and Chemical Company Ltd, where the core investor was Consolidated Oil Ltd (Con
Oil). Ltd and Unipetrol, where the core investor was Oando Ltd. Whenever a core investor
approach is used, it is assumed that the remaining shares are already in the hands of other
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private investors as in the case of Unipetrol which was previously partly taken over by
government; or that the core investor will shop for other Nigerian investors and ensure a
national spread, as in the case of Nigerian Tourist Company, owners of Federal Palace
Hotel, Victoria Island, Lagos, bought into by Ikeja Hotel Plc as a core investor; or that
after a successful transaction with a core investor, the remaining shares will be sold on the
floors of the stock exchange to as many Nigerian investors as possible. This is the approach
that will be used in the case of NITEL, when a suitable core investor is eventually found
for it
3. Share Issue Privatization. Nigeria has never used this approach wholesale to sell any
public enterprise. It cannot be used in practical terms to sell a large enterprise and if it is a
small company, there will be no need to go to the stock exchange. The best that can be done
is partial sale of shares on the exchange as in case 2 above. The reason it is not feasible to
sell a large concern a hundred percent through share issue or Initial Public Offer, is that, at
the end of the day there may be no competent management on the ground with a track
record to hand over the company and be sure it will remain a going concern.
4. Liquidation – When a state-owned industrial enterprise is moribund and is no longer a
going concern, the best way to dispose of it through privatization, is to first liquidate it.
Government then takes over all its liabilities, including outstanding indebtedness to
workers and pension liabilities, after which the plant and equipment are sold a hundred per
cent to a reputable private investor who has the technical and financial capability to revive
the enterprise. This was the case with National Fertilizer Company (NAFCON), which was
sold to Notore, a Nigerian investor and Aluminium Smelting Company of Nigeria
(ALSCON), which was sold to Rusal of Russia.
5. Concessioning. This is the approach that has been used to privatize Nigerian port terminals,
using the landlord model. Nigerian Ports Authority remains the owner and landlord, but the
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port terminal assets have been given out to private terminal operators to operate for as long
as 25 years and in return they pay agreed sums to government for the use of the terminals.
They also commit themselves to invest in and develop the terminals for the period they will
control and operate them. There is also Greenfield concessioning, whereby an investor or
concessionaire develops an entirely new port on virgin land. A good example of this is the
new RO-RO Port at Tin Can Island Port Complex, built by the Italian maritime operator
Grimaldi on a Build, Operate and Transfer basis (BOT).
How would you describe the privatization of the National Fertilizer Company
(NAFCON)
The privatization was done through liquidation as the organization went moribund.
1) that the economic system of any country is designed to allocate the scarce resources
available through a production system to provide output for their citizens.
2) that the regulatory roles of government is meant to ensure that businesses are carried out
within the laid down rules and regulations stipulated in the country,
3) that the facilitating roles of government provide the right environment such as political
stability which will make the economy attractive to both local and international investors.

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Differentiating between regulatory and facilitating roles of government
Give four reasons for government control of business
State three objectives of the Nigerian Enterprises Promotion Decree (NEPD)
List two benefits of the NEPD
Write brief notes on schedules I and II of the decrees
Outline at least three structural imbalances that led to SAP
Itemize four requirements for a successful commercilization process
Discuss two methods used by BPE to privatize firms in Nigeria

Tick the option that best completes the question
1. In this system the interaction of supply and demand for each good determines what and how
much to produce.
(a) Market system
(b) Command system
(c) Buying system
2. In this system, the central planner also determines how production will take place and for
whom the product is produced.
(a) Market system
(b) Command system
(c) Buying system
(d) Production system
3. Under this economic system, individuals own their human capital, and the government owns
most other non-human resources.
(a) Capitalism
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(b) Communism
(c) Socialism
(d) Mixed economy
4. One way through which government carries out its facilitating role is by promoting free
competition in the economy
(a) True
(b) False
5. .......... is a formal written enactment of a legislative authority that governs a state, city or
country.
(a) Charter
(b) Statute
(c) Government ownership
(d) Charter or statue
6. This decree initially had two schedules but was increased to three schedules later.
(a) Privatization decree
(b) Indigenization decree
(c) Commercialization decree
(d) SAP
7. In this schedule, the enterprises are those in which Nigerians were expected
to have a majority ownership of at least 60 per cent.
(a) Schedule I
(b) Schedule II
(c) Schedule III
(d) Schedule I and II.
8. When a state-owned industrial enterprise is moribund and is no longer a going
concern, the best way to dispose of it is to first
(a) Commercialize it
(b) liquidate it
(c) Privatize it
9. When government commercializes any of its enterprises, it retains full ownership
of the assets of the enterprise.
(a) True
(b) False
10. The consequences of SAP in Nigeria included collapse of local import-

substitution industries.
(a) True
(b) False
Links to OERs
References/Suggestions for further readings
166
Bert-Jaap K., Lips, M., Corien, P., and Schellekens M. (2006) Starting points for ICT
Regulations, Deconstructing Prevalent Policy One-Liners. Cambridge. Cambridge
University Press.
Ohanemu, C. N. (2002). Fundamentals of Business Administration. Lagos; Rock Fields
Publishing, Lagos
Iyanda, O. and Bello, J.A (1988). Elements of Business in Nigeria. Lagos. University of
Lagos Press.
Braithwaite, J. and Drahos, P. (2000). Global Business Regulation. Cambridge; Cambridge
University Press.
Massie J.L. (1995). Essentials of Management. 4th edition. New Delhi; Prentice Hall.
McCraw T. (1984). Prophets of Regulation. The Belknap Press
Rugman A.M; Lecraw D.J and Booth L.D. (1998) International Business: Firms and
Environment. McGrawhill International. Wikipedia Free Encyclopedia, 2002
www.ehow.com:Business Environment Analysis, Social Research Foundation, 2009
via the LMS.
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STUDY SESSION 11:
GOVERNMENT ECONOMIC POLICIES AND PARTNERSHIPS
Introduction
In the last study session, you were exposed to the roles of government which includes regulatory
and facilitating roles. Some of the economic policies of government such as the Nigerian
Enterprises Promotion Decree, the Structural Adjustment Programme, Commercialization and
Privatization were also discussed. In this study session, we are going to continue with the other
economic policies. We are going to look at the NEEDS programme, the New Partnership for
Africa’s Development (NEPAD), the African Growth and Opportunity Act (AGOA) and what they
were meant to achieve in our economy. Enjoy yourself as you read on.
11.1Define and use correctly all the key words printed in bold (SAQ 11.1, 11.3, and 11.4)
11.2State the objectives of the National Economic Empowerment and Development Strategy
(NEEDS) (SAQ 11.1 and 11.2)
11.3List the critical areas sought to be addressed by NEEDS (SAQ 11.2)
11.4Describe the New Partnership for Africa’s Development (NEPAD) (SAQ 11.3)
11.5Discuss the African Growth and Opportunity Act (AGOA) (SAQ 11.4)
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Key Terms: NEEDS, economic development strategy, New Partnership for
Africa’s Development,
11.1 National Economic Empowerment and Development Strategy

(NEEDS)
The National Economic Empowerment and Development Strategy (NEEDS) was a strategic socio-
economic and political development framework put in place by the President Olusegun Obasanjo
regime in 2004. It was the brainchild of Professor Charles Chukwuma Soludo, then Chief
Economic Adviser to the President, prior to his appointment as the Governor of the Central Bank
of Nigeria. The NEEDS document was based on wide-ranging consultations with various
stakeholders all over the country before the final version was adopted by the Federal Government.
NEEDS was in fact Nigeria’s poverty reduction strategy paper (PRSP), a requirement by the
international community for engagement with Africa’s other less developed countries desirous of
receiving development assistance in the fight against poverty.
The NEEDS vision was based on the 1999 constitution of Nigeria, the Kuru Declaration, previous
initiatives such as Vision 2010 and widespread consultations throughout Nigeria that was part of
the NEEDS process. The programme’s core values recognize the importance of respect for elders,
honesty and accountability, cooperation, industry, discipline, self-confidence and moral courage.
The Kuru Declaration, one of the key documents that informed the NEEDS framework, embodies
truly noble national values which Nigeria and Nigerians should strive to inculcate. These are to
build a truly great African democratic country, politically united, integrated and stable,
economically prosperous, socially organized, with equal opportunity for all, and responsibility
from all, to become the catalyst of (African) Renaissance and making adequate all-embracing
contributions, sub-regionally, regionally and globally.
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NEEDS focused on four key strategies: (1) reforming government and institutions (2) growing the
private sector (3) implementing a social charter and (4) reorienting the value system of the
populace. It was based on the notion that these goals can be achieved only by creating an
environment in which business can thrive, government is redirected to providing basic services,
and people are empowered to take advantage of the new livelihood opportunities the plan was to
stimulate.
NEEDS was not just an economic development strategy, but was also an ambitious change
programme with a clear focus on fighting corruption and re-orienting Nigerians away from a rent-
seeking mentality and relating unproductive and unedifying attitude to making a living. These
values have become deeply entrenched in national psyche over a period of time. NEEDS therefore
sought to make it clear that corruption and graft would be punished. An elaborate public awareness
programme was to be mounted by National Orientation Agency and related state government
organs and in collaboration with NGOs and community based organizations (CBOs) and other
stakeholders to ensure that the fight against corruption was broad-based.
NEEDS sought to address critical areas such as:
• Health/HIV AIDS – reducing the huge disease burden and the HIV/AIDS pandemic
• Education – realizing that half of Nigeria’s population is young, the strategic role of education in
knowledge diffusion, skill building and human capital development
• Agriculture – recognizing the primacy of agriculture and giving farmers the necessary
tool, materials and finance they need to produce food in abundance, create wealth and
employment and transform the rural sector
• Pension Reform – putting in place a modern contributory pension scheme
• Infrastructure – bridging the huge infrastructural gap necessary for Nigeria’s economic
development and social transformation
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• Promoting the Private Sector – as the engine of growth of the economy
• Political and Administrative Reform –changing the way government does business,
shrinking the size of the public sector and drastically reducing the high cost of governance
11.1.1 What Made NEEDS Different
NEEDS as a development strategy was different for the following reasons
1. It was based on widespread consultations – a process that started in 2001, which led to the
preparation of Nigeria’s interim Poverty Reduction Strategy Paper (PRSP)
2. NEEDS involved collaborative effort at the federal and state levels which connected
problems on the ground with programmes at the federal and state levels
3. NEEDS was designed as a feasible plan because it was based on wide-ranging consultations
which allowed the drafting committee deep insight into real changes and problems the
ordinary people of Nigeria grappled with on a daily basis and proffering problem solving
tools that stood a good chance of addressing the issues efficaciously.
11.1.2 Empowerment programme
The concept of empowerment is important to NEEDS which recognizes that development begins
and ends with the people – the people are both the agents and the beneficiaries of the development
process. It is therefore important to involve them both in the planning of development programmes
and in the implementation of such programmes. In Nigeria’s case as in the case of other African
and developing countries where poverty has become a major problem over the years, it was equally
necessary to give the people the tools that will enable them help themselves out of poverty. Such
tools are education and skill development, entrepreneurship, and access to finance. As part of the
empowerment agenda of NEEDS, the need to support and encourage the ‘active poor’ was
recognized. This agenda is being aggressively pursued through enterprise development and skill
acquisition programmes and access to finance through microfinance banking.
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11.1.3 Assessment of the Success of the NEEDS Programme
The first phase of NEEDS (NEEDS I) came to an end in 2007 and the second phase (NEEDS II)
was expected to be compiled and launched subsequently. In fact the process of extensive
consultations for the launch of NEEDS II had almost been concluded when it became a victim of
the syndrome of policy discontinuity by the succeeding regimes in Nigeria. In place of NEEDS,
the President Umar Musa Yar’ Adua regime put in place the Seven Point Agenda, which was little
more than a line by line itemization of seven areas of political, economic and social focus, a
carryover of his presidential campaign manifesto. The Seven Point Agenda lacked any conceptual
framework or elaborate content. It was not based on consultations and lacked an action plan, but
was sustained by an intensive propaganda on government media.
The unceremonious phasing out of the NEEDS development blueprint and the failure to replace it
with anything close was a national disservice. NEEDS was a brilliant blueprint for an all-embracing
national development. Some of its achievements in the 2004 – 2007 planning period included the
following:
• The use of NEEDS by the international community as the basis for cooperation with and
development assistance to Nigeria, as they found the NEEDS document to be a brilliantly
crafted PSPR.
• The granting of debt relief by both the Paris Club and the London Club
• The banking consolidation programme that increased the capital base of Nigerian banks to
a minimum of N25 billion from N2 billion and reduced the number of banks from about
84 to 25
• The institution of a modern contributory pension scheme
• The institution of a modern microfinance banking system
• The tremendous boost to the private sector as engine of growth in the economy
• Phenomenal growth in the Nigerian Stock Exchange
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• The successful privatization of key government enterprises and the concessioning of
Nigerian ports
• Phenomenal growth in the telecommunication sector
• Rapid expansion of access to higher education through licensing of private universities and
other higher education institutions.
Why was the NEEDS programme different from other developmental strategies?
Because it was based on widespread consultations which involved collaborative

effort at both federal and state levels, and was designed as a feasible plan unlike
other programmes.
11.2 The New Partnership for Africa’s Development (NEPAD)

The New Partnership for Africa’s Development (NEPAD) is a vision and strategic framework for
Africa’s socioeconomic and political transformation put in place by the African Union to harness
the energy of all African country and refocus their development strategies with the aim of achieving
rapid growth and development.
The NEPAD strategic framework document seeks to develop an integrated, comprehensive and
sustainable development framework for Africa.
11.2.1 History of NEPAD
The framework for the establishment of NEPAD was adopted at a meeting of African Heads of
State and Government under the auspices of the Organization of African Unity (OAU) in 2001 and
subsequently ratified by the African Union (AU), the successor organization to the OAU in 2002.
NEPAD was the fusion of three related but parallel visions about how to move Africa forward at
the dawn of the new Millennium. These were the Millennium Africa Recovery Plan (MAP),
championed by the then South African President Thabo Mbeki; the Omega Plan, envisioned by
President Abdoulaye Wade of Senegal. MAP and the Omega Plan were then coalesced into a single
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blueprint, which became known as the New African Initiative (NAI), which in turn led to NEPAD
in 2001, in a more elaborated form. The three initiatives that gave birth to NEPAD and shared a
common concern for the rapid development of the African continent, but they also had differences
in emphasis on regional priorities. In the process of reconciling these differences, certain
compromises had to be made. In the process of est-ablishing NEPAD, the Organization of African
Unity mandated five member states of Algeria, Egypt, Nigeria, Senegal and South Africa to put
together its framework. Thus these five countries are the founding members of NEPAD.
11.2.2 Objectives of NEPAD
The overall objective of NEPAD is to eradicate poverty in Africa and to place African countries
both individually and collectively on a path of sustainable growth and development to thus halt the
marginalization of Africa in the globalization process. At the core of the NEPAD process is its
African ownership, which must be retained and strongly promoted, so as to meet the legitimate
aspirations of the African peoples. While the principle of partnership with the rest of the world is
equally vital to this process, such partnership must be based on mutual respect, dignity, shared
responsibility and mutual accountability. The key objectives of NEPAD can thus be summarized
as including the following:
a) To eradicate poverty.
b) To place African countries, both individually and collectively on a path of sustainable
growth and development.
c) To halt the marginalization of Africa in the globalization process and enhance its full and
beneficial integration into the global economy.
d) To accelerate sustainable development by ensuring peace and security, democracy and
good political, economic and corporate governance, regional co-operation and integration
and capacity building.
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11.2.3 The principles of NEPAD
NEPAD was founded on the following principles:
• African ownership and leadership, as well as broad and deep participation by all sectors
of society;
• Good governance as a basic requirement for peace, sucurity and sustainable, political and
socio-economic development;
• Anchoring the redevelopment of the continent on the resources and resourcefulness of the
African people;
• Partnership between and amongst African peoples;
• Acceleration of regional and continental integration;
• Building the competitiveness of African countries and the continent;
• Forging of a new partnership with the industrialized world by, amongst other things,
ensuring that it changes the unequal relationship between Africa and the developed world;
and
• Commitment to ensuring that all Partnerships with NEPAD are linked to the Millennium
Development Goals and other agreed development goals and targets.
11.2.4 The elements of NEPAD's strategic focus
The following constitute the elements of the strategic focus of NEPAD which is primarily
concerned with the economic resurgence and vibrancy of Africa:
 To reduce the risk profile of doing business in Africa;
 To create the conditions conducive for investment, high economic growth and sustainable
development;
 To increase Africa's competitiveness in the world economy;
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 To transform the unequal and donor/recipient relationship with the developed countries and
multilateral institutions to a new partnership that is based on mutual responsibility and
respect; and
 To increase investment on the continent in order to ensure social and economic
development.
In sum, NEPAD calls for adapted policy reforms and increased investments in the areas of
agriculture and food security, science and technology, environment, trade and market access,
governance, infrastructure (energy, transport and water sanitation, and information and
communication technologies), gender and capacity development.
11.2.5 How NEPAD programme is governed
The work of the NEPAD Planning and Coordinating Agency – which is tasked with the
implementation of the NEPAD Programme – is overseen by the NEPAD Heads of State and
Government Orientation Committee (HSGOC) and a Steering Committee. The Chairperson of the
African Union Commission exercises supervisory authority over the Agency.
11.2.6 NEPAD Planning and Coordinating Agency (NEPAD Agency)
Right from inception in 2001 when it was established by the African Union, the Secretariat of
NEPAD was in Johannesburg, South Africa. Concern has grown over the years about the risk of it
being run as a parallel organization, almost entirely separate and distinct from the structures of the
African Union, which is based in Addis Ababa, Ethiopia. So the result of the effort to integrate
NEPAD more formally into the AU system is the NEPAD Planning and Coordination Agency,
which was established by the 14th African Union Summit decision as the institutional vehicle for
implementing the African Union Development agenda. Designated as the technical body of the
African Union, the core mandate of the NEPAD Agency is to facilitate and coordinate the
implementation of regional and continental priority programmes and projects and to push for
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partnerships, resource mobilization and research and knowledge management. The secretariat of
the agency will be retained in South Africa, perhaps as a reward for the enormous effort South
Africa has invested in the NEPAD vision.
11.2.7 African Ownership
A major feature of NEPAD is the concept of African ownership, which is one of the key principles
upon which NEPAD was founded. What this means in practical terms is that the vision for NEPAD
was conceived by African leaders and their peoples and not thrust upon them by external forces,
as was the case with many programmes of the past – which invariably failed due to lack of local
ownership and local content. Secondly, African governments, peoples and institutions also
developed the contents of the various programmes of NEPAD. Thirdly, in furtherance of the
principle of ownership, NEPAD is strategically hoisted on the fulcrum of partnership: firstly,
partnerships among African countries themselves on a continental scale on the political, economic
and social spheres in a dimension that had never been witnessed before. In particular, partnership
with the African private sector and civil societies (which is a clear departure from the past when
policies and programmes were exclusively conceived and implemented by the public sector
without the active involvement of the majority of the people themselves) was emphasized. Of great
significance also is partnership with the international community, comprising essentially the
United Nations system, the European Union and the G8/G20, which have adopted the NEPAD
strategic framework as the basis of their economic and social cooperation programmes with
African countries
From the foregoing, it is clear that NEPAD is not just a public sector programme but a strategic
framework for the social, economic and political transformation of Africa. NEPAD is not a project
but an elaborate multi-sectoral programme of change, involving numerous stakeholders and
partners. Indeed, the most crucial and strategic of all the stakeholders and partners is the private
sector. The private sector is expected to partner with government to implement various projects
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under the umbrella of public, private partnerships, broadly defined, through provision of expertise,
executive capacity, mobilization and provision of long-term capital, both local and foreign and
identification of entrepreneurial/investment opportunities. Others include the formation of
partnerships, both with local and foreign business and technical partners for the execution of large
scale projects. Partnerships were also generated for participation in the financing and execution of
infrastructural projects in the form of Build, Operate and Transfer (BOT), leases, management
contracts, concessions, and other forms of public private partnership arrangements, as alternative
models of public procurement. The provision of professional services is also part of the
opportunities that NEPAD offers to the private sector, including professional firms and practices.
NEPAD had key objectives. Mention two of them.
Two of NEPAD’s key objectives were to (i) eradicate poverty in Africa and (ii) halt the
marginalisation of Africa in the globalization process.
11.3 The African Growth and Opportunity Act (AGOA)

The African Growth and Opportunity Act (AGOA), an American government initiative to boost
trade relationship with African countries on a preferential basis, was signed into law on May 18,
2000 by President Bill Clinton as Title 1 of The Trade and Development Act of 2000. The Act
offers tangible incentives for African countries to continue their efforts to open their economies
and build free markets. President Bush signed amendments to AGOA, also known as AGOA II,
into law on August 6, 2002 as Sec. 3108 of the Trade Act of 2002. AGOA II substantially expands
preferential access for imports from beneficiary Sub-Saharan African countries.
By modifying certain provisions of the African Growth and Opportunity Act (AGOA), the AGOA
Acceleration Act of 2004 (AGOA III, signed by President Bush on July 12, 2004) extends
preferential access for imports from beneficiary Sub Saharan African countries until September
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30, 2015; extended third country fabric provision for three years, from September 2004 until
September 2007; and provides additional Congressional guidance to the Administration on how to
administer the textile provisions of the bill.
The Africa Investment Incentive Act of 2006 (signed by President Bush on December 20, 2006)
further amends portions of the African Growth and Opportunity Act (AGOA) and is referred to as
"AGOA IV". The legislation extends the third country fabric provision for an additional five years,
from September 2007 until September 2012; adds an abundant supply provision; designates certain
denim articles as being in abundant supply; and allows lesser developed beneficiary sub-Saharan
African countries export certain textile articles under AGOA.
AGOA provides reforming African countries with the most liberal access to the U.S. market
available to any country or region with which the United States does not have a Free Trade
Agreement. It supports U.S. business by encouraging reform of Africa’s economic and commercial
regimes, which will build stronger markets and more effective partners for U.S. firms. AGOA
expands the list of products which eligible Sub-Saharan African countries may export to the United
States subject to zero import duty under the Generalized System of Preferences (GSP). While
general GSP covers approximately 4,600 items, AGOA GSP applies to more than 6,400 items.
AGOA GSP provisions are in effect until September 30, 2015.
11.3.1 Long-Term Potential Benefits of AGOA to African Countries
AGOA can change the course of trade relations between Africa and the United States for the long
term, while helping millions of African families find opportunities to build prosperity:
• By reinforcing African reform efforts;
• By providing improved access to U.S. technical expertise, credit, and markets; and
• By establishing a high-level dialogue on trade and investment.
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Since its implementation, AGOA has encouraged substantial new investments, trade, and job
creation in Africa. It has helped to promote Sub-Saharan Africa's integration into the multilateral
trading system and a more active role in global trade negotiations. It has also contributed to
economic and commercial reforms which make African countries more attractive commercial
partners for U.S. companies.
11.3.2 Implementation
An AGOA Implementation Subcommittee of the Trade Policy Staff Committee (TPSC) was
established to implement AGOA. Among the most important implementation issues are the
following:
• Determination of country eligibility;
• Determination of the products eligible for zero tariff under expansion of the Generalized
System of Preferences (GSP);
• Determinations of compliance with the conditions for apparel benefits;
• Establishment of the U.S.-Sub-Saharan Africa Trade and Economic Forum; and
• Provisions for technical assistance to help countries qualify for benefits.
11.3.3 Country Eligibility
The U.S. Government intends that the largest possible number of Sub-Saharan African countries
can take advantage of AGOA. President Clinton issued a proclamation on October 2, 2000
designating 34 countries in Sub-Saharan Africa as eligible for the trade benefits of AGOA. The
list is amended from time to time, in line with the dictates of American foreign policy, not just U.S.
trade relations with Africa. Critics of the programme hold up this amendment to buttress their
argument that AGOA is a tool of neo-colonial dominion by the American government. For
example, effective from June 30, 2008, the President Bush designated Comoros as AGOA eligible
and effective January 1, 2009, President Bush removed Mauritania from the list of AGOA eligible
countries for reasons not unconnected with the military coup in that country.
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The Act authorizes the President of the United States to designate countries as eligible to receive
the benefits of AGOA if they are determined to have established, or are making continual progress
toward establishing the following: (1) market-based economies (2) the rule of law and political
pluralism (3) elimination of barriers to U.S. trade and investment (4) protection of intellectual
property (5) efforts to combat corruption (6) policies to reduce poverty (7) increasing availability
of health care and educational opportunities (8) protection of human rights and worker rights, and
(9) elimination of certain child labour practices. These criteria have been embraced
overwhelmingly by the vast majority of African nations, which are striving to achieve the
objectives although none is expected to have fully implemented the entire list.
The eligibility criteria for GSP and AGOA substantially overlap, and countries must be GSP
eligible in order to receive AGOA’s trade benefits including both expanded GSP and the apparel
provisions. Although GSP eligibility does not imply AGOA eligibility, 47 of the 48 Sub-Saharan
African countries are currently GSP eligible.
11.3.4 GSP Product Eligibility
AGOA authorizes the President of the United States to provide duty-free treatment under GSP for
any article, after the U.S. Trade Representative (USTR) and the U.S. International Trade
Commission (USITC) have determined that the article is not import sensitive when imported from
African countries. On December 21, 2000, President Clinton extended duty-free treatment under
GSP to AGOA eligible countries for more than 1,800 tariff line items in addition to the standard
GSP list of approximately 4,600 items available to non-AGOA GSP beneficiary countries. The
additional GSP line items which include such previously excluded items as footwear, luggage,
handbags, watches, and flatware were implemented after an extensive process of public comment
and review. AGOA extends GSP for eligible Sub-Saharan African beneficiaries until September
30, 2015. Sub-Saharan African beneficiary countries are also exempted from competitive need
limitations which cap the GSP benefits available to beneficiaries in other regions
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AGOA had implementation sub-committee established. State two of the most important
implementation issues they are to handle.
They are to determine the country eligibility and secondly provide for technical assistance
to help countries qualify for benefits
11.3.5 Apparel Provisions
AGOA provides duty-free and quota-free treatment for eligible apparel articles made in qualifying
sub-Saharan African countries through 2015. Qualifying articles include: apparel made of U.S.
yarns and fabrics; apparel made of sub-Saharan African (regional) yarns and fabrics until 2015,
subject to a cap; apparel made in a designated lesser-developed country of third-country yarns and
fabrics until 2012, subject to a cap; apparel made of yarns and fabrics not produced in commercial
quantities in the United States; textile or textile articles originating entirely in one or more lesser-
developed beneficiary sub-Saharan African countries; certain cashmere and merino wool sweaters;
and eligible hand-loomed, handmade, or folklore articles, and ethnic printed fabrics.
Under a Special Rule for lesser-developed beneficiary countries, those countries with a per capita
GNP under $1,500 in 1998, will enjoy an additional preference in the form of duty-free/quota-free
access for apparel made from fabric originating anywhere in the world. The Special Rule is in
effect until September 30, 2012 and is subject to a cap. AGOA IV continues the designation of
Botswana and Namibia as lesser-developed beneficiary countries, qualifying both countries for the
Special Rule.
AGOA IV provides for special rules for fabrics or yarns produced in commercial quantities (or
"abundant supply") in any designated sub-Saharan African country for use in qualifying apparel
articles. Upon receiving a petition from any interested party, the International Trade Commission
will determine the quantity of such fabrics or yarns that must be sourced from the region before
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applying the third country fabric provision. It also provides for 30 million square meter equivalents
(SMEs) of denim to be determined to be in abundant supply beginning October 1, 2006. The U.S.
International Trade Commission will provide further guidance on how it will implement this
provision.
Preferential treatment for apparel took effect on October 1, 2000, but beneficiary countries must
first establish effective visa systems to prevent illegal trans-shipment and use of counterfeit
documentation, and that they have instituted required enforcement and verification
procedures. Specific requirements of the visa systems and verification procedures were
promulgated to African governments via U.S. embassies on September 21, 2000. The Secretary of
Commerce is directed to monitor apparel imports on a monthly basis to guard against surges. If
increased imports are causing or threatening serious damage to the U.S. apparel industry, the
President is to suspend duty-free treatment for the article(s) in question. The U.S. Government is
now reviewing applications for approval of the required visa and enforcement mechanisms from
AGOA eligible countries.
Whose initiative was the African Growth and Opportunity Act (AGOA)?
It was an American government initiative to boost trade relationship with African

countries on a preferential basis.
Summary of Study Session11
In this study session you have learnt:

1) the different economic policies of government like Nigeria Enterprises Promotion Decree
(NEPD), Structural Adjustment Programme (SAP), Commercialization, Privatization etc.
The NEPD known as the indigenization decree was promulgated in 1972 and has been
amended many times.
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2) the sole aim of the decree was to give Nigerians a sense of belonging and control over
largely the commercial sector and the small and medium scale sector of the economy such
that the initial capital requirement and required technical and managerial skills were
considered to be within the reach of Nigerians. Objectives and benefits of NEPD were also
looked at.
3) the requirements for a successful commercialization of a public enterprise as well as

objectives for commercialization were also looked at. In the same vein,
4) the structural imbalances or reasons that informed the introduction of the Structural
Adjustment programme and the measures taken to address the imbalances were also
examined. Finally, privatization and types of privatization were treated.
The session also discussed some of the critical issues that NEEDS was meant to address. It also
examined the success and failure of NEEDS. The historical evolution and objectives of NEPAD
were discussed as well as the principles on which NEPAD was founded. The concept of the African
ownership of NEPAD was also examined. In addition, the AGOA framework and objectives as
well as the concept of country eligibility were all discussed.


NEEDS focused on four key strategies. List them.
Outline four critical areas that NEEDS sought to address.
Mention five principles on which NEPAD was founded and state two of its objectives.
Explain two long-term potentials of AGOA to African Countries
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Choose the right option that best suits the question
1. Right from inception in 2001 when it was established, the Secretariat of NEPAD has been
in...............
a) Abuja, Nigeria
b) Johannesburg, South Africa
c) Cairo, Egypt
d) Addis Ababa, Ethiopia.
2. The AGOA Acceleration Act also termed AGOA III was signed by
(a) President Bill Clinton on August 6, 2002
(b) President Bush on July 12, 2004
(c) President Bush on December 20, 2006
(d) President Bill Clinton on May 18, 2000
3. The key objective of NEPAD includes all but one

(a) Accelerate sustainable development by ensuring peace and security
(b) Eradicate poverty
(c) Aid marginalization of Africa in the globalization process
(d) (b) Encourage growth and development through good democratic principles,
corporate
(e) governance etc.
4. The framework for the establishment of NEPAD was adopted at a meeting of African Heads
of State and Government under the auspices of the OAU in 2001
(a) True
(b) False
5. The critics of the AGOA act argue that it is a tool of neo-colonial dominion by the American
government.
(a) True
(b) False
(c) No relevant option
Links OERs

Adegbite, E .O. Ayadi, Felix O., and Ayadi F. S .(2008). “Structural Adjustment, Financial
Sector Development and Economic Prosperity in Nigeria,” International Research
185
Journal of Finance and Economics, Issue 15. http://www.eurojournals.com/finance.html.
African Union (2010). NPCA Strategic Direction, 2010-2013: Facilitating the Delivery of
High-Quality Programmes and Projects to Promote Africa’s Development and
Regional Integration, Addis Ababa, May 2010
Anyanwu, J. C. (1992). “President Babangida's Structural Adjustment Programme and

Inflation in Nigeria, Journal of Social Development in Africa 7,1,5.24
Bankole A, (2009) Coordinator (External Relations and Partnerships, NEPAD Secretariat),
“AU/NEPAD African Action Plan: Roadmap for Regional Integration - Framework to Fast-
track Regional Integration and Global Partnerships in Support of Africa’s Development
Agenda.” Paper presented at the Regional Media Dialogue on NEPAD, The Vaal,
Guateng Province, South Africa, February 19 – 20.,
National Planning Commission (2004). National Economic Empowerment and Development
Strategy (NEEDS), Abuja.
NCEMA, “Structural Adjustment Programme in Nigeria: Causes, Processes and Outcomes,”
Revised Technical Proposal submitted by National Centre for Economic Management
& Administration (NCEMA), Ibadan
Organization of African Unity (2001). The New Partnership for Africa’s Development,
October 2001
Sasore, G. M. (2005). Special Adviser To the President on Export Programmes/Chief
Executive Officer, Nigerian Export Promotion Council, “Trade Opportunities Under
AGOA, a Paper presented at the Conference on the “Agricultural & Food Situation
and Trade Opportunities in Nigeria” organized by IFDC-MISTOWA (Regional
MarketInformation Systems and Traders’ Organizations in West Africa) held at Kano
Durbar Hotel, May 26 – 27.
186
via the LMS.
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STUDY SESSION 12:
BUSINESS AND CONTEMPORARY ISSUES
Introduction
This session will take you through the elements of international trade, globalization and other
related organizations and bodies that influence international financial systems. You will also learn
about various economic blocks that are used to promote regional and international cooperation.
12.1Define and use correctly all the key words printed in bold (SAQ 12.1, 12.2, 12.3, 12.4 and
12.5).
12.2Discuss the concept of international trade, benefits and disadvantages (SAQ 12.4).
12.3Define globalization and understand its advantages and disadvantages (SAQ 12.2).
12.4List the contribution of International Monetary Fund and the World Bank to international
business (SAQ 12.1 and 12.3).
12.5Identify various regional economic blocks and their operations (SAQ 12.5).
Key Terms: Economic block, International monetary fund, globalization,

international trade
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12.1 Concept of International Trade
International trade is the trade between nations of the world. It is trade between individual firms
and government of the countries.
12.1.1 Reasons for international trade
• Some countries can produce certain commodities at cheaper rates than others.
• Most countries also depend on other countries for the purchase of commodities which are
needed to supplement home production.
• Difference in productive capacity.
• Inequitable distribution of natural resources e.g climate, soil, mineral resources, different
technology, different peoples and skills.
• To enjoy comparative advantage. The law of comparative advantage states that a country
will benefit if they specialize in the production of commodities in which they have
comparative cost advantage and exchange those commodities which others can produce
more cheaply.
12.1.2 Advantages of International Trade
The following are the advantages of international trade;
1. It ensures equitable distribution of natural resources: international trade makes it
possible for a country to import resources that are not available in her country.
2. It brings about world peace.
3. Prevention of monopoly: International trade prevents the local manufacturer of goods
from increasing prices unreasonably.
4. There is interdependence among nations for raw materials.
5. International trade also leads to specialization and increase in the standard of living
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of the people and it encourages economic development of nations.
12.1.3 Disadvantages of International trade
1. International trade could cause unemployment in industries if more manufactured and
agro-allied goods are imported at the detriment of the local or infant industries.
2. Discouragement of self-reliance: availability of foreign goods in the local market may
discourage the production of such goods locally.
3. Importation of harmful goods.
4. International trade could be injurious to a country’s culture.
12.1.4 Barriers to International trade
• Distance barrier
• Language problem
• Problem of weights and measures
• Political barrier
• Economic barrier
12.1.5 Documents used in International Trade
An indent: this is the order which gives the details, about the types, and quality of goods required
by the buyer.
Consular invoice: The document becomes very necessary because there may not be trading
relationship between two countries and as a result, the origin of the goods needs to be confirmed.
The freight note states the charges for carrying the goods.
Bill of lading: The bill of lading is the most important document because it serves as a document
of title to the goods at place of origin or destination. It specifies the quantity of goods, port of
loading and port or discharge.
Sanitary Health Certificate: The certificate certifies that the foodstuff (e.g. meat)
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is fit for human consumption.
Certificate of Inspection: the manufacturer or supplier issues the certificate to show that they
have inspected the goods shipped and they are in conformity with buyer‘s purchase order.
The pro-forma invoice contains the particulars of exporter and importers.
Form M: the importer fills a set of the form by transferring the information on the pro-forma
invoice into the form M. Thereafter, the form M and the pro-forma invoice are sent to the importer’s
bank for processing.
12.1.6 Means of payment in foreign trade
The means of payment include mail transfer, telegraphic and cable transfer, guaranteed mail
transfer, foreign bill of exchange, travel’s cheque, bank’s draft and documentary credit
Nigerian firms usually have business transactions with firms of other countries and
sometimes even with governments of other nations. What kind of trade is this?
This is called international trade since it is between nations of the world.
12.1.7 Advantages of the letter of credit
a. Irrevocable credit cannot be amended or cancelled without the consent of the seller.
b. The buyer cannot withhold without payment for goods for any reason.
c. Credit is used for financing export by the seller who receives payment before arrival of
goods at destination.
d. The buyer can obtain finance from his bank for his import.
e. There is the assurance for the shipment of goods within the delivery date as payment against
the presentation of document by the seller.
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12.1.8 Disadvantages of the letter of credit
a. It may lose its commercial value when the seller fails to comply with any of the terms of
the credit.
b. There may be delay in payment or the transaction. This could stem from irregularities on
the documents presented for the credit.
c. The buyer bears all risks and cost of opening the credit.
d. Once the credit (irrevocable) is issued by his bank, (he cannot cancel the credit without the
consent of the issuing bank and the confirming bank.
In Nigeria today, people patronize foreign made goods over and above local made ones.
How do you consider this?
This is considered as one of the disadvantages of International trade.
12.2 Globalisation
Globalization is the integration of economies with regards to market for goods, factors of
production and technology. Globalization gives equal access to production and investment
discourse across the world by the entrepreneur whose main objective is to take advantage of it.
It provides for economic independence of countries worldwide through the increasing volume and
variety of cross border transaction on goods and services and of international capital flows through
the more rapid and wide spread diffusion of technology.
12.2.1 Advantages of Globalization
1. It ensures the increase in the output of a country as a result of the removal of trade
restriction.
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2. It permits countries to concentrate on the production of goods and services in which they
have comparative advantage.
3. It raises productivity and improves the living standard of the people through international
division of labour and efficient allocation of resources.
4. It makes a country to have access to a large volume and diversified sources of external
funds or finance.
5. Less well developed countries are opened up to investors.
6. Accessibility of countries to financial assistance such as the World Bank, International
Monetary Funds, European Union and the United Nations.
7. Globalization ensures acceptability of a country to foreign products and makes
consumers enjoy different types of goods and services at low prizes.
12.2.2 Disadvantages of Globalisation
1. It leads to dumping of goods/products
2. It reduces the demand for the products of infant and local industries
3. It may result to unemployment due to capital flight.
12.2.3 Features of the world that aid globalization.
1. The world is rapidly globalizing in both its trade and investment flow that today no
country can take economic decision in isolation.
2. Many companies are internalizing.
3. There is free trade, finance and information for economic growth and human welfare.
4. There is closer integration of the countries and people of the world, which has been
brought about by reduction in the cost of communication and transportation and the
breaking down of artificial barriers to the flow of goods and services
5. The distribution between international and domestic economic policies has become
irrelevant.
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6. There is now a borderless world.
7. Telecommunication development.
8. Transportation
9. Technological advancement
Mention two disadvantages of globalization?
Globalization leads to dumping of goods and may kill the infant and local industries if
care is not taken.
12.4 Regional Economic Integration

Regional Economic integration is an agreement between contiguous nations to allow for the free
flow of ideas investment funds, technology, goods and services and free movement of persons
within the region in which large markets subsist with the benefit of comparative advantage and
economies of scale.
12.4.1 Advantages/Reasons
• Removal of all impediments to free trade and investments.
• Efficient resource allocation to promote greater output of goods and services and overall
economic well-being of member states.
• Promotion of trade creation and trade diversion.
• Aids the achievement of GATT and WTO.
• Attachment of economic growth and development.
12.4.2 Disadvantages/Problems
➢ Loss of some measure of economic and political independence by member states.
➢ Inability to fix tariffs and impose restriction not in line with the framework of the
integration agreement.
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➢ Close monitoring of the monetary and fiscal policies of the member states for the purpose
of achieving the overall objectives of the economic community.
12.4.3 Types of economic unions
Specially, the economic unions include the General Agreement on Trade and Tariffs (GATT),
World Trade Organization (WTO), Organization of Economic Co-operation and Development
(OECD), European Economic Community (EEC), African Economic Commission (AEC),
Economic Community of West African State (ECOWAS), Southern African Development
Coordination Committee (SADCC), International Monetary Fund (IMF), among others. Let us take
a look at some of the economic blocks.
There are different types of economic unions. List three of them.
Some of the economic unions are World Trade Organization (WTO), Economic
Community of West African State (ECOWAS), and the International Monetary Fund
(IMF).
12.5 The Economic Community of West African State (ECOWAS)

The ECOWAS is a body set up for the economic integration of West African countries, the main
purpose of which is to promote rapid economic development of West African people. It is made
up of sixteen (16) states of both Anglo-phone and Franco-phone countries. It was founded on May
28th 1975 when sixteen West-African countries signed the treaty in Lagos.
It has been observed that the West African Governments are aware of the poor economic situation
of their people. They are aware of the poverty, low standards of living and health hazards of their
people. They therefore addressed themselves to the important issue of finding solutions to poor
conditions caused by:
➢ Low level technology
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➢ Few dynamic entrepreneurs who are prepared to take risks
➢ Poor economic planning as a result of lack of relevant statistics, political and official will.
➢ Low level investment.
➢ Low level savings which makes for low level capital accumulations.
➢ Smallness of West African markets and strong competition from foreign markets.
➢ Low per capita income.
➢ Poor infrastructural facilities.
12.6 General Agreement on Trade and Tariffs (GATT)

The agreement was initiated in 1947 to ensure the liberalization of the world trade.
Marrakesh agreement established the World Trade Organization (WTO) on the 1st of January, 1995
with its Headquarters at Geneva, Switzerland.
12.6.1 Basic Principles of GATT
❖ Trade liberalization
❖ Reciprocity
❖ Non- discrimination
❖ Transparency of regulation
❖ Fair trade
❖ Trade restriction under serious and special economic conditions.
12.6.2 Objectives of GATT
GATT was established in order to:
▪ Ensure trade liberalization
▪ Make optimal use of world’s resources to guarantee sustainable development.
▪ Bring about a good relation in the field or trade and economic endeavour.
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▪ Improved standard of living and expansion of production and trade in goods and services
of member countries.
▪ Ensure reciprocal and mutually advantageous arrangement for reduction in tariffs and
other barriers to international trade.
▪ Improve members’ market access domestic support especially in the form of subsidy and
enhance export competition.
▪ Prevent restriction and distribution in agricultural market.
▪ Gradually reduce support and distortion for agricultural products over an agreed period of
time.
12.6.3 Specific areas of agreement
Agreements were directed at:
- Tariff and trade
- Agriculture
- Application of sanitary and phyto-sanitary measures
- Textiles and clothing
- Technical barrier to trade
- Trade related investment measures
- Pre-shipment inspection
- Rules of origin
- Import licensing procedures
- Subsidies and countervailing measures
12.7 World Trade Organization (WTO)

The World Trade Organization (WTO) was established on 1st of January, 1995 with the
objectives and functions that are highlighted below:
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12.7.1 Objectives of WTO
❖ Enhancement of international relations in the areas of trade and economic endeavours’
❖ Full employment
❖ Enhancement of real services to boost global output
❖ Raising the standard of living of the people
12.7.2 Functions of WTO
The WTO performs the functions stated below:
▪ Provides the framework for implementation and administration of trade agreements
▪ Provides the forum for negotiation among members on matters affecting multilateral trade
relations
▪ Administers trade policy renew mechanization when necessary
▪ Prevents members from taking actions injurious to global trade development
▪ Cooperates with IMF and World Bank ongood global economic policy making
Structure of WTO
The WTO is structured into:
a) Secretariat headed by a director-general
b) Ministerial conference
c) General council
d) Council for trade in goods
e) Council for trade in services
f) Council for trade-related aspects of intellectual property rights
12.8 The World Bank

This is one of the largest sources of the development assistances in the world .The International
Bank for Reconstruction and Development (IBRD) later re-christened the World Bank was
initially established to support the reconstruction of Europe after World War II. The World Bank
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came into existence in 1944 as a sister body to the IMF. It provided lending fund for
commercialization and trade, provide technical' assistance in order to facilitate economic
development among its poorer member countries. The bank operates in more than 100
developing economies through government agencies, non-governmental organization and private
sector to formulate assistance strategies.
12.8.1 Groups of World Bank
The World Bank is made up of the following groups:
1. International Developing Agency (IDA). The group provides loan assistances to middle
income and poorer countries
2. International Bank for Reconstruction and Development (IBRD). The group also provides
loan assistances to middle income and poorer countries like the international developing
agency
3. International Finance and Cooperation (IFC).It promotes private sector investment, both
foreign and domestic services as an investor and broker between foreign investors, local
partners and government authorities.
4. Multilateral Investment Guarantee Agency (MIGA). It promotes foreign direct investment
by offering political risk assurance. It conveys direct benefits to host countries by
providing information on job creation and training for employers.
5. International Centre for settlement of Investment Disputes (ICSID). It offers opportunity
to new big investors entering new markets and government to provide enabling
environment. The group also creates effective and stable financial markets. There is also
the provision of facilities for the settlements by conciliation or arbitration of investment
dispute between investor and their host.
12.9 International Monetary Fund (IMF)

The International Monetary Fund was established, along with the World Bank, at a conference in
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Bretton Woods, New Hampshire, USA, in the closing stages of World War II.
12.9.1 Composition of IMF

The diagram below displays the composition of the IMF.
Fig. 12.1: Composition of the IMF
12.9.2 Features oF IMF
The IMF is engaged in:
1. Promoting global monetary and exchange stability.
2. Facilitating the expansion and balanced growth of international trade for current
transactions.
3. Assisting in the establishment of a multilateral system of payments
4. Compiling statistics and evaluation of its member countries’ economies
(Nearly all nations in UN are members of IMF)
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5. Intervening in financial crisis to provide loans and conditions for restructuring the economy
to avoid future crisis.
6. Providing external assessment of the economy, which helps the government to implement
popular ideas.
7. Promoting international monetary co-operation and global financial stability.
8. Encouraging economic growth.
9. Giving financial advice to countries about how to run their economies.
10. Providing loans to countries experiencing problem of balance of payment for restoration
and sustainable economic growth.
11. Financing of temporary balance of payment needs.
12. Keeping surveillance over member’s economic policies.
13. Provision of loans to countries experiencing balance of payment problem.
14. Increasing the global supply of international reserves.
12.9.3 Mode of operation
The IMF provides loans to countries experiencing problem of balance of payment for restoration
and sustainable economic growth. The loans have come to be known as structural adjustment loans
because they aim to help borrowing governments adjust the structure of economic activity. The
loan is given specifically for the rebuilding of external reserves, currency stabilization and payment
for imports. Unlike development bank, IMF does not give loans for specific projects. Loans are
provided under special arrangement. Under the arrangement, letter of intent is passed by
application through executive board by the country seeking for loan.
Following the approval, loans are released in instalments. Concessional interest rate is give to
low-income countries through the poverty Reduction Growth facility (PRGF). However, the non-
concessional loan is given through five facilities and the interest rates are subject to IMF related
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interest rate known as rate of charge which is currently 2.9%. The five facilities namely:
1. Stand By Arrangements (SBA).
2. Extended Fund Facility (EFF)
3. Supplementary Reserve Facility (SRE)
4. Contingent Credit Loans (CCL)
5. Compensatory Financing Facility (CFF)
12.9.4 Objectives of the IMF
✓ To promote international monetary co-operations and the expansion of international trade.
✓ To contribute to the development of the productive resources of all members.
✓ To assist developing nations pay their trade partners in foreign currencies.
✓ To standardize currencies by ensuring currency stability and preventing disloyal
competition by depression of the rate of exchange.
✓ In order to encourage international trade, IMF ensures that· member countries’ currencies
are freely convertible.
✓ To give advice and help member nations solve their domestic economic problems.
✓ To serve as a clearinghouse for member nations where inter-nation indebtedness could
easily be settled.
Describe two features of the IMF.
Promoting global monetary and exchange stability, and encouraging economic growth.
In this study session you have learnt:
1) what international trade is and the reasons for international trade.
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2) the advantages and disadvantages of international trade as well as barrier to international
trade were also examined.
3) furthermore, the documents used in international trade and the means of payment in foreign
trade were discussed. Globalization as a term was defined.
4) the advantages and disadvantages and features of the world that aid globalization were also
considered.
5) the regional economic integration is an agreement between neighbouring nations to allow
for the free flow of ideas, investment funds, technology, goods and services and the free
movement of persons within the region for the benefit of comparative advantage and
economies of scale. The various economic unions like the General Agreement on Trade
and Tariffs (GATT), World Trade Organization (WTO), International Monetary Fund
(IMF), and the World Bank among others were discussed. The features of each of this
integration or economic unions were discussed.


Briefly discuss five objectives of the international monetary funds
Discuss three advantages and disadvantages each of globalization.
Outline five groups of the World Bank and state their function
List and explain briefly four documents used in international trade.
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State two each of the reasons and problems of regional economic integration

Choose from the alternatives the option that best suit the question.
1. .......... is the trade between individual firms and government of the countries.
(a) Regional Trade
(b) Internal Trade
(c) International Trade
(d) World Trade
2. The manufacturer or supplier document that shows that they have inspected the goods
shipped and they are in conformity with buyer‘s purchase order.
(a) An Indent
(b) Consular Invoice
(c) Certificate of Inspection
(d) Bill of lading.
3. .......... is the integration of economies with regards to market for goods, factors of
production and technology?
(a) Globalization
(b) International Trade
(c) Internal trade
4. Globalization is the ________ and _______ across the world by entrepreneur

(a) Marketing, disinvestment
(b) Finance, consumption
(c) Trading, Selling
(d) None
5. The order which gives the details, about the types, and quality of goods required by the
buyer is called.........
(a) Indent
(b) Consular invoice
(c) Bill of lading
(d) Freight Note
6. One of these does not include the objectives of GATT.

(a) making optimal use of world’s resources to guarantee sustainable development.
(b) improving members’ market access
(c) encouraging restriction and distribution in agricultural market
(d) improving the standard of living and expansion of production and trade in goods and
services of member countries
7. One of the features of IMF is facilitating the expansion and balanced growth of international
trade for current transactions.
(a) True
(b) False
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8. ECOWAS is made up of ------------------- member states
(a) 14
(b) 15
(c) 16
(d) 17
9. Which of the following is not the facility of granting non-concessional loan by

International Monetary Fund
(a). Stand By Arrangement
(b). Extended Fund Facility
(c). Contingent Credit Loans
(d). Poverty Reduction Growth facility
10. MIGA means

(a). Multilateral Investment Guarantee Agency
(b). Multilateral Investment Growth Agency
(c). Multilateral Interest Growth Agency
(d). Multilateral Interest Guarantee Agency
Links to OERs
http://www.businessdictionary.com/searchterms.php?q=What+is+business#ixzz1lryKNdYR
References/Suggestions for Further readings
Adeyemi, S (2002). “Fostering regional Integration Through NEPAD Implementation:

Annual Report, 2002. Abuja ECOWAS.
http//www.sec.ecowas.int/sitecedeao/English/rapport/es annual report 2002pdf
Bhagwati, J (2004). In Defense of Globalization. New York: Oxford University Press.
Economic Community of West African States ECOWAS (2007) Information Manual: The
Institutions of the community ECOWAS.
Economic Community of West African States (ECOWAS)(2011). In Encyclopædia
Britannica. Retrieved from http//www. Britannica.com/EBchecked/1778329/Economics-
Community- of- West African-States.
Ollila, E. (2005). Global health priorities – priorities of the wealthy? Globalization and
Health, vol. 1(6)
205
Guardian (1999) Globalisation and the future of African Development by Centre for
Advanced Social Science,. , June 16.
McAlister, E.(2005). "Globalization and the Religions Production of Space." Journal for
the Scientific Study of Religion, Vol. 44, No 3, September 2005, 249-255.
Scherer.J (2007). "Globalization, promotional culture and the production/consumption of online
games: Engaging Adidas's "Beat Rugby" campaign". New Media & Society 9: 475–496.
United Nations (1993). World Investment Report, New York; UNCTC.
World Bank World Debt Tables 1994 - 1995. Washington 1994. World Bank (1996):
Nigeria: Poverty in the Midst of Plenty: The Challenge of Growht with Inclusion.
Population and Human Resources Divison, Estern Africa Department, Africa
Region, World Bank.
via the LMS.
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APPENDIX 1
SOLUTIONS TO SELF_ASSESSMENT QUESTIONS FOR

SESSIONS 1 to 12
Answers to all SAQs
Study Session 1
Give a brief account of the Nigerian economy and business
Nigeria runs a mixed economy which is an economic system that is in between a capitalist (free
market) economy and a socialist (pure planned) economy. This economic system means that the
government owns most of the means of production, e.g. land and capital, and also influences the
key economic variables like interest rate, exchange rate and the maintenance of sound financial
regulations. Government is also involved in direct supply of utilities like water, electricity, roads,
power, postal services, telecommunication, etc. These are vital economic institutions whose
activities are very basic to the total economic system. From the above, you can see that Nigeria,
the state and her agencies, as well as the private investors, are involved in the supply of goods and
services that meet the society’s needs.
The objective of the state engaging in business (both as commercially-oriented as well as socially-
oriented) obviously is to promote maximum welfare, freedom and happiness, as stated in the
constitution, while that of private business investors is to maximize profit. The effect of -
government objective is felt in the provision of essential services, infrastructural facilities, and
employment opportunities among others.

Write short notes of not more than three sentence each on the different categories or classification
of business.
Business can be classified according to the type of customers, type of goods produced and
industry characteristics.
d. Type of customers: This is simply talking about customers of a business who may either
be end-users or those who use the products to further their own production. The end users
are the final consumers, while those who use the product to further their own production
explain the case where the output of one business becomes the input of another. In a
situation where an output is used as input by the other, the good is an intermediate/industrial
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goods producer while the other whose product goes to the end-users are called consumer
goods producers.
e. Type of Goods Produced: In this instance, business can be classified according to the kind
of goods produced. Some goods produced can be termed durable or specialty goods, e.g.
machines, electrical appliances, motor vehicles, aeroplanes. Other goods can be considered
non-durable or convenience goods because they are consumed within a short period of time.
f. Industry Type: This is a situation where business is classified using its industry
characteristics. For instance we have the extractive industry, Manufacturing industry,
Construction industry, commercial industry and the service industry.

Outline and illustrate the economic foundations of business
Economic foundation of business is based on the study of the distribution of factors of production
or resources (human and material, and natural) for the production of goods and services within a
social system. There are various economic systems and they differ in the handling of the
distribution of resources even though they all must address the crucial issues of what goods and
services to be produced, and how much of each will satisfy consumers’ needs? How are goods and
services to be produced, who will produce them, and with what resources will they be produced?
And how are the goods and services to be distributed to the consumers?
The three types of economic systems mostly found in the world today are Communism, Socialism,
and Capitalism.
Communism: In this type of economy, the people (through the government) own and operate all
business and factors of production. Central government planning determines what goods and
services satisfy citizens’ needs, how the goods and services are produced, and how they are
distributed. This system was previously practiced in Russia, Poland, Hungary, and other Eastern
European nations.
Socialism is an economic system in which the government owns and operates basic industries such
as postal service, telephone, utilities, transportation, health care, banking, and some manufacturing,
but individuals own most businesses. Central planning determines what basic goods and services
are produced, how they are produced, and how they are distributed. Individuals and small
businesses provide other goods and services based on consumer demand and the availability of
resources. Here also citizens are dependent on the government for many goods and services.
Examples of socialist nations are Sweden, India, and Israel.
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Capitalism or free enterprise is an economic system in which individuals own and operate the
majority of businesses that provide goods and services. Competition, supply, and demand
determine which goods and services are produced, how they are produced, and how they are
distributed. The United States, Canada, Japan, and Australia are examples of economic systems
based on capitalism. There are two forms of capitalism: pure capitalism and modified capitalism.
In pure capitalism also called a free-market system, all economic decisions are made without
government intervention. On the other hand, modified capitalism states that the government
intervenes and regulates business to some extent. One way of doing this is through enactment of
laws and policies on the economy. This can be viewed as what is referred to in today’s world as
the Mixed Economies.

Define Business and state the purpose of business
Business has been defined differently by various scholars. Some described business as “an
organization consisting of a person or a group of persons who produce and distribute goods and
services for private profit”. It has also been viewed as an economic system in which goods and
services are exchanged for one another or money, on the basis of their perceived worth. However,
Karimu (1992) defines Business as “the sum of all the activities involved in the creation and
distribution of goods and services for private profit”. It is also conceived as a legally recognized
organization. Business is therefore any legal means of satisfying human wants with the motive of
profit.
The purpose for business is different to the very many operators. The major reason for business is
the supply of goods and services in order to satisfy the societal needs. Needs, whether
physiological, psychological security, social/belongingness, esteem or self-actualization is
expected will be provided by the institutions best suited to provide them. The motives for
satisfying needs by the various institutions differ. For instance the church is spiritually motivated;
government is politically motivated, while business is profit-motivated.
Answers to MCQs in Study session 1
Study Session 1
Questions 1 2 3 4 5
Answers C A D B D
Study Session 2
In three sentences distinguish between internal and external environment
The internal environment is termed the controllable environment while the external environment
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is seen as uncontrollable.
The internal environment of business is made up of micro-environmental factors such as
organizational goals and objectives, specific technologies utilized by component units of the
organization, the size, types and quality of personnel, its administrative units, and the nature of
the organization’s product/service, while the external environment is subdivided into Macro and
Micro Environment with the macro environment regarded as the general environment with
factors such as political, economic, social and technological while the micro environment is
regarded as the specific or task environment having factors such as customers, suppliers,
competitors etc.
The internal environment of business is made up of all the physical and social factors within the
confine of the business, which impart strengths or cause weaknesses of a strategic nature and are
taken directly into consideration in the decision-making behaviour of the business; while external
environments is made up of factors that may spell profound threats or new opportunities for a
business.

Give four reasons why it is important for a manager to understand the environment of business.
It is important for a manager to understand the business environment for the following reasons:
 The viability or survival of business is determined by the environment, so business ought
to follow and be abreast of developments and changes in its environment and respond
appropriately in order to survive.
 The availability of all key inputs like skilled labour, trained managers, raw materials,
electricity, transportation, among others are a factor of the business environment.
 There is constantly increasing public awareness of the negative aspects of certain
industries like those manufacturing pesticides (damage to environment in the form of
chemical residues in groundwater), and plastic bags (choking of sewer lines), so a
business should know when its production process is causing negative effect to the public.
 The cost of capital and the cost of borrowing being two key financial drivers of any
enterprise are impacted by the external environment. Therefore the ability of a business
to fund its expansion or diversification plan will depend on a true knowledge of what is
happening within this sector.

Define business environment and state the components of the environment
The business environment is simply the surroundings within which a business exists. Business
environment embraces all institutions, organisations and individuals whose activities have an
impact directly or indirectly on business behaviour. Business environment differs from state to
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state, region to region, and country to country. Some environment may be favourable while others
may be hostile.
The components of a business environment are the factors which affect the business. These
factors have been divided into internal and external factors. The internal factors are regarded as
micro-organisational (physical and social) factors which are deemed controllable at least within a
short run. The external factors constitute the macro and micro factors outside of the organisations
control which are seen as uncontrollable factors.

What are the characteristics of business environment? List and explain the four characteristics
Dynamism: The business environment is dynamic and not static. It is dynamic in the sense that it
changes continuously due to the interactions of the various factors that make up the business
environment.
Complexity: The business environment is complex and not simple. It is complex by virtue of the
various components that comprise it and the interrelationships among these factors.
Multifaceted: The business environment has many sides. It can be viewed from many angles by
the parties involved. So, an occurrence that may be viewed as strength by one organization may
be perceived as a weakness by another.
Far-reaching impact: The happenings in the business environment can have far-reaching or great
impact on the organization. It could have the ripple effect because business operating as an open
system is made up of different components that interact and interrelate with one another.
Therefore, any problem or development with one aspect may have enormous effect on the others.

Study Session 2
Questions 1 2 3 4 5
Answers B B B A C
Study Session 3

Briefly explain with the aid of a diagram the relationship between business and its external
environment.
From the diagram below, the relationship between business and its external environment is
symbiotic. The aim of business is to provide goods and services to the society in order to make
profit and also satisfy other stakeholders. Business gives to its environment through identifying
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customers need and also working towards providing customer satisfaction bearing in mind the
changing opportunities or threats that might come its way through new technologies or changing
social environment, or regulatory authorities or changing economic indices. The activities of
competitors or even the business suppliers and middlemen or distributors also make an input into
business activities.

What is environmental analysis? List and explain the various stages of environmental
Analysis
Environmental analysis is the study of the organizational environment to pin point environmental
factors that can significantly influence organizational operations. It involves thorough preliminary
analysis of the environmental problems, impact and performance, in relationship to the activities
of an organization.
The various stages of environmental analysis involve;

Identifying those factors that affect the business. This is the first step in analysing the environment. This
needs to be done at various internal levels, the company level, the regional level, the domestic level and
the global level. Several frameworks exist that can help this step of identification like SWOT and PEST.
These are merely tools that remind the identifier to consider certain types of factors.
Scanning for qualitative factors that have already been identified. That is, trying to distinguish which of
the identified factors have the most effect or significance on the business as not all of the factors identified
in the first step will have same weight.
Analyzing the effect the relevant environmental variables have on different levels of the business,
including the business at large will be the third step. This will involve brainstorming, reviewing historical
data, pulling departmental heads and managers’ so as to collect information that may assist in the
statistical analysis. The Types of analysis include mean, mode, correlation and regression, among others.
Forecasting being the fourth step becomes necessary once the environmental variables have been
identified, deemed significant, and analysed. This is in order to determine the effect that the said variables
would have in the future on the business. It mainly involves the analysis of current and historical data or
by examining the trend of things. By looking at the trend each significant environmental variable is
forecasted and a strategic report created, from which management can develop a business strategy in
response to the situation.
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Identify the participants within the business environment?
Participants within the business environment are those whose activity affects the business
operation in one way or another or the environment of business. These include:
▪ The state which regulates the economy as well as consume the goods and services.
▪ Individuals i.e. consumers of goods and services, employees or labour in the organisations,
entrepreneur or providers of capital.
▪ Business organisations i.e. competitors, primary suppliers of inputs and services used for
production, distribution and retailing of the goods and services.

State briefly the purposes of environmental analysis and areas of
uncertainty in business.
Environmental analysis is done for the following purposes:
It will help the management to understand what is happening both inside and outside the
organization.
It helps the organization to identify opportunities early and at the same time exploit them instead
of losing them to competitors.
It helps management identify threats and early warning signals. The entry of a new company into
a market usually sends a signal to others in that market and this most often brings about
improvement in the quality of their products, and aggressive advertising etc.
It improves performance. An organization that continuously monitors its environment and adopts
suitable business practices will not only improve its present performance but also continue to
succeed in the environment.
It helps the organization to cope with rapid changes in the environment.
Environmental uncertainty in business relates to the fact that it is very difficult to predict future
happenings, especially when environmental changes are taking place too frequently. For instance
we could have a change in taste of consumers, change in technology or even in research and
development. These areas are largely uncertain.
Study Session 3
Ques 1 2 3 4 5 6 7 8 9 10 11
Anws C A A A B C B B D D C
Study Session 4
What is Sole Proprietorship? State two advantages and two source of income for a sole proprietor.
Sole proprietorship is a type of business that is wholly owned by one person. The business belongs
to just one owner who has no partners or any other shareholder and is liable for the entire firm’s
obligations as he bears all the costs and keeps all the profits. The company may or may not be
registered with regulatory authority - Corporate Affairs Commission (CAC).
Two advantages are that in Sole proprietorship capital requirement is small, and there are no
strict regulations governing the establishment of a sole proprietorship.
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The sole proprietor can obtain his capital or source his income from the following:
Personal savings
Loans from friends, cooperative societies etc

Enumerate and discuss three types of partnership. State two each of the advantages and disadvantages and
sources of income for a partnership.
There are different types of partnership arrangements. Three types are listed below:
Limited Partnership
This type of partnership is formed and registered under the Limited Partnership Act. Here, there
must be one general partner with unlimited liability and one partner with limited liability to the
amount invested. The limited partners cannot take equal part in management and administration
of the business but can have access to the account of the partnership.
General (Ordinary) Partnership

In this type of partnership, partners have equal responsibilities and risks in the business. All
partners are agents of the firm and they share the responsibility of running the business. Hence
they are liable to the full extent of the debts of the firm. The liability of members is unlimited.
Nominal (Quasi) Partnership
This is a type of partnership where a nominal partner contributes only his name to the formation
of the business. He neither contributes capital nor takes part in the management of the firm. A
nominal partner must be a distinguished personality within the society as his name must surely
increase the reputation and possibly the goodwill of the partnership business. A nominal partner
would share in the profits and or debts of the firm as specified in the Partnership Act of 1980.
The following advantages exist for a partnership:
Partnership unlike sole proprietorship may enjoy sufficient capital or generate adequate capital
because it involves more persons who can provide more sources of funds for the business.
Secondly, the sharing of risks and liabilities reduces individual burdens.
Its disadvantages may be limited growth potentials depending on the managerial abilities of the
partners and the risk of dissolution of the business through death, insanity or bankruptcy
Source of Income could be through personal contributions from partners, either equally or in
agreed proportion; and through loans and overdrafts.

Give two distinguishing features each of Cooperative Societies and Public Corporations?
Differences between Public Corporation and Cooperative Societies
Features Public Corporation Cooperative Societies

1. Ownership The government Owned by people of common interest
2. Objective Provision of essential services Promote and advance the interest of of
members by rendering services to them.
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Give three features each of public liability company and public corporation
Features of Public Limited Liability Company
i. Ownership – minimum of 2 and an unlimited maximum number of shareholders.
ii. Formation – special formalities must be followed before registration. Incorporation is

secured by filing the Article of Association and Memorandum of Association with the
registrar of companies.
iii. Preparation of Annual Accounts which must be audited and published annually
Features of public corporation

1. Ownership – owned and financed by the government.
2. Establishment – established by Act of Parliament or Decree.
3. Objective – to provide essential services to the generality of the people.

How is a private limited liability company different from a public liability company? Give three
differences and two sources of their income.
The difference between Private and Public Limited Liability Companies are shown in this table.
Private Limited Liability Company Public Limited Liability Company

1. Shares are not easily transferable, except with Shares are easily transferable
the consent of other members
2. Uses Ltd after the name of the company. Uses ‘Plc’ after the name of the company
3. Has a maximum number of 50 owners There is no limit on the maximum number of
owners
Sources of finance for a private limited liability company
1. Loans and overdrafts from banks
2. Shares raised by shareholders
Sources of finance for public limited liability company

1. Loans and overdrafts
2. Sales of shares

State three advantages and disadvantages each of private and public liability company.
Advantages of private limited liability company
1. Has legal entity – can sue or be sued
2. Shareholders have limited liability
3. Continuity of existence
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Disadvantages of private limited liability company
1. Shares are not sold to public which acts as a limitation for expansion
2. Shares are not easily transferable
3. Payment of corporate tax
Advantages of public limited liability company

1. Legal entity
2. Transferability of shares
3. Owners are separated from management
Disadvantages of public limited liability company

1. Lack of privacy
2. Slow decision making process
3. Large capital requirement
Answer to MCQ Study session 4
Questions 1 2 3 4 5 6 7 8 9 10
Answers A A D A B C B B A A
Study Session 5
SAQ 5.1 (tests Learning Outcomes 5.1, 5.2, and 5.3 )

Define entrepreneur and state five characteristics of a successful entrepreneur
An entrepreneur is a person who develops a new idea and takes the risk of setting up an enterprise
to produce a product or service which satisfies customer needs. He is “one who undertakes an
enterprise especially a commercial one, often at a personal financial risk”.
The entrepreneur is a business person who is not satisfied with his/her performance and therefore
always finds ways to improve and grow. An entrepreneur is one of the key factors of production
as seen by economists and brings together other factors of production such as land, money,
materials, manpower and methods to produce goods and services. All entrepreneurs are business
persons, but not all business persons are entrepreneurs. An entrepreneur could be an inventor or
innovator or both, an inventor when he invents a new product unknown in the history of man or
within his environment, an innovator when he adapts an existing invention to solve a peculiar need.
Successful entrepreneur possesses the following characteristics.

1) High need for achievement
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2) Very optimistic and passionate about what they do,
3) Very dynamic and flexible in outlook,
4) Very innovative,
5) Very courageous.

In not more than two sentences differentiate between entrepreneur and entrepreneurship
Entrepreneurship is the capacity and attitude of a person or group of persons to undertake ventures
with the probability of success or failures and demands that the individual should be prepared to
assume a reasonable degree of risks, be a good leader in addition to being highly innovative; while
an entrepreneur is the actual person who develops a new idea and takes the risk of setting up an
enterprise to produce a product or service which satisfies customer needs.
Entrepreneurship is an attempt at creating value through recognition of business opportunities,
management of risk-taking appropriate to the opportunities, and through the communicative and
management skills to mobilize human, financial and material resources necessary to bring a project
to fruition; while an entrepreneur is one who is the risk bearer, has the capacity economically to
produce goods and services; organizes and supervises production; and introduces new methods and
new products, and searches for new materials.

List and explain four success nuggets for entrepreneurs
Four success nuggets for entrepreneurs are as follows:
An entrepreneur must have Need for a vision: You must understand what potentials, gifts and
talents God has given you. These are things you think you are capable of doing and doing very
well. The vision should be written on your heart and you meditate on it at all times. Do not go into
a business simply because it is the one that is in vogue. Start a business in which you have a keen
interest; you can only have an enduring success in a business that gives you personal satisfaction.
Need for effective planning: There is no substitute to effective planning. To achieve a lot within
the time available, organize your work, plan your time, have time schedule for your work, state
what you will achieve per day, per week, per month, per year. Make a habit of ticking through what
you have achieved each day.
Need for discipline: Have a purpose and goal. Be determined to follow your plan through. Stick
to your goal despite setbacks and challenges. Discipline yourself as to the use of time and financial
resources. Organise yourself, work and plan your time. Have a time schedule for what you will
like to achieve per period and avoid time-wasters like too much time spent on telephone
conversations, unwanted visitors, unplanned social engagements, etc.
Need to endure initial hardships: You should know that visions are not achieved overnight. It is
a long term thing. Do not be in a hurry. Try and endure the initial hardships. Anything of a lasting
value would usually have a gestation period – a waiting period, a time lag between sowing and
reaping.
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Write short notes of not more than three sentence each on the early and modern stages of
entrepreneurship development.
The Early Stage of entrepreneurship started when people produced more products than they needed, so
they had to exchange (trade by barter) these surpluses. Even before the advent of any form of money,
producers came to realize that they could concentrate in their areas of strength to produce more and then
exchange with what they needed and through this exchange of products, entrepreneurship started.
People of the Ibo community in Nigeria are considered one of the oldest entrepreneurs in history, their
expertise stretching back to times before modern currency and trade models had developed elsewhere on
the planet
The Modern Stage: Modern entrepreneurship in Nigeria started with the coming of the colonial masters
who brought in their wares and made Nigerians their middle men. In this way, modern entrepreneurship
was conceived. Most of the modern entrepreneurs were engaged in retail trade or sole proprietorship.
Answer to MCQ Study Session 5
Questions 1 2 3 4 5
Answers D C A D B
Study Session 6
SAQ 6.1 (tests Learning Outcomes 6.1, and 6.2)
Discuss briefly the four organic functions of business.
The four organic functions of business include marketing, production, finance and human
resources.
The Marketing function involves the identification of consumer needs which initiates the
business cycle. Market research is the tool used for identifying and assessing consumer needs.
The function of the marketing department is to engage in Market research which involves
gathering, recording and analyzing facts and data concerned with the market. The market
research will take care of such questions as
g) What can be sold in a given market?
h) Where can they be sold?
i) Who are the buyers?
j) What quantity can they buy?
k) What price can they pay?
l) Where can they get the product?
These questions must be answered before the product can be developed and for the business to succeed.
Hence, the marketing function embraces a wide range of sub-functions requiring special skills such
as product planning, public relations, sales and physical distribution, product advertising, and
product promotion.
Production being the process of converting raw materials into finished products means that the
function of the Production department is relating the output of a firm to the amount of inputs.
The production function includes stating the amount of product that can be obtained from every
combination of factors, assuming that the most efficient available methods of production are
used. It can, for example, measure the marginal productivity of a particular factor of production
(i.e., the change in output from one additional unit of that factor). It can also be used to determine
the cheapest combination of productive factors that can be used to produce a given output. The
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production department can use either or a combination of the types of production. The types of
production systems are Job Shop Production, Batch production, Mass production and Process
production.
The basic objective of the finance function is to formulate policies ensuring that the most
effective use is made of the financial resources of the organization. It assists the company to
make use of the funds at its disposal and to select the most favourable sources of additional funds
to finance future operations.
Accounting provides the source of information for financial analysis and planning. Accountants
measure such variables as performance, sales expenses, profits, assets and liabilities and express
their findings in numerical terms. This is then communicated to individuals, management and all
interested parties both in and outside the enterprise.
Financial Accounting is part of the finance function. It takes care of preparing the company’s
balance sheet, profit and loss account and the manufacturing accounts in the case of
manufacturing companies.
The Human Resources Function (HR) deals with people at work and their relationship within
the working environment. The Human Resources approach further deals with the employee’s
entire working life in the company, and not just their contractual relationship with it. It is also
involved with values and aims of their commitment to management goals.
The HR function (Personnel Management and Industrial Relations) is a critical function
performed in any organization of human effort. Plants, office computers and machines are
unproductive except for human effort and direction. Managing the human component is the
central and most important part because everything depends upon how well it is done.
Human Resources function involves:
• Recruitment and Selection,
• Training and Retraining,
• Remuneration of employees,
• Formulating of personnel policies and procedures,
• Acting as a clearing house for information about employee’s conducts, attitude towards
management, the job and the firm,
• Assisting line managers with employee problems e.g. promotions, transfers, demotions,
discharges, etc
• Prepare job analysis and evaluation for each position in the firm, and
• Collective bargaining negotiation

The marketing function embraces a wide range of sub-functions requiring special skills. State
three of such sub-functions
Three of the sub-functions of the marketing function include: Sales and physical distribution,
product promotion and Advertisement.
Sales and physical distribution sub-function ensures that customers are attracted and retained,
and that goods and services reach the ultimate users of the product. In many companies, sales and
distribution are a joint operation. However, before any distribution can take place, a selling
process has to be evolved. The sales department requires an imaginative or creative centre based
on the marketing plan.
Product Promotion is an act of showcasing a good or service manufactured by a firm with the
sole aim of increasing sales within the short or long run. Companies use different techniques and
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communication mediums to promote their products.
Advertisement is an act of showcasing goods or services via TV, Radio, Newspaper or use of
bill boards. In the recent time, many companies have been trying to make use of online social
media to promote their product.
List the four subdivision of the production function.
Depending on the organization, the production function can be subdivided into: Production
Administration, Production Design, Production Management and Production Ancillaries.

What are the basic contents of a feasibility study? Itemize and write short notes on at least three
using not more than two sentences each.
• Brief Description of the Project and its Objective

• Ownership
• The Product or Service
• Production Process and Production Plan
• The Market for the Product
• The Marketing Plan/Strategy
• Technical Feasibility
• Land/Property
• Organization and Management
• Economic or Financial Feasibility
Brief Description of the Project and its Objective

Describing the project and its objective briefly entails stating the name of the business, the type of
business (partnership, sole proprietorship, Limited Liability Company, etc) and the industry to
which the business belongs e.g. food and beverage industry, agricultural industry, textile and
clothing industry, banking industry among others.
Ownership
It is expected that you provide the name(s) of the promoters or proprietors of the business, their
origin (whether indigenes or foreigners), their business experience, what they do currently, their
skills and ability. This element will also include the ownership structure in case more than one
person owns the organisation.
The Product or Service

This entails describing the product or service you want to deliver to the consumers and the nature
of the product or service. You need to state whether it is a consumer good or an industrial good,
whether it is an intermediate or final product, the uses of the product or its importance to the
consumer, and the particular segment of the market it will serve.

State briefly the contents of a financial statement in a feasibility study
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The contents of a financial statement require stating the estimated total capital needs or
requirements which is divided into capital expenditure & working capitals. Capital expenditure
takes care of capital items like plant and machinery, land and building, tools, office furniture and
fixtures, motor vehicles, etc. The working capital or start up capital which is the anticipated
expenditure before revenues are realized will also be stated. This includes anticipated payment for
labour (wages and salaries), utilities, rent, suppliers, repairs, raw materials, administration
expenses, production overhead and other expenses at the initiation of business. Financial feasibility
also entails making financial projections and profitability analysis, that is, having a budget of the
estimated expected costs and revenue or returns and stating the profit margin and expected net
profit.
Answer to MCQ Study Session 6
Question 1 2 3 4 5 6 7 8 9 10 Study
Answer D B B C C A A D A B Session
7

Briefly explain the following concepts, challenges, business and management
Challenges are defined as the test of the abilities of a person, or thing. So, anything or act which
poses some difficulties and tests one’s ability to achieving success could be seen as challenging.
Normally things we are used to doing, no longer tests our abilities because it is established that we
can do it. Therefore we could further say that challenges are obstacles, obstructions, difficulties,
opposition, hindrances, hurdles that business people face.
Business as a word has also been defined in various ways by various people. Some view it “As an
organisation set up to make profit”; others describe it as “an organization consisting of a person or
a group of persons who produce and distribute goods and services for profit”. Business therefore
is “the sum of all the legal activities involved in the creation and distribution of goods and services
for private profit”. Therefore, business is any legal means of satisfying human wants with the
motive of profit.
Management means different things to different people depending on its usage. Some refer to it
as “Those at the top level of an organisation”, that is, the decision makers in an organisation.
Management is the process of planning, organizing, influencing, and controlling to accomplish
organisational goals through the coordinated use of human and material resources. Management
can then be visualised from two perspectives – people at the top level/decision makers (managers)
who ensure that organizational objectives are achieved through the efforts of people (workers) and
other relevant resources.

List and discuss five of the external factors affecting business operation in Nigeria
Five of the external factors affecting business operation in Nigeria include: Unstable Government
Policy, Poor infrastructure, Irregular Power Supply, Inflation/High Cost of doing business, and
Low level of Savings/Spending.
Unstable Government Policy: Government policies are often unstable and inconsistent especially
in the past as a result of political instability. This affects planning and decision making. Examples
are policies on import and export, fiscal and monetary policies, policies on licensing, monopolies,
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foreign investment, distribution and pricing and their controlling, customer protection policies, etc.
Poor Infrastructure: Facilities such as roads, rail, air transport, schools, health facilities, water,
etc, if not in good shape will affect everyone whether a business person or not. As for business
people, bad roads, deficient rail or air system, lack of usable or portable water will affect the cost
of doing business. Bad roads for instance, will cause heavy traffic jams thereby increasing the
number of hours spent in going for a business deal as well as put the vehicles under stress and
thereby reducing the life span of vehicles.
Irregular Power Supply: Most businesses currently operate on generator almost twenty-four
hours daily. Business has to cope with the cost of purchasing generator, powering with the
appropriate petroleum product (cost of products unstable), servicing and maintaining it, and of
course repairing when it is faulty. All of these will add to the cost of the final product or service
to the end users.
Inflation/High Cost of Doing Business: Inflation is the pervasive and sustained rise in the
aggregate level of prices measured by an index of the cost of various goods and services.
Repetitive price increases erode the purchasing power of money and other financial assets with
fixed values, creating serious economic distortions and uncertainty.
Low level of Savings/Spending: Economic growth is slow even though government is working
through the National Economic Empowerment and Development Strategy (NEEDS) to stimulate
growth. Price levels are high and people only spend on essential goods and services (food, shelter,
clothing, education etc.); therefore, little or nothing is reserved for savings. The level of savings
and spending is low and this is not good enough for business especially those who are into some
of the goods and services considered not-too-essential for human survival.

Challenges of Business Management are those issues, factors, conditions, situations,

uncertainties which test the abilities of business managers as they work towards satisfying human
wants and in return make profit.

Challenges of Business Management are those issues, factors, conditions, situations,

uncertainties which test the abilities of business managers as they work towards satisfying human
wants and in return make profit.
Answer to MCQ for Study session 7
222
Questions 1 2 3 4 5
Answers D C C A C
Study Session 8
Define Strengths, weakness, opportunities and threats
Strengths are the ability of an organisation, resources, and weaknesses of the competitor or the
and resources that provide the basis for strategy, e.g. workforce, decision making process,
flexible board, good working environment, and financial capability.
The weakness of an organisation is its failures, defeats (what other people do better than you),
losses and inability to match up with the dynamic situation of the growth of change. This
includes the critical parts of your business you must strengthen or hide from your competitors.
Opportunities are possibilities of what can be done and where effectiveness is possible, the
benefits that are likely to accrue from pursuing your vision.
Threats are changes in business environment usually in the PEST forces which are pitfalls,
dangers, variation and exceptions that are present in an environment.

The indicators of unmet needs are some of the situations or event which point to the fact that there
are gaps which can be filled by a business if all criteria to filling it are met. These indicators are
stated below:
8. Poor delivery of products/services:- If there are complaints and visible problems faced
by customers, one can see it as an opportunity and come up with better method of delivering
such products/services. E.g. in the past, letters, parcels, etc, were handled by NIPOST, but
the courier companies saw the visible complaints and dissatisfaction in customers and today
have taken over the market from NIPOST.
9. Dissonance (lack of Agreement in beliefs) with current means of satisfying existing

10. Emergent Needs: These are needs in the early stages of development. Every need at a
point in time was emergent. Tapping into this opportunity has so much to do with foresight.
Your ability to foresee a need to be met in the future, perhaps needs that may arise through
the use or availability of a current product. Nigeria for instance has need for
storage/preservation of our fruits and vegetables especially because they are mostly
seasonal produce. This is a gap identified.
11. Technological Changes: The issue of technology is dynamic and requires an innovative
entrepreneur who is constantly thinking of how to improve an existing technology to suit
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customers. This way he may find it as a business opportunity to launch the better technology
which customers or users may prefer to the existing one. For instance, it took an innovative
and ingenious business men to realize that grinding of tomatoes, pepper, pounding of yam,
etc. which hitherto was done manually through the use of mortar could get a better result
using machines (Blender, Poundo machine). A gap existed there because some career
women have little or no time to pound and a machine was just apt.
12. Envisaged Large Market: When the users of a product are many such that those serving
the market may not be doing that effectively, other business men could go into that market,
since it is large enough to accommodate all. For instance most of the Igbo traders that bring
in radio face the northern market knowing that this group of people especially the lower
status like listening to the radio a lot.

Five micro causes of business failure include:

i. Poor business planning/financial decisions.
ii. Inadequate capital before commencement of business
iii. Bad management
iv. Cash flow problems: you spend more than you receive
v. Fall in demand for the product

Three institutionalized sources of business ideas are: Universities and Research Institutes,
Consulting Firms/Market researchers, and Industrial and business publications.
Universities and Research Institutes: These are centres where students and consultants have done
a lot of research on new businesses and the reports have largely been left to waste. Examples are
Federal Institute of Industrial Research Oshodi (FIIRO), Project Development Agency (PRODA)
Enugu, and all other universities and research bodies.
Consulting Firms/Market Researchers: These are people who specialize in consulting and
researching for business people at a cost. They take the burden of researching for opportunities
from entrepreneur and business people at a fee.
Industrial and business publications: There are very vital information published by business
journals /magazines etc. This can help a searching mind to identify a business opportunity. For
instance, Business Day, Financial times, etc.

These are:
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4) Economic Factors. These include, cost consideration (capital needed, level of competition
in the market, resource availability such as adequate skilled manpower and suitable material
resources, location and the size of the market.
5) Technical factors. Lack of technical know-how to provide such goods and services that
will satisfy customers. From some perspective people will jump at products that can prevent
baldness, loss of sight, death or sickness, but there is no technology to that effect yet.


3. Be innovative and ingenuous
4. Have an effective sales force
Answer to MCQ for Study Session 8

Ques 1 2 3 4 5 6 7 8 9 10 11
Anws C A A A B C B B D D C
Study Session 9
Social responsibility according to Schermerhorn (2002) is defined as an obligation of the

organization to act in ways that serve both its own interests and the interests of its many external
stakeholders. Social responsibility is therefore the obligation of organisations to protect and
improve the welfare of society as well as its own interest.

Compare three arguments for and against social responsibility
1. Arguments in favour of social responsibility opine that business is unavoidably

involved in social issues because it is an entity of society, allowed by society to exist and
if society does not exist, organisations will also not exist. Thus, when there is a change in
societal expectations about business, so should their actions change; while arguments
against thinks It is a subtle socialist idea Since it looked like an indirect way of using
political mechanism as opposed to market mechanisms, as the most appropriate means of
allocating scare resources.
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2. Arguments in favour of social responsibility opines that corporate businesses have the
obligation and resources to help solve some of the problems facing the society, while
those who are against thinks that as an economic institution, business lacks the ability
to pursue social goals because business is not equipped to handle social matters.
3. Those in favour of social responsibility feel Organisations tap their natural, material
and human resources used for production from the environment (society), it therefore
behoves them to be socially responsible in return; while those against think that the Social
responsibility of business is to use its resources and engage in activities designed to
increase its profits. So long as it stays within the game, “competition without deception
or fraud”.

1. A better awareness of the organisation is created
2. Public opinion sways in favour of such organisation
3. There is increase in profit as more customers/public patronizes the organization
4. The organization is likely to attract socially conscious investors.

standards of human conduct, sometimes called morals (Latin ‘mores’ ‘customs’. Ethics are
“Moral rules or principles of behaviour for deciding what is right or wrong”.
There are several causes of ethical compromise. Some of these are:
 The pressure of competition can lead people to engage in unethical practices.

 When the judicial process is weak and people can get away with any type of crime
committed, then many more will be encouraged to go into unethical practices.
 What is considered a vice in one setting may be a value in another; and so people with
wrong sense of value and who engage in unethical practice do not see certain action as a
vice. For instance the wish to succeed by all means in a society that does not recognize
hard work as a means of success can make some business people to be unethical in their
behaviour.

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a. Conflict of Interest: In this context a worker allows his or her personal interest to override
the official obligation.
b. Honesty and Fairness: Where dishonesty and inequity becomes the norm in a business
organisation as they deal with the stakeholders.
c. Communications: Ethics demand that there should not be deceit or exaggerated claims in
any contact or communication with the public; instead vital facts that can assist third parties
to take decisions should be disclosed.
d. Respect in the Workplace: Business ethics emphasises the establishment of a work
environment in which all individuals are treated with respect and dignity. All forms of
discriminatory practices e.g. sexual harassment should be avoided. Employees on their own
should treat one another with respect.
Factors encouraging compliance to ethics may be:

vi. Manager’s personal value system
vii. Religious beliefs

d) Code of ethics is written and not oral. This code should specify what is adduced to be right
or wrong within the organisation.
e) Information relating to ethical practice is not centred only on cost and profit
f) The establishment of specific job positions responsible for enforcing the ethical codes of
their organisation.
g) Top management act as strong role models for lower level personnel

The five stakeholders or interest groups in social responsibility include:
Employees, Customers, Government, Shareholders and the community.
Study Session 10
Differentiate between regulatory and facilitating roles of government
The regulatory role of Government as the name connotes is all about regulation of the activities
of business. This is carried out through the agencies set up by the government. These agencies
exist at the Federal and State levels and they have responsibility over the legislation for different
sectors of the economy. For examples we have the Corporate Affairs Commission, Economic and
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Financial Crime Commission (EFCC), Security and Exchange Commission (SEC), among others
who are all agencies of government carrying out regulatory roles.
The facilitating roles of government are meant to provide favourable business environment
which will be attractive to investors. This is also called Promotional role. Some of the ways the
roles are carried out are by providing tax and custom duties incentive to business institutions in
order to encourage them to develop and compete favourably with their foreign counterpart,
promoting free competition in the economy, amongst others.

Give four reasons for government control of business
Governments regulate and control business in order to:

vii. Maintain free competition
viii. Protect public health and safety i.e. the welfare of the people.
ix. Ensure adequate service at reasonable rates by businesses deemed essential to the public
welfare
x. Protect infant industries against dumping

State three objectives of the Nigerian Enterprises Promotion Decree (NEPD)
The following are the objectives of NEPD amongst others:

1. To create more employment for Nigerians.
2. To allow Nigerians have a larger say over the running of the economy.
3. To obviate foreign undue dominance and safeguard the best interests of the Nigerian
economy.

List two benefits of the NEPD
1. Increased local retention of profit.

2. A pool of indigenous personnel with better technical and management skills.

Write brief notes on schedules I and II of the decrees
Schedule One: The enterprises in this schedule were to be exclusively reserved for Nigerian
citizens and associations, provided the capitalization was less than N20 million. Foreigners were
free to invest in these enterprises provided their investment was more than N20 million. Some of
the items in schedule 1 are: Advertising, Public relation business, Assembling of radios, television,
Bottling of alcoholic drinks, Baking of cake and bread etc.
Schedule Two: The enterprises listed in this schedule are those in which Nigerians were expected
to have a majority ownership of at least 60 per cent. These include: Banking (commercial banks,
merchants banks and development banks), Basic iron and steel manufacturing, Beer brewing,
Clearing and forwarding agencies.

Outline at least three structural imbalances that led to SAP
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Some of the structural imbalances that informed the introduction of the Structural Adjustment
Programme include:
• High levels of subsidies
• Bloated government expenditure/high budget deficits
• Poor agricultural prices

Itemize four requirements for a successful commercilization process
• The reduction or elimination of subvention to the enterprise

• Reduction to the barest minimum or elimination of political interference by the supervising
government ministry in the day to day running of the enterprise.
• Appointment of a reputable board of directors and commitment to sound corporate
governance principles.
• The appointment of a competent management team

Discuss two methods used by BPE to privatize firms in Nigeria
6. Concessioning. This is the approach that has been used to privatize Nigerian port terminals,
using the landlord model. Nigerian Ports Authority remains the owner and landlord, but the
port terminal assets have been given out to private terminal operators to operate for as long
as 25 years and in return they pay agreed sums to government for the use of the terminals.
They also commit themselves to invest in and develop the terminals for the period they will
control and operate them.
7. Core Investment Approach – used in selling large commercial enterprises like oil and gas
marketing companies, telecommunication and power companies, etc. This was the method
used by the Federal Government through the BPE to dispose of its investments in National
Oil and Chemical Company Ltd, where the core investor was Consolidated Oil Ltd (Con
Oil). Ltd and Unipetrol, where the core investor was Oando Ltd. Whenever a core investor
approach is used, it is assumed that the remaining shares are already in the hands of other
private investors as in the case of Unipetrol which was previously partly taken over by
government.
Answer to MCQ on study Session 10

Questions 1 2 3 4 5 6 7 8 9 10
Answers A B C A B B B C A A
Study Session 11

NEEDS focused on four key strategies. List them.
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The four key areas NEEDS focused on were:
(1) reforming government and institutions

(2) growing the private sector
(3) implementing a social charter and
(4) reorienting the value system of the populace.

Outline seven critical areas that NEEDS sought to address.
• Health/HIV AIDS – reducing the huge disease burden and the HIV/AIDS pandemic
• Education – realizing that half of Nigeria’s population is young, the strategic role of education in
knowledge diffusion, skill building and human capital development
• Agriculture – recognizing the primacy of agriculture and giving farmers the necessary
tool, materials and finance they need to produce food in abundance, create wealth and
employment and transform the rural sector
• Pension Reform – putting in place a modern contributory pension scheme
• Infrastructure – bridging the huge infrastructural gap necessary for Nigeria’s
economic development and social transformation
• Promoting the Private Sector – as the engine of growth of the economy
• Political and Administrative Reform –changing the way government does business,
shrinking the size of the public sector and drastically reducing the high cost of
governance

Mention five principles on which NEPAD was founded and state two of its objectives.
• African ownership and leadership, as well as broad and deep participation by all sectors
of society;
• Good governance as a basic requirement for peace, sucurity and sustainable, political and
socio-economic development;
• Anchoring the redevelopment of the continent on the resources and resourcefulness of the
African people;
• Partnership between and amongst African peoples;
• Acceleration of regional and continental integration;
Two of NEPAD’s objectives are:

e) To place African countries, both individually and collectively on a path of sustainable
growth and development, and
f) To halt the marginalization of Africa in the globalization process and enhance its full and
beneficial integration into the global economy.

Explain two long-term potential benefits of AGOA to African Countries
• It is expected that AGOA will provide improved access to U.S. technical expertise, credit,
and markets; and
• Establish a high-level dialogue on trade and investment.
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Answers to MCQ for Study Session 11
Question 1 2 3 4 5
Answer B B C A A
Study Session 12

Briefly discuss five objectives of the International Monetary Fund’s (IMF)
The objectives of IMF among others include:
1. To contribute to the development of the productive resources of all members.

2. To assist developing nations pay their trade partners in foreign currencies.
3. To standardize currencies by ensuring currency stability and preventing disloyal
competition by depression of the rate of exchange.
4. In order to encourage international trade, IMF ensures that· member countries’ currencies
are freely convertible.
5. To give advice and help member nations solve their domestic economic problems.

Discuss three advantages and disadvantages each of globalization.
Advantages of globalization include:
10. It permits countries to concentrate on the production of goods and services in which they
have comparative advantage.
11. It raises productivity and improves the living standard of the people through international
division of labour and efficient allocation of resources.
12. It makes a country to have access to a large volume and diversified sources of external
funds or finance.
Disadvantages of globalization include:

a. It leads to dumping of goods/products
b. It reduces the demand for the products of infant and local industries
c. It may result to unemployment due to capital flight.

Outline five groups of the World Bank and state their function
6. International Developing Agency (IDA). The group provides loan assistances to middle
income and poorer countries
7. International Bank for Reconstruction and Development (IBRD). The group also provides
loan assistances to middle income and poorer countries like the international developing
agency
8. International Finance and Cooperation (IFC). It promotes private sector investment, both
foreign and domestic services as an investor and broker between foreign investors, local
partners and government authorities.
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9. Multilateral Investment Guarantee Agency (MIGA). It promotes foreign direct investment
by offering political risk assurance. It conveys direct benefits to host countries by
providing information on job creation and training for employers.
10. International Centre for settlement of Investment Disputes (ICSID). It offers opportunity
to new big investors entering new markets and government to provide enabling
environment. The group also creates effective and stable financial markets. There is also
the provision of facilities for the settlements by conciliation or arbitration of investment
dispute between investor and their host.

List and explain briefly four documents used in international trade.
Four documents used in International trade are:
Sanitary Health Certificate: The certificate certifies that the product or goods
is fit for human consumption.
Certificate of Inspection: the manufacturer or supplier issues the certificate to show that they
have inspected the goods shipped and they are in conformity with buyer‘s purchase order.
The pro-forma invoice contains the particulars of exporter and importers.
Form M: the importer fills a set of the form by transferring the information on the pro-forma
invoice into the form M. Thereafter, the form M and the pro-forma invoice are sent to the
importer’s bank for processing.

State two each of the reasons and problems of regional economic integration
The reasons for regional economic integration are:
• Removal of all impediments to free trade and investments.
• Efficient resource allocation to promote greater output of goods and services and overall
economic well-being of member states.
The problems of regional economic integration are:
➢ Loss of some measure of economic and political independence by member states.

➢ Inability to fix tariffs and impose restriction not in line with the framework of the
integration agreement.
Answer to MCQ for Study Session 12
Question1 2 3 4 5 6 7 8 9 10
Answer C C A D A C A C D A
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APPENDIX 2
GLOSSARY OF KEYWORDS
Administrative Agency: There are specialized agencies such as NAFDAC and BON to control
types of economic activity.
Business- act of transacting goods and services
Business Development- act of expanding a business
Business Environment- is simply the surroundings within which a business exists. The business
environment embraces all institutions, organisations, and individuals whose activities have an
impact directly or indirectly on business behaviour.
Business management -act of overseeing transacting goods and services
Capitalism- under a capitalist economic system, individuals own all resources, both human and
non-human.
Capitalism: Under a capitalist economic system, individuals own all resources, both human and
non-human.
Challenges- the test of the abilities of a person, or thing. So, anything or act which poses some
difficulties and tests one’s ability to achieve success could be seen as challenging.
Charter: is the grant of authority or rights, stating that the granter formally recognizes the
prerogative of the recipient to exercise the right specified.
Commercial Industry: The activities engaged in these organizations serve as facilitators of
business. Examples are banks, insurance companies, wholesale and retail trade organizations, real
estate companies, transportation firms, etc.
Commercialization is the introduction of performance or efficiency-based principles in the
running of public or state-owned enterprises in a way that makes their operation self-sustaining
and better able to achieve the objectives for which they were established, without constituting a
drain on the public treasury.
Communications: Ethics demand that there should not be deceit or exaggerated claims in any
contact or communication with the public; instead, vital facts that can assist third parties to take
decisions should be disclosed.
Communism- Under this system, all resources, both human and non-human are owned by the
state.
Compliance-conforming to laws and regulations
Conflict of Interest: In this context a worker allows his or her personal interest to override the
official obligation.
Construction Industry: This comprises businesses involved in building infrastructure like roads,
bridges, houses, office blocks, seaports and airports, stadia, to mention but a few.
Development: Expansion/growth
Economic block- Economic section/aspects
Economic development strategy-approach to economic development
Economics- the study on how to satisfy the unlimited yearning for goods and services in a world
of limited or scarce supply of resources.
Entrepreneur - is one who is the risk bearer, has the capacity economically to produce goods and
services; organizes and supervises production; and introduces new methods and new products, and
searches for new materials.
Entrepreneurship- Entrepreneurship is an attempt at creating value through recognition of
business opportunities, management of risk-taking appropriate to the opportunities, and through
233
the communicative and management skills to mobilize human, financial and material resources
necessary to bring a project to fruition.
Environment- Surroundings
Ethical compromise- giving concession on the principles or standards guiding human conduct
Ethics- are the principles or standards guiding human conduct. They are moral rules which
determine the right or wrong of a behavior.
External environment - is made up of factors that may spell profound threats or new
opportunities for a business.
Extractive Industry: This is a group of business firms whose primary activities involve mining,
fishing, forestry, farming, quarrying, drilling, etc.
Fair dealing: Business operators should not take undue advantage or exert undue influence on
people through manipulation, concealment, abuse of privilege or confidential information,
misrepresentation of material facts, fraudulent behaviour or any other unfair dealing practice.
Feasibility- making projections to include profitability analysis.
Feasibility study is a preliminary study undertaken to determine and document the viability of a
project.
Finance function is to formulate policies ensuring that the most effective use is made of the
financial resources of the organization.
Financial Statement Integrity: Business ethics states that a company should follow strict
accounting principles and standards to report financial information accurately and completely.
Globalization- is the integration of economies with regards to market for goods, factors of
production and technology.
Honesty and Fairness: Where dishonesty and inequity become the norm in a business organisation
as they deal with the stakeholders.
Human Resources (HR): deal with people at work and their relationship within the working
environment.
Inflation/High Cost of Doing Business: Inflation is the pervasive and sustained rise in the
aggregate level of prices measured by an index of the cost of various goods and services
Internal environment- The internal environment of business is made up of all the physical and
social factors within the confine of the business, which impart strengths or cause weaknesses of a
strategic nature and are taken directly into consideration in the decision-making behaviour of the
business
International monetary fund- Prescribes, inspires, and provides funds
International trade- is the trade between nations of the world. It is trade between individual
firms and the government of the countries.
Irregular Power Supply: Most businesses currently operate on generators almost twenty-four
hours daily.
Management- controlling/supervising
Manufacturing Industry: This is composed of businesses whose primary purpose is to convert
items (goods) in the crude state to a more useful state.
Marketing function involves the identification of consumer needs which initiates the business
cycle.
234
Mixed Economy- is a system where there is a blend of some elements of both market and
command economies in answering the three fundamental economic questions.
NEEDS- National Economic Empowerment and Development Strategy (NEEDS) was a strategic
socio-economic and political development framework
New Partnership for Africa’s Development- New Partnership for Africa’s Development
(NEPAD) is a vision and strategic framework for Africa’s socioeconomic and political
transformation put in place by the African Union to harness the energy of all African country and
refocus their development strategies with the aim of achieving rapid growth and development.
Nigerian Economy- an economic system that is in between a capitalist (free market) economy
and a socialist (pure planned) economy.
Opportunities- are possibilities of what can be done and where effectiveness is possible, the
benefits that are likely to accrue from pursuing your vision.
Organic functions- major components of a business; marketing, production, finance and human
resources.
Organization’s strength- The internal strengths include a company’s core competencies,

corporate capabilities and resources that provide the basis for your strategy, e.g. workforce,
decision making process, flexible board, good working environment, and financial capability.
Organizational behavior- is the manifestation of the various forces and influences operating in
the internal environment of an organization.
Organizational resources- these are man, materials, machines and money are utilized in the
most judicious manner to achieve optimal results, with minimal use of time.
Organization-an establishment or a system of government

Poor Infrastructure: Facilities such as roads, rail, air transport, schools, health facilities, water,
etc, if not in good shape will affect everyone whether a businessperson or not.
Privatization is the selling of government owned economic assets to private investors or the
transfer by government of its equity interests in state-owned enterprises or commercial enterprises
to private investors by way of direct sale.
Production is the process of converting raw materials into finished products.
Respect in the Workplace: Business ethics emphasizes the establishment of a work environment
in which all individuals are treated with respect and dignity.
Safety Policy: In an ethical organisation, the safety of the workers and customers is paramount.
The company should cultivate safety practices and put in place measures of protection and
insurance policy.
Self-employment- means owning your own business alone or in partnership with others or with
members of your family. It is the alternative to wage employment
Service Industry: The service industry does not produce physical goods, yet it is very productive
through services which are demanded and paid for by consumers and businesses alike, for
examples entertainment and recreation, hotels and lodging, laundry, and general cleaning, etc.
235
Social responsibility- is an obligation of the organization to act in ways that serve both its own
organic interests and the interests of its many external stakeholders
Socialism- under a socialist economic system, individuals own their own human capital and the
government owns most other non-human resources,
Socialism: Under a socialist economic system, individuals own their own human capital, and the
government owns most other non-human resources, i.e., most of the major factors of production
are owned by the state.
Sole proprietorship- is a type of business that is wholly owned by one person
Statutes: A formal written enactment of a legislative authority that governs a local government,
state, or country.
Strength- is the ability, resources, weakness of the competitor or the opposition. The internal
strengths include a company’s core competencies, corporate capabilities and resources that provide
the basis for your strategy, e.g. workforce, decision making process, flexible board, good working
environment, and financial capability.
Threats- are changes in a business environment usually in the PEST forces which are pitfalls,
dangers, variation, and exceptions that are present in an environment.
Unstable Government Policy: Government policies are often unstable and inconsistent especially
in the past because of political instability.
Wage employment: Working for someone, an organisation or a company and getting paid for the
work done.
Weaknesses of an organisation is its failures, defeats (what other people do better than you),
losses and inability to match up with the dynamic situation of the growth of change. This
includes the critical parts of your business you must strengthen or hide from your competitors.
236

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DISTANCE LEARNING INSTITUTE

BUSINESS ENVIRONMENT AND

through the course outline carefully to learn what is expected of you.

We wish you the best.

Dr. Alaneme, Gloria C.

course fundamentally aims to introduce you to Management and Business Environment as a

your understanding of what you have read in each module.

b. Background of the Course

On completion of this module, you should be able to:

Study Session 1: Concept of Business

b. Preparation Required in Advance of Sessions

4.0 ASSESSMENT DETAILS

THE CONCEPT OF BUSINESS

classification of business will also be dealt with.

Learning Outcomes for Study session 1

1.3. Explain the Nigerian Economy and Business (SAQ 1.1)

1.4. Summarise the Business Economic foundations (SAQ 1.3)

1.5. Describe the different Categories or Classification of Business (SAQ 1. 2)

Key Terms: Business, Nigerian Economy, Economics, Business Development,

Define Business by Karimu (1992)

and distribution of goods and services for private profit”.

1.2 The Purpose for business

Abram Maslow’s hierarchy of needs, could be physiological, psychological security,

social/belongingness, esteem or self-actualization. It is expected that these needs will be provided

1.3 Brief history of business development in Nigeria

arms and ammunitions (UHY,

1.4 Business and Economic Foundations

production because they are used to produce goods and services.

Communism, Socialism, and Capitalism.

Socialism is closely related to communism. Socialism is an economic system in which the

decisions about what is best for the nation.

system because government intervenes and regulates business to some extent.

1.5 The Nigerian Economy and Business

study it in the following segment.

maintenance of sound financial regulations. Government is also involved in direct supply of

Government involvement in the provision of goods and services (both as commercially-oriented

Their (Public enterprise) primary purpose is to stimulate and accelerate

sectors like education, electricity, water resources, agriculture, etc)”.

i. Innovation: introduction of new products or services

An increase in productivity can be measured in terms of output per labour employed,

iii. Employees’ satisfaction: Business seeks to enhance employees’ satisfaction, so as to

optimize contributions to business well-being.

iv. Shareholders’ Satisfaction: increase in dividends and reduction in business risk

v. Social responsibility: Business aims at identifying with the locality in which it

strives to satisfy, such as:

- Suppliers: They supply the inputs to business

- Distributors: They distribute the goods produced by business

individual’s rights would not be infringed upon.

1.6 Categorization of Business

stated by Isimoya (2005).

consumer goods producer.

time, such as food items, cigarettes and paper products.

c. Industry Type: Businesses can be classified by industry characteristics thus:

i) Extractive Industry: This is a group of business firms whose primary activities

involve mining, fishing, forestry, farming, quarrying, drilling, etc.

iii) Construction Industry: This comprises businesses involved in building

stadia, to mention but a few.

iv) Commercial Industry: The activities engaged in these organizations serve as

facilitators of business. Examples are the banks, insurance companies, wholesale