Business Studies Form 2 Notes : GOVERNMENT AND BUSINESS

Government and Business

By the end of the topic, the learner should be able to:

1. Explain reasons for government involvement in business.
2. Explain how the government gets involved in business.
3. Discuss the merits and demerits of government involvement in business.
4. Discuss the importance of consumer protection.

Introduction

Government involvement in business activities is one of the commercial duties it owes its citizens. It provides the necessary environment for investments to be undertaken by itself or by local and foreign investors. The government may do this in various ways, including:

1. Producing goods and services
2. Distributing goods and services
3. Advising producers and traders
4. Promoting trade and economic development
5. Protecting consumers against exploitation by producers and traders
6. Acting as a consumer of goods and services

Reasons for Government Involvement in Business

The following are the major reasons for the government’s involvement and participation in business activities:

1. To prevent exploitation of the public by private businesspersons, especially in the provision of essential goods and services such as sugar, transport, communication, etc. The Kenya Bureau of Standards (KEBS) regulates the quality of goods consumed in Kenya.
2. To provide essential goods and services in areas where private individuals and organizations are unwilling to venture because of low profits or high risks involved.
3. To provide essential goods and services which private organizations and individuals are unable to provide due to the large amount of initial capital required, e.g., generation of electricity, establishment of airlines, etc.
4. To attract foreign investment by initiating major business projects.
5. To stimulate economic development in the country, e.g., by providing social services.
6. To provide goods and services which are too sensitive to be left in the hands of the private sector, e.g., provision of firearms.
7. To create employment opportunities by initiating projects such as generation of electricity.
8. To prevent foreign dominance of the economy by investing in areas where the locals are not able to.
9. To redistribute wealth where returns are very high.
10. To prevent establishment of monopolies.

Methods of Government Involvement in Business

The government gets involved in business activities through the following methods:

1. Regulation

This refers to rules and restrictions the government requires business units to follow in their business activities. Through this method, the government ensures high-quality goods and services and puts in control measures to protect consumers from exploitation. The government regulation measures include:

Licensing

A license is a document that shows that a business has been permitted by the government to operate. It is usually issued upon payment of a small fee.

Licensing is the process of issuing licenses to businesses. Some of the reasons why the government issues licenses include:

• Regulating the number of businesses in a given place at any given time to avoid unhealthy competition.
• Controlling the type of goods entering and leaving the country.
• Ensuring there are no illegal businesses.
• Ensuring that traders engage only in trade activities that they have been licensed for.
• Ensuring that those who engage in professional activities meet the requirements of the profession.
• Raising revenue for the government.

Ensuring Standards / Enforcing Standards

The government regulates business activities by setting standards that businesses should meet and ensuring that the standards are adhered to. To achieve this purpose, the government has established bodies such as:

• Kenya Bureau of Standards (KEBS), whose main responsibility is to set standards especially for manufactured goods and ensure that the set standards are met. Goods that meet such standards are given a diamond mark of quality to show that they are of good quality.
• The Ministry of Public Health, which ensures that businesses meet certain standards concerning facilities before such businesses can be allowed to operate. Such standards may include clean toilets, clean water, and well-aerated buildings.

Legislation

The government may come up with rules and regulations (laws) that regulate business activities, e.g., banning hawking in certain areas, requiring matatus to carry a certain number of passengers, etc.

2. Training

The government takes keen interest in training and advising people in business about business management strategies and better ways of producing goods and services. The government offers these services through seminars and courses. This is mainly done by the Kenya Business Training Institute (K.B.T.I). Reasons for government training include:

• To expose businesspersons to modern developments in management.
• To introduce modern technology and skills in management.
• To educate business people on efficient methods of operating a business, e.g., effective methods of advertising and keeping books of accounts.
• To expose business people to problems and challenges facing them and their possible solutions, for example, problems of raising capital and identifying investment opportunities.
• To impart proper business ethics, e.g., good customer relations and honesty.
• To create awareness of the available profitable business opportunities in their environment.
• To expose business people to government policies regarding business activities in the country.
• To educate business people on how to use available resources to minimize costs and maximize profits.
• To expose people to other opportunities that exist in the import and export market.

3. Trade Promotion

This is a government-initiated and supported policy to encourage local business people to enter into business. This is aimed at increasing the volume and variety of goods and services traded.

Trade promotion is classified as either external trade promotion or internal trade promotion.

External Trade Promotion

• The purpose of external trade promotion is to encourage local business people to enter into the export market.
• It is also intended to attract foreign investors into the country.
• In Kenya, external trade promotion is done through the Department of External Trade in the Ministry of Trade and Industry.
• External trade promotion may also be done by Commercial Attaches.

Commercial Attaches are officers sent by the country’s government to work with embassies in foreign countries as support staff in the field of commerce. Their main duty is to look after the interests of their home countries’ exports, e.g., cash crops and manufactured goods.

Duties of Commercial Attaches

• Explore and identify new markets for more export opportunities.
• Research and analyze markets for exports from their home countries.
• Keep statistics of products such as volumes, packaging size, and method of manufacturing.
• Attend meetings, seminars, and workshops on trade patterns of the countries and keep data for new markets of exports.
• Publish and advertise their country’s exports in business journals and magazines.
• Select buyers, agents, and distributors of the home country’s exports.
• Inform traders in their home countries of the standards required for exports.
• Assist sales missions from their home countries by organizing educational tours for them.
• Organize visits to trade fairs and exhibitions for business people from their home country.
• Make detailed reports on commercial activities that may help improve the exports of their countries.

To perform these duties, the commercial attaché needs to:

• Keep information on prices paid for exports and terms of payments (conditions to be fulfilled before the payment is made).
• Be aware of the rules that govern payment in international trade.
• Be aware of the workings of regional organizations that operate in developing countries such as the East African Community (E.A.C), Inter-Governmental Authority for Development (I.G.A.D), Common Market for Eastern and Southern Africa (COMESA), Economic Commission for Africa (E.C.A), and African Growth Opportunity Act (A.G.O.A).

Internal Trade Promotion

This is done by the government through the Ministry of Trade. The ministry carries out various activities.