Entrepreneurship Notes (1-8)

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Notes for basics of entrepreneurship, NTA 4
COLLEGE OF BUSINESS EDUCATION (CBE)

DAR ES SALAAM CAMPUS
NOTES FOR BASIC ENTREPRENEURSHIP NTA 4
2020
COURSE CODE BAT 04204
PREPARED BY COURSE INSTRUCTOR

MR. MBUNDA, A.S.
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Notes for basics of entrepreneurship, NTA
TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................5
A COURSE OUTLINE OF BASIC ENTREPRENEURSHIP, NTA 4 ......................................6
1.0 THE BACKGROUND AND NATURE OF ENTREPRENEURSHIP FOR COMMENCING
AND OPERATING BUSINESS .......................................................................................7
1.1 Definitions of key terms ......................................................................................... 7
1.1.1 Entrepreneurship ............................................................................................ 7
1.1.2 Intrapreneurship ............................................................................................ 7
1.1.3 Risk taking/ bearing........................................................................................ 7
1.1.4 Creativity ....................................................................................................... 8
1.1.5 Innovation ..................................................................................................... 8
1.1.6 An enterprise ................................................................................................. 8
1.1.7 Entrepreneurial behavior ................................................................................. 8
1.1.8 Entrepreneurial competences .......................................................................... 8
1.1.9 Interneural culture ......................................................................................... 8
1.1.10 Business opportunity (bizopp) ......................................................................... 9
1.2 The background of a concept an entrepreneur ........................................................ 9
1.3 Historical development of entrepreneurship in Tanzania ........................................... 9
1.3.1 Before Colonial Era ........................................................................................10
1.3.2 During Colonial Era ........................................................................................10
1.3.3 Post-independence and Socialist Era (1967-1985) ............................................10
1.3.4 Liberalization and Economic restructuring (1986 to date) ..................................11
1.4 Rewards / importance of entrepreneurship in Tanzania ...........................................12
1.5 Possible risks associated entrepreneurship .............................................................13
1.6 Problems facing entrepreneurs in Tanzania ............................................................13
2.0 FEATURES OF ENTREPRENEURSHIP VS. BUSINESS ........................................14
2.1 Characteristics of Entrepreneurs ............................................................................14
2.2 Different between an entrepreneur and businessperson ..........................................16
2.3 Types of entrepreneurship ....................................................................................17
2.3.1 Classification based on business done .............................................................17
2.3.2 Classification based on the use of technology ..................................................18
2.3.3 Classification based on business ownership......................................................18
2.3.4 Classification based on gender ........................................................................18
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2.3.5 Classification based on a size of the business ...................................................19

2.3.6 Based on Clarence Danhof Classification ..........................................................19
2.3.7 Classification based on behavioural scientists ...................................................20
2.3.8 Other types of entrepreneurship or entrepreneurs ............................................21
2.4 Personal enterprising tendency .............................................................................21
2.5 Measuring those characteristics of personal enterprising tendency ...........................22
3.0 SCOPE AND IMPLICATION OF ENTREPRENEURSHIP FOR ECONOMIC
EMPOWERMENT ........................................................................................................25
3.1 Entrepreneurship process .....................................................................................25
3.2 Venture life-circle and activities to be undertaken ...................................................26
3.3 Forms of business and implications........................................................................27
4.0 BUSINESS START- UP PROCESS ......................................................................28
4.1 A business idea....................................................................................................28
4.2 Sources of business idea ......................................................................................28
4.3 Procedures of screening business idea ...................................................................29
4.4 General legal requirements for starting a business ..................................................30
4.5 Requirement for opening a business account for any type of business ......................31
4.5.1 Individual .....................................................................................................31
4.5.2 A Corporation (limited Company) ....................................................................32
4.5.3 Partnership ...................................................................................................32
4.5.4 Trust ............................................................................................................32
4.5.5 Charitable organization ..................................................................................33
4.6 A summary of requirements for opening a business account for any type of business 33
5.0 IMPLICATION OF A FIRM IN POVERTY ERADICATION IN TANZANIA .............33
5.1 Meaning of a business firm ...................................................................................34
5.2 Categories of business firms in Tanzania and source of funding ...............................34
5.2.1 Sole Proprietorship ........................................................................................34
5.2.2 Partnership ...................................................................................................34
5.2.3 Corporation...................................................................................................35
5.2.4 Limited Liability Company (LLC) ......................................................................37
5.2.5 Source of business funding.............................................................................37
5.3 Small Business Enterprises ....................................................................................37
5.3.1 Meaning of a small business ...........................................................................37
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5.3.2 Common Features of small business ...............................................................38

5.4 Advantages of running small business....................................................................38
5.4.1 Problems faced by small business in Tanzania..................................................39
5.5 Efforts taken by the government of Tanzania in the development of small business
firms in the Tanzania economy .......................................................................................40
5.6 Contribution of the small business firms in the Tanzania economy............................40
5.7 Governments’ commitments to the development of small firms in Tanzania ..............41
6.0 INTERNATIONAL PURCHASING .......................................................................42
6.1 Meaning of international purchasing ......................................................................42
6.2 Why international purchasing is important..............................................................42
6.3 Reasons against international purchasing ...............................................................44
6.4 Methods use in restricting international purchasing (trade) ......................................44
6.5 Documents used in international purchasing...........................................................45
7.0 INCOTERMS IN INTERNATIONAL TRADE ........................................................47
7.1 Meaning of INCOTERMS .......................................................................................47
7.1.1 The 13 Incoterms ..........................................................................................47
7.2 INCOTERMS 2020 ................................................................................................50
7.3 Limitations of INCOTERMS ....................................................................................52
8.0 PAYMENT PROCEDURES IN INTERNATIONAL PURCHASING ...........................53
8.1 International Payment Method ..............................................................................53
8.1.1 Cash in Advance ............................................................................................54
8.1.2 Letters of Credit ............................................................................................54
8.1.3 Documentary Collections ................................................................................55
8.1.4 Open Account ...............................................................................................55
8.1.5 Consignment .................................................................................................55
8.1.6 Risks associated to each methods of international payment methods .................56
8.1.7 Measures for protecting payment risks ............................................................56
9.0 REFERENCES....................................................................................................58
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INTRODUCTION
This is a pamphlet contains some notes prepared for the course of Basic
Entrepreneurship, NTA 4 focusing on the course outline of the respective module.
Therefore, it is my hope that the notes will be used as one of the additional sources of
knowledge to supplement other sources of knowledge. In the totality, the course has
eight sub-enabling learning outcomes (SELOs) with several related tasks (RTs). In this
pamphlet therefore, each SELO is treated as an independent chapter of discussion.
Furthermore, the discussion of each SELO is followed by assignments provided to
students for self-assessment of learning achievements or level of understanding of the
content discussed. Hopefully, my students will enjoy using this pamphlet.
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A COURSE OUTLINE OF BASIC ENTREPRENEURSHIP, NTA 4

Table 1: Summary of the Course Outline of Basic Entrepreneurship, NTA 4
Sub-enabling learning Related tasks (RTs)

outcomes (SELOs)
1. The background and a) Understanding key terms (Entrepreneurship, an Entrepreneur,

nature of entrepreneurship Intrapreneurship, an Intrapreneur, Risk, Innovation, Creativity,
for commencing and enterprise, Entrepreneurial behaviour, Entrepreneurial
competences, Entrepreneurial culture, Business opportunity)
operating business
b) Explaining the historical development of entrepreneurship in
Tanzania
c) Explaining the importance of entrepreneurship in Tanzania
d) Explaining risks and rewards of entrepreneurship
e) Identifying problems facing entrepreneurs in Tanzania
2. Features of a) Identifying characteristics of entrepreneurs
entrepreneurship vs. b) Differentiating entrepreneur vs. businessperson
business c) Identifying types of entrepreneurs
d) Explaining personal enterprising tendency
3. Scope and implication of a) Explaining the entrepreneurship process
entrepreneurship in b) Explaining the venture-life-cycle and activities
economic empowerment c) Identifying forms of business and implications
4. Business startup process a) understanding business idea

b) Identifying sources of business idea
c) Identifying procedures for screening idea
d) Identifying legal requirement for starting a business
e) Identifying requirement for opening a business account for any
type of business
5. Implication of a firm in a) understanding a business firm
poverty eradication in b) Categorizing business firms in Tanzania and source of funding
Tanzania c) Describing advantages of operating small business
d) Explaining problems faced by small business
e) Stating contribution of the small business firms in the Tanzania
economy
f) Describing constraints of business firms in exporting
6. International purchasing a) Defining international purchasing
b) Identifying reasons for and against international purchasing
c) Identifying documents used in international purchasing
7. Incoterms in International a) Defining INCOTERMS
trade b) Explaining grouping INCOTERMS as used in international trade.
c) Identifying the limitation of Incoterms
8. Payment procedures in a) Describing international payment method.
international purchasing b) Explaining risks of international payment methods.
c) Identifying Measures for protecting payment risks
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1.0 THE BACKGROUND AND NATURE OF ENTREPRENEURSHIP FOR

COMMENCING AND OPERATING BUSINESS
At the end of this chapter, each student will be able to familiarize the following
content:-
i. Understanding key terms

ii. Explaining the historical development of entrepreneurship in Tanzania
iii. Explaining the importance of entrepreneurship in Tanzania
iv. Explaining risks and rewards of entrepreneurship
v. Identifying problems facing entrepreneurs in Tanzania
1.1 Definitions of key terms
In this course, we have several key concepts to be defined. Among them are;
entrepreneurship, an entrepreneur, intrapreneurship, an intrapreneur, risk, innovation,
creativity, enterprise, entrepreneurial behaviour, entrepreneurial competences,
entrepreneurial culture, business opportunity.
1.1.1 Entrepreneurship
Entrepreneurship has different definitions some of them are as follows;
Entrepreneurship is the process of designing, launching and running a new business,
which is often initially a small business (Wikipedia).
Entrepreneurship is also defined as a capacity and willingness to develop, organize and

manage a business venture along with any of its risks to make a profit.
1.1.2 Intrapreneurship
It refers to a system that allows an employee to act like an entrepreneur within a
company or other organization. An intrapreneur therefore, is an employee of a company
who is assigned to work on a special idea or project. He or she is given the time and
freedom to develop the project as an entrepreneur does.
The main difference between an entrepreneur and an intrapreneur is that, an

intrapreneur is an employee, and an entrepreneur is free and the leader of the
operation.
1.1.3 Risk taking/ bearing

Risks implies future uncertainty about deviation from expected earnings or outcomes.
Therefore, risk taking is the act or fact of doing something that involves danger
or risk in order to achieve a goal. Starting a business always involves some risk-taking.
As an entrepreneur, taking risks does not mean going into business blindly and then
expecting great results. However, taking risks in entrepreneurship involves careful
planning and hard work.
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1.1.4 Creativity
Is the act of turning new and imaginative ideas into reality. Creativity is characterized
by the ability to perceive the world in new ways, to find hidden patterns, to make
connections between seemingly unrelated phenomena, and to generate.
1.1.5 Innovation
The process of translating an idea or invention into a good or service that creates value
or for which customers will pay.
Note: the different between creativity and innovation is that; creativity is the novel step
of being the first to identify that something might be possible in the first place.
But innovation is the action of putting things into practical reality, despite challenges
and resistance, rather than just contemplating. In other words. Creativity involves the
generation of novel and useful ideas while innovation entails the implementation of
these ideas into new products and processes.
1.1.6 An enterprise
Is a-profit business or company, most often associated with entrepreneurial ventures.
1.1.7 Entrepreneurial behavior

Entrepreneurial behavior refers to the discovery and exploitation of a. new business
opportunity with the purpose of profit and growth. It involves three. distinct activities:
1) the identification of a new business opportunity, 2) the. establishment of a new
venture to exploit that opportunity, and 3) the management of venture.
1.1.8 Entrepreneurial competences

Refer to underlying characteristics such as generic and specific knowledge, motives,
traits, self-images, social roles, and skills which result in venture birth, survival, and/or
growth. The combination of these characters in turn make someone to become a
successful entrepreneur. Examples of entrepreneurial competencies are as follows;
persistence-ability to take different actions to overcome an obstacle that get in the
way of reaching goals, information seeking- ability to seeks adequate information
that will help to achieve business objectives, concern for doing high quality of
work- ability in doing things that meet certain standards of excellent for greater
satisfaction of service or goods provided, commitment to work contract- ability of
taking extraordinary efforts to complete the job, efficient orientation- ability of doing
thinks faster at less cost. Other competencies are problem solving sjkills, self
confidence, persuasion, monitoring, concern for employee welfare, using influence
strategies eg. using other persuasive people to me the goal etc.
1.1.9 Interneural culture

The attitude, values, skills, and power of a group or individuals working in an institute
or an organization to generate income.
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1.1.10 Business opportunity (bizopp)

It is a packaged business investment that allows someone to begin a business. Also, it
refers to availability of chances for selling or buying of any product, service, equipment,
etc.
1.2 The background of a concept an entrepreneur

The following hints summarize the historical background of a concept an entrepreneur.
• The word has been in use since the 16th century.

• In Middle Ages the term 'entrepreneur' was referred to a person who was
managing large projects (the period from the fall or Roman Empire in the West (5th
century) to the fall of Constantinople (1453), or, more narrowly, from c. 1000 to
1453.
• In the 17 century the word was extended to cover architects and contractors
engaged in activity, such as construction, fortification and public work.
• In the beginning of 18 century it was used to refer to economic aspects.
• Some economists say that the term has been derived from German word
'unternehmen' which literally means 'to take' or 'operation' or 'to undertake'
• The French economist Richard Cotillion is generally accredited with being the first
to coin the phrase in the context of what we view today as 'entrepreneurship' in
about 1730
• Further they pointed out that in 19 and 20 century many eminent economists and
scholars including Adam Smith, Alfred Marshall and frank etc. elaborated on
Cotillion's contribution, adding leadership and recognizing entrepreneurship through
organization, but the key tenets of risk taking and profit were nearly always
retained as important features of entrepreneurship.
• In contemporary meaning, an entrepreneur can be seen as;
✓ a person who is action oriented, highly motivated, takes risks to achieve
goals
✓ a person who establishes his/her own business with the intention of making
profits
✓ a person who innovates, raise money, assemble input, choose managers and
set the organization growing.
Therefore, based on the above definitions, there are key elements of an entrepreneur
which are visionary, innovative, risk bearer, rational decision, leadenness to learn, elf
commitments, passion, establishing business network etc. (will be discussed in chapter
two).
1.3 Historical development of entrepreneurship in Tanzania

It should be noted that people engaging in business activities, is a part of human
history. Africans, Tanzanians in particular, are like other people in the world engaged in
exchanges of commodities and goods even before the colonial era. Therefore,
development of entrepreneurship in Tanzania can be traced and summarized into the
following phases.
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1.3.1 Before Colonial Era

Indigenous Africans had trade relationship between one person and another person,
and between one society and another society. Batter trade was commonly dominant
among people and societies. For example, there was a good trade relationship between
the East cost of Tanzania and the interior societies. Commodities such as Ivory, gold
and others were taken from the interior of Tanzania and exchanged with beads, guns,
clothes etc. from the costal traders.
1.3.2 During Colonial Era

In the colonial era, indigenous productive activities were weakened by colonial
regulations and competitions from imports. Colonial policies were deployed to keep their
colonies producers of raw materials for Europe industries. The policy also limited
indigenous Africans and lesser extent Asians from engaging in business.
Therefore, manufacturing, importing, exporting, banking and insurance were mainly

done by Caucasians (Europeans). Asians who were treated during the construction of
railway in 1960s as clerks, were encouraged to operate as sub-wholesalers and
retailers. On the other side, Africans were restricted to participate in trade to very small
firms such as dukawalas (tiny shops) except for offspring of chiefs. According to
Rweyemamu (1979), at the independence, very few Africans participated in retail
trading as compared to Asians. For example, in 1961, there were about 34,581 Africans
and 7,500 Asians held retail trading licences, but this was 2/3 of Asians. Africans were
made to believe that they were “naturally” inferior to other races and everything African
was backward. Naturally, this environment had a negative effect on development of
entrepreneurial values and competencies, including self-esteem, a belief in the ability to
make things happen, confidence, initiative, aggressiveness, etc.
However, the social and economic context created in various parts of the country during
the colonial period presented different opportunities for the development of
entrepreneurship. For example, European missionaries and farmers settled in some
mountains areas of the country (Kilimanjaro, Tukuyu, Bukoba, Songea etc), where they
introduced Christianity, education and commercial agriculture. They also encouraged
the local population to cultivate commercial crops and to establish cooperatives. This
development not only inspired the local population and exposed to new desires and
opportunities, but it also led to land shortages which forced them to think and act in
non-traditional ways in pursuing of livelihoods and success.
1.3.3 Post-independence and Socialist Era (1967-1985)

Tanganyika’s first five-year development plan (1961-1966) envisaged developing the
economy by attracting foreign direct investment (FDI). However, the end of five years,
the plan was not met as it was expected. The leadership started looking for alternative
development strategies.
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In 1967, the government officially adopted a radical transformation to a socialist

development strategy, through the Arusha Declaration which nationalized various
sources of the national economy such as banking, import-export, insurance, large
houses, farms, schools, hospitals, etc were also nationalized.
The government invested heavily in the nationalized entities as well as new ones.
Therefore, the socialist policies discouraged private business entrepreneurship in favor
of government, community-based or co-operative-owned ventures.
Regulations were introduced to bar civil servants and leaders of the ruling party from
engaging in business activities. Since all educated Africans were civil servants, this
means that, business activities were left to Asians and those indigenous people who
had no job opportunities, and these tended to be people who had no substantial
education.
The break-up of East African Community in 1977 coincided with a combination of other
unfortunate events led to a long economic crisis in Tanzania. The events included the
international oil crisis of the early 1970s and a costly war between Tanzania and
Uganda in 1978/79.
The economic crisis was manifested by a serious shortage of foreign exchange and
consumer products, industrial capacity under-utilization, inflation and decline in real
purchasing power among wage earners, forcing them to undertake petty business
activities to supplement their meager earnings. Similarly, real crop prices dropped
compelling peasants and their dependents to diversify income sources by engaging in
small ventures within the rural areas or in urban centers.
In attempt to respond to challenges associated to economic crisis, Tanzanians from all

walks of the life responded to the challenge by establishing makeshift backyard
factories, smuggling goods from neighboring countries or hoarding whatever little was
available from the local industries and selling the same at exorbitant prices.
Again, there were others established informal agricultural activities, animal husbandry,
retail and other projects to supplement the dwindling formal incomes and take
advantage of the failure of state companies to meet the basic needs.
However, this “second economy” met strong resistance from the state which only saw
its dysfunctional role. The informal private business activities were seen as being in
conflict with country’s resolve to build an egalitarian society, as it created a class which
owned no allegiance to the goals of the society (Maliyamkono and Bagachwa, 1990).
In 1983, the government implemented a ruthless campaign against “economic

saboteurs,’ confiscating property and arresting business operators of different kinds.
1.3.4 Liberalization and Economic restructuring (1986 to date)

The economic crisis that began in the mid-1970s intensified in the early 1980s, forcing
the government to liberalize trade and start implementing a radical transformation
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programme with the urging and support of the World Bank and the International
Monetary Fund (IMF) from 1986.
The Economic Restructuring Programme (ERP) involved liberalization of all sectors of

the economy and privatizing and nationalizing employment in the public sector. Under
the ERP, the government gradually changed its economic policy from reliance on state-
run enterprises to promotion of foreign investment and local entrepreneurship. The
private sector is now seen as the engine of economic growth and the role of
government has been redefined to focus on facilitation rather than direct ownership and
operation of enterprises.
The reforms did not fully ease the problem of low salaries. On the contrary, the
retrenchments, freezing of employment, privatization of state enterprises and
disengagement of the government from some activities led to substantial job losses and
limited openings for school and college graduates. Most of those who could not find
jobs as well as salaried workers, started micro and informal businesses to enable them
to eke out a living. The government started encouraging workers to do so. For example,
in 1992, the government deliberately reduced the working week by half a day to give
employees more time to engage in income generating projects to supplement their
official incomes. This played a significant role in enhancing the legitimacy of
entrepreneurship activities.
Since the mid-1990s, entrepreneurship as a career has been acquiring increasing

legitimization. The proportion of individuals consciously choosing self-employment, even
among the highly educated, has been increasing too.
1.4 Rewards / importance of entrepreneurship in Tanzania

There are many rewards of entrepreneurship in Tanzania. Some of the points in the
discussion may be directed to;
• Promotes the spirit of self-reliance

• Reduction of unemployment phenomenon in the nation
• Promotion of the national and individual income
• Reduction of social evils resulted from unemployment
• Discouragement of unnecessary rural-urban movements especially for youths
• Risk of Scaling
• Committing Personal Time/ effective time management
• Interest in Your Product/Service.
• A flexible schedule
• Autonomy
• Creating a career that aligns with your values
• Constant growth and development
• Meeting like-minded people
• Gaining thrilling experiences
• Choosing who to work with.
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1.5 Possible risks associated entrepreneurship

As it is for rewards, entrepreneurship can be associated with various risks. Some of
them are as listed below.
Assignment
In your groups, with examples, briefly explain how the following risks might face an
entrepreneur in her/his daily activities.
• Financial Risk,
• Competitive Risks,
• Environmental Risks,
• Reputational Risks,
• Political and Economic Risks.
• Bankruptcy,
• Sacrificing Personal Capital
• Relying on Cash Flow
• Trusting Key Employees
• Emotional Risk
• Business loss due to various reasons. Eg. poor analysis of business plan,
natural hazards etc.
• Social factors eg. cultural obstacles based on some business practices, sex
etc.
• Sudden change in legal policies etc.
NOTE: as an entrepreneur to defeat several risks, you must plan wisely in terms of
budgeting and show investors that they are considering risks by creating a realistic
business plan
1.6 Problems facing entrepreneurs in Tanzania

Some of the problems facing entrepreneurs in Tanzania are:-
• Lack of entrepreneurship education to most people engaging with

entrepreneurship.
• Most of entrepreneurs are less creative to their business.
• Negative mentality of some people especially the youth graduating in various
colleges and universities who still think for wage employment rather than
self-employment.
• Problems in financial capital- most people have good ideas of starting their
own businesses, but they lack financial capital.
• Problems in infrastructure eg. Poor road networks especially in the rural
areas.
• Cash flow management. Cash flow is essential to small business survival. For
example, a decision of an entrepreneur to invest in asserts which prohibit
cash flow affect their business.
• Poor marketing strategy.
• Criticism and self-doubt.
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• Finding Customers.
Assignment
i. Define the following terms as used in in the industry of entrepreneurship
(Entrepreneurship, an Entrepreneur, Intrapreneurship, an Intrapreneur, Risk,
Innovation, Creativity, enterprise, Entrepreneurial behaviour, Entrepreneurial
competences, Entrepreneurial culture, Business opportunity).
ii. Explain the status of entrepreneurship development in Tanzania based on before,
during the colonial era, post-independence and Socialist Era (1967-1985) and
liberalization and Economic restructuring era (1986 to date).
iii. Among four eras in the development of entrepreneurship in Tanzania, which one
had greater contribution to the development of entrepreneurship in Tanzania and
why?
iv. With examples from the Tanzanian context, discuss the importance of
entrepreneurship.
v. An entrepreneur in Tanzania is not free from various problems that might hinder
his/her activities. With examples, identify those problems.
2.0 FEATURES OF ENTREPRENEURSHIP VS. BUSINESS
At the end of this chapter, each student is expected to familiarize the following
content:-
i. Identifying characteristics of entrepreneurs
ii. Differentiating entrepreneur vs. businessperson
iii. Identifying types of entrepreneurs
iv. Understanding personal enterprising tendency
2.1 Characteristics of Entrepreneurs
Many entrepreneurs would like to succeed in their businesses. However, most of them
fail to achieve it. The following hints describe characteristics of successful
entrepreneurs.
i. Self-Motivation
One of the most important traits of entrepreneurs is self-motivation. When you
want to succeed, you need to be able to push yourself. You aren’t answerable to
anyone else as an entrepreneur, and that sometimes means that it’s hard to get
moving without anyone to make you. You need to be dedicated to your plan and
keep moving forward — even if you aren’t receiving an immediate paycheck.
ii. Having basic money management skills and knowledge
If you want to be successful, you should still have basic money management
skills and knowledge. Understand how money works so that you know where you
stand, and so that you run your business on sound principles.
iii. Readiness to adapt changes in business/ flexibility
To a certain degree, you need to be flexible as an entrepreneur. Be willing to
change as needed. Stay on top of your industry and be ready to adopt changes
in processes and product as they are needed. Sometimes, you also need
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flexibility in your thinking. This is an essential part of problem-solving. You want

to be able find unique and effective solutions to issues.
iv. Making big decisions carefully/ rational decision
Every decision has consequences, whether good or bad. Over time, those
consequences shape our reality and tell the story of our lives. Entrepreneurs who
are doing well take note and carefully identify the potential long-term effects of
each decision, while seeking counsel before making major decision.
v. Readiness to learn constantly
There’s always something you don’t know and something else that has just been
discovered. Both are essential for entrepreneurs. You can’t build a business
around something you don’t know about, and you can’t improve products and
services using outdated methods. Entrepreneurs are always on the prowl to learn
more about what they do and what the competition is working on.
vi. Risk taking
The best things in life are often found on the other side of a worthwhile risk; in
that way, the best business you can build may be on the other side of possible
failure. Entrepreneurs don’t shy away from the unknown or the uncharted. They
know that’s where the future sales dollars and profits are. While uncalculated
risks can cause terrible consequences, calculated risks are the sweet spot of a
new business venture.
vii. Taking what you do seriously/ personal commitments
Entrepreneurs understand that the success of the business ultimately rests upon
their shoulders. Because of this, all successful entrepreneurs take their work very
seriously.
viii. Passion
They realize failure is just information about what doesn’t work, not the end of
the journey. They continue trying long after most would have given up.
ix. Adapting to the current needs of the customer and market/ customer satisfaction
As conditions and society go through changes, so do the needs of customers.
The successful businesses of tomorrow will be those that learn how to meet
those needs quickly and don't get left behind in the heap of non-adapters.
x. Knowing how to sell yourself/ advertisement of your business
Understand what you offer. As an entrepreneur, you need to know what you
offer, and how it fits into the market. Successful entrepreneurs know when
something is valuable, even if no one else does yet. They can explain and prove
why their product or service is worth the price or investment. Finding a way to
sell yourself before anyone believes in you or your business is the key to
successful entrepreneurship.
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xi. Knowing the business network
Not everyone is going to be jumping at the chance to use a new product and
service, and some still won’t adopt even after a lot of compelling information. So
entrepreneurs network; not only to find clients, but also to meet others who
share their passion and desire and who can help them go even further.
2.2 Different between an entrepreneur and businessperson
Businesspeople and entrepreneurs have many similarities. They both provide jobs for
the unemployed, give solutions to the consumers, and help in developing the economy
of a certain nation. However, they are not the same kind of people. The following are
differences between a businessman and an entrepreneur
i. Business idea originality/ the source of business idea

A businessman can make a business out of an unoriginal business or product
idea. He enters into existing businesses, such as franchising and retailing. He
chooses a hot and profitable business idea regardless of whether it is his original
idea or borrowed from someone else. On the other side, An entrepreneur is an
inventor and the first creator of a product. He invests time, energy and money
on his own idea. He doesn’t start a business from an unoriginal idea. That is why
he starts on a startup while a businessman starts on a business.
ii. On the purpose of doing
Most businessmen are doing business for profit, livelihood, for reaching their
financial goals, and for becoming their own boss. Entrepreneurs are more
concerned on changing the world. They want to pursue their passion and
achieve an ultimate goal. They are not keen on financial returns, rather they are
focused on what they can offer to the world.
iii. On the degree of risks taken
Businessmen take calculated and managed risks. They cannot afford to lose
money and suffer from bankruptcy. Entrepreneurs are like sky divers. They take
crazy risks. They often don’t care of losing time and money just to pursue their
passion. But since they do it with love, joy and passion, they often gain
extraordinary rewards. Entrepreneurs, since they do the things they love the
most, they do it with the best of themselves, resulting to greater success.
iv. On how he treats employees
A business owner is an employer and a manager. He hires employees and
workers to help his business grow. An entrepreneur is a friend and a leader. He
finds peers and people, whom he will never treat as machines. He invites them
to help them grow.
v. On how he treats customers
A business owner usually sees customers as his source of sales and revenues.
For him, customers are the lifeblood of his business. An entrepreneur sees
customers as his source of duty and fulfillment. For him, customers are his own
life blood.
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vi. On how he sees the competition

A business owner tries hard to beat his competitors and win the competition. He
also considers cooperation rather than competition to achieve certain goals. An
entrepreneur tries hard to beat his worst competitor – himself.
vii. On what he thinks of money
Losing money is one of the biggest worries of businessmen. Most business
owners rely on a good economy to start, operate and attain success in business,
especially in the retail, franchising and financing industry. Entrepreneurs do not
worry a lot about money since they can always start from a scratch. Some
entrepreneurs don’t really care about money at all
viii. On how he deals with time
A businessman doesn’t waste time. He always check the clock and doesn’t want
any work or output to be delayed out of schedule. He is fast and always on the
go. An entrepreneur works like an artist or a scientist in a lab. His product is his
masterpiece. That is why he can be slow and could spend a longer period of time
to finish and perfect his product.
ix. On how he sees the world
A businessman sees the world as an opportunity. He sees it as an opportunity to
make a living. He also sees it as an opportunity help the people living on it. An
entrepreneur sees the world as a duty rather than an opportunity.
x. On how he defines success
A businessman defines success as the success of his business and its
stakeholders. An entrepreneur doesn’t define success. He simply do his job and
let history defines the success that he accomplished.
NB: Remember despite the differences articulated between an entrepreneur and a

businessman, both of them supposed to be the kind of people that our world needs. A
businessman needs an entrepreneur. An entrepreneur may also need a businessman.
There can also be a person who is partly a businessman and partly an entrepreneur.
2.3 Types of entrepreneurship
Entrepreneurs are people who have a passion for creating change in the world. They
need a certain set of skills to be effective leaders and innovators. Since there are so
many types of businesses, there are also many kinds of entrepreneurs. Entrepreneurs
are classified based on different classifications. The following are some of them.
2.3.1 Classification based on business done
i. Trading Entrepreneur
As the name itself suggests, the trading entrepreneur undertake the trading
activities. They procure the finished products from the manufacturers and sell
these to the customers directly or through a retailer. These serve as the
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middlemen as wholesalers, dealers, and retailers between the manufacturers and

customers.
ii. Manufacturing Entrepreneur:
The manufacturing entrepreneurs manufacture products. They identify the needs
of the customers and, then, explore the resources and technology to be used to
manufacture the products to satisfy the customers’ needs. In other words, the
manufacturing entrepreneurs convert raw materials into finished products
iii. The entrepreneurs who undertake agricultural pursuits are called agricultural
entrepreneurs.
They cover a wide spectrum of agricultural activities like cultivation, marketing of
agricultural produce, irrigation, mechanization, and technology.
2.3.2 Classification based on the use of technology
i. Technical Entrepreneur
The entrepreneurs who establish and run science and technology-based
industries are called ‘technical entrepreneurs.’ Speaking alternatively, these are
the entrepreneurs who make use of science and technology in their enterprises.
Expectedly, they use new and innovative methods of production in their
enterprises.
ii. Non-Technical Entrepreneur
They are concerned with the use of alternative and imitative methods of
marketing and distribution strategies to make their business survive and thrive in
the competitive market
2.3.3 Classification based on business ownership
i. Private Entrepreneur
A private entrepreneur is one who as an individual sets up a business enterprise.
He / she it’s the sole owner of the enterprise and bears the entire risk involved in
it.
ii. State entrepreneur
When the trading or industrial venture is undertaken by the State or the
Government, it is called ‘state entrepreneur.
iii. Joint Entrepreneur

When a private entrepreneur and the Government jointly run a business
enterprise, it is called ‘joint entrepreneurs.
2.3.4 Classification based on gender
i. Men Entrepreneurs
When business enterprises are owned, managed, and controlled by men, these
are called ‘men entrepreneurs.’
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ii. Women Entrepreneurs

Women entrepreneurs are defined as the enterprises owned and controlled by a
woman or women having a minimum financial interest of 51 per cent of the
capital and giving at least 51 per cent of employment generated in the
enterprises to women.
2.3.5 Classification based on a size of the business
i. Small-Scale Entrepreneur
An entrepreneur who has made investment in plant and machinery up to Rs 1.00
crore is called ‘small-scale entrepreneur.’
ii. Medium-Scale Entrepreneur
The entrepreneur who has made investment in plant and machinery above Rs
1.00 crore but below Rs 5.00 crore is called ‘medium-scale entrepreneur.’
iii. Large- Scale Entrepreneur
The entrepreneur who has made investment in plant and machinery more than
Rs 5.00 crore is called ‘large-scale entrepreneur.
2.3.6 Based on Clarence Danhof Classification
Clarence Danhof (1949), on the basis of his study of the American Agriculture, classified
entrepreneurs in the manner that at the initial stage of economic development,
entrepreneurs have less initiative and drive and as economic development proceeds,
they become more innovating and enthusiastic. According to him, there are four types
of entrepreneurs as follows;
1.Innovating Entrepreneurs
Innovating entrepreneurs are one who introduce new goods, inaugurate new method of
production, discover new market and reorganize the enterprise. It is important to note
that such entrepreneurs can work only when a certain level of development is already
achieved, and people look forward to change and improvement.
2. Imitative Entrepreneurs
Imitative entrepreneurs do not innovate the changes themselves; they only imitate
techniques and technology innovated by others. Such types of entrepreneurs are
particularly suitable for the underdeveloped regions for bringing a mushroom drive of
imitation of new combinations of factors of production already available in developed
regions.
3. Fabian Entrepreneurs
Fabian entrepreneurs are characterised by very great caution and skepticism in

experimenting any change in their enterprises. They imitate only when it becomes
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perfectly clear that failure to do so would result in a loss of the relative position in the
enterprise.
4. Drone Entrepreneurs
These are characterised by a refusal to adopt opportunities to make changes in

production formulae even at the cost of severely reduced returns relative to other like
producers. Such entrepreneurs may even suffer from losses, but they are not ready to
make changes in their existing production methods.
2.3.7 Classification based on behavioural scientists
1. Solo Operators
These are the entrepreneurs who essentially work alone and, if needed at all, employ a
few employees. In the beginning, most of the entrepreneurs start their enterprises like
them.
2. Active Partners
Active partners are those entrepreneurs who start/ carry on an enterprise as a joint
venture. It is important that all of them actively participate in the operations of the
business. Entrepreneurs who only contribute funds to the enterprise but do not actively
participate in business activity are called simply ‘partners’.
3.Inventors:
Such entrepreneurs with their competence and inventiveness invent new products.
Their basic interest lies in research and innovative activities.
4. Challengers
These are the entrepreneurs who plunge into industry because of the challenges it
presents. When one challenge seems to be met, they begin to look for new challenges.
5.Buyers:
These are those entrepreneurs who do not like to bear much risk. Hence, in order to
reduce risk involved in setting up a new enterprise, they like to buy the ongoing one.
6. Life-Timers:
These entrepreneurs take business as an integral part to their life. Usually, the family
enterprise and businesses which mainly depend on exercise of personal skill fall in this
type/category of entrepreneurs.
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2.3.8 Other types of entrepreneurship or entrepreneurs
i. Scalable startup entrepreneurship
This kind of entrepreneurship is when entrepreneurs believe that their company can
change the world. They often receive funding from venture capitalists and hire
specialized employees. Scalable startups look for things that are missing in the market
and create solutions for them. Many of these types of businesses start are technology-
focused. They seek rapid expansion and big profit returns. Examples of scalable
startups are Facebook, Instagram and Uber.
ii. Social entrepreneurship
An entrepreneur who wants to solve social problems with their products and services is
in this category of entrepreneurship. Their main goal is to make the world a better
place. They don't work to make big profits or wealth. Instead, these kinds of
entrepreneurs tend to start nonprofits or companies that dedicate themselves to
working toward social good.
iii. Hustler entrepreneurship
People who are willing to work hard and put in constant effort are considered hustler
entrepreneurs. They often start small and work toward growing a bigger business with
hard work rather than capital. Their aspirations are what motivates them, and they are
willing to do what it takes to achieve their goals. They do not give up easily and are
willing to experience challenges to get what they want. A perfect example of a hustler is
Mark Cuban. He started in business very young selling trash bags, newspapers and
even postage stamps and this hustle later created a goldmine which was acquired by
internet giant Yahoo.
iv. Researcher entrepreneurship
Researchers take their time when starting their own business. They want to do as much
research as possible before offering a product or service. They believe that with the
right preparation and information, they have a higher chance of being successful.
Therefore, based on above types of entrepreneurship, we can get the following types of
entrepreneurs, innovators, hustlers, imitators, researchers, buyers etc.
2.4 Personal enterprising tendency
An enterprising tendency is defined as the tendency to start up and manage your own
projects/ business venture. In other words, personal enterprising tendency refers to the
combinations of attributes/ characteristics that help someone to become a successful
entrepreneur.
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This is measured by the General Measure of Enterprising Tendency test (GET2). The
test was first developed in 1987-1988 by Sally Caird and Mr Cliff Johnson at Durham
University Business School with funding from the University Grants Council.
The basic premise of the test is that the enterprising person shares entrepreneurial
characteristics (attributes), and that these characteristics may be nurtured via
educational and training and assessed.
The attributes are need for achievement, need for autonomy, need for achievement,
need for autonomy, creative tendency, calculated risk taking and locus of control,
providing interpretation for these enterprising attributes.
i. Motivation : The enterprising person is highly motivated, energetic, and has a

capacity for hard work. They are busy, driven, dynamic and highly committed to
getting things done. Their high motivation levels are characterised by a high
need for achievement and for autonomy, manifesting as the desire to lead,
shape and complete projects.
ii. Creative tendency: The enterprising person is restless with ideas, and has an
imaginative approach to solving problems. They tend to see life in a different
way to others, spotting opportunities around them. Their innovative tendency
helps them to develop ideas to create new products, services and systems, new
intellectual property and artistic outputs, and new products.
iii. Calculated Risk taking : The enterprising person is opportunistic and identifies
goals they wish to pursue. This will usually involve some risk to them– their time,
finances and personal relationships. They may be willing to take risks in some or
all of these areas. They seek information and expertise to assess if it is worth
pursuing the opportunity, although the nature of calculated risk-taking means
there is a risk and they may be proved wrong. They also need to convince their
investors and supporters to take a calculated risk.
iv. Focus of control: This means that they confidently seek to exert control over life,
draw on inner resources and believe that it is down to them if they succeed
through their own efforts and hard work.
2.5 Measuring those characteristics of personal enterprising tendency

High need for achievement
If people have high need for achievement have the following qualities,
● An orientation towards the future,
● Reliance on their own ability,
● An optimistic rather than a pessimistic outlook,
● A strong task orientation,
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● Effective time management,
● Results-oriented with yourself and others,
● Restlessness, driven and energetic,
● Opinionated in defense of your ideas and views,
● Determination to ensure your objectives are met even when difficulties arise,
● Responsible and persistent in pursuit of aims,
● Oriented towards challenging but realistic goals,
● Willingness to work long and hard when necessary to complete task
Autonomy
● Self expressive, feeling a strongly need to do their own thing their way,
rather than work on other people’s projects,
•Independence, preferring to work alone especially if they cannot be ‘top dog’
● Individualistic and unresponsive to group pressure,
● Leadership, preferring to be in charge and disliking taking orders,
● Unconventional, and prepared to stand out as being different to others,
● Opinionated, having to say what they think and make up their own mind
about issues,
● Determination, strong willed and stubborn about their interests
Creative tendency
If people have a creative tendency, they have the following qualities,
● Imaginative, inventive or innovative tendency to come up with new ideas,
● Intuition, being able to synthesis ideas and knowledge, and make good guesses when
necessary,
● Change-orientation, preferring novelty, change and challenges with a dislike of being

locked into routines,
● Versatile and able to draw on personal resources for projects or problem solving,
● Curious and interested in new ideas.
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Calculated risk- takers
If people are calculated risk-takers, they have the following qualities:
● Decisive, being able to act on incomplete information and good at judging
when incomplete information is sufficient for action,
● Self-awareness with the ability to accurately assessing their own
Capability,
● Analytical, being good at evaluating the likely benefits against the likely
costs of actions,
● Goal-oriented, setting themselves challenging but attainable goals,
● Effective information management, using information to calculate the probability of

success
Internal locus of control
If people have an internal locus of control, they have the following qualities:
● Opportunistic, seeking and taking advantage of opportunities.
● Self-confidence with the belief that they have control over their destiny and make
their own luck, rather than being controlled by fate;
● Proactive, taking personal responsibility to navigate the problems that
arise to achieve success on their terms,
● Determination and express a strong-willed control over life,
● Self-belief, equating the results achieved with the effort made.
Assignment
i. Entrepreneurs possess common characteristics which make them successful.

In your group discussion, explain at least any five characteristics of
entrepreneurs.
ii. Although an entrepreneur and a businessperson share some attributes but to
some extent, they differ each other. With five point, validate the statement
iii. Entrepreneurs are of various types based on the means used to classify them.
explain
iv. What does it mean by personal enterprising tendency? What are four key
recommended attributes used in measuring personal enterprising tendency?
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3.0 SCOPE AND IMPLICATION OF ENTREPRENEURSHIP FOR ECONOMIC

EMPOWERMENT
At the end of this chapter, each student should be able to familiarize the content
related to the following areas:-
i. Explaining the entrepreneurship process

ii. Explaining the venture-life cycle and activities
iii. Identifying forms of business and implications
3.1 Entrepreneurship process
Entrepreneurial process can be defined as the steps taken in order to establish a new
enterprise. It is a step-by-step method; one has to follow to set up an enterprise. There
have been various literature on steps of Entrepreneurial process. Some literature points
out 4, 5, 6, 9 and 9+ steps.
For example;
Four steps
i. Identification and evaluation of the opportunity,
ii. Development of the business plan,
iii. Determination and evaluation of resource requirements
iv. Harvesting- an entrepreneur decides on the future prospects of the business
based on the profit made and customers’ satisfactions. It is in this stage wherein;
improvements are needed or terminate it.
Five steps
i. Discovery of an Idea
ii. Concept Development (development of a business plan).
iii. Seeking Resources
iv. Actualization of Operations (implementation of your business plan)
v. Harvesting- an entrepreneur decides on the future prospects of the business
Six steps
i. Deciding to Become an Entrepreneur-It refers to the first step of the
entrepreneurial process in which an individual decides to start his/her own
enterprise. There are various sources of business ideas as discussed in SELO 4.
ii. Identifying and Evaluating the Opportunity- In this process, the entrepreneur
recognizes potential opportunities. Sometimes, the set mechanisms, such as
entrepreneurship development training programs and government policies to
promote entrepreneurs, help potential entrepreneurs in identifying the
opportunities.
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iii. Development of a business plan- Developing a business plan involves setting

goals, standards, methods, and techniques of achieving those set goals. A well
drafted business plan serves as a road map to the entrepreneur to guide and
monitor his/her activities towards the set goals.
iv. Determining the Required Resources- It involves determining the resources
required to meet the identified opportunity. In this step, the entrepreneur
assesses the available resources and the resources that are essential to convert
the identified opportunity into a reality.
v. Converting the Idea to an Enterprise- In this step, the entrepreneur brings the
set business plan into practice.
vi. Managing and Growing the Enterprise- It refers to the final stage of the
entrepreneurial process. Once the resources are acquired, the entrepreneur uses
them efficiently to carry out the business plan successfully. He/she also strives to
identify and examine operational problems, and solve them.
Eleven steps
i. Search for a New Idea
ii. Preliminary Assessment of Idea – evaluating the quality of idea.
iii. Detailed Analysis of Promising Idea
iv. Selection of the Most Promising Idea
v. Assembling the Resource and Personnel
vi. Determining Size of Unit
vii. Deciding on Location of Business and Plan Layout
viii. Sound Financial Planning- this is based on available financial resource in order to
put it to optimum use.
ix. Launching the Enterprise
x. Managing the Company
xi. Harvesting- an entrepreneur decides on the future prospects of the business
NB: Based on above presented steps of entrepreneurship process, one would notice
that, despite their differences in numbers, there are similar ideas among them.
Therefore, it is the matter of choice about what steps to be followed.
3.2 Venture life-circle and activities to be undertaken

This refers to stages of an enterprise from its formulation to decline. As it was for
entrepreneurship process, there have been various perspectives on stages of an
enterprise (venture life-circle). However, in this discussion, we will concentrate on five
steps as follows;-
i. Introduction- The product is developed keeping in view a particular need of a set

of consumers and introduced in the market by initiating its commercial
production. At this stage product is new in the market, consequently its demand
is low and requires vigorous sales efforts. The promotional costs are therefore
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high at this stage and the production costs are also not fully recovered due to
low volume of sales.
ii. Growth Stage- There is a rapid expansion in sales as the cumulative impact of
the promotional expenditure helps in the market acceptance of the product as
well as the reputation of the product gains around. But this rapid expansion can
be sustained only by the maintenance of product quality.
iii. Maturity Stage- When the product enters the maturity stage the rate of growth
of its sales declines, though the volume of sales keeps on increasing. This is so
because most of the persons needing the product-had; already adopted it during
the growth stage and now when the product enters its maturity stage, it faces a
small and declining number of potential buyers. Consequently, the firm has to
spend relatively increasing amount of sales promotion.
iv. Saturation Stage- At this stage, the sales volume of the product ceases to grow.
The only additional demand for the product happens to be its replacement
demand.
v. Decline Stage- Ultimately the product enters a stage of decline where its sale
volume starts shifting down. The competitors have by then entered the market
with substitutes and imitations and the product distinctiveness starts diminishing.
Consequently, the sale of the product also starts declining. So, in order to save
itself from the stage of saturation and decline, the firm makes a fresh innovation
just at a time when the existing product is about to enter the saturation stage. In
this manner, the firm marks a new product line.
3.3 Forms of business and implications
The most common forms of business are the sole proprietorship, partnership,
corporation, and S corporation, a Limited Liability Company (LLC). More discussion
about advantages and disadvantages of each form will be done intensively in chapter
five which is all about categories of business firms. Please visit and read it.
i. Sole Proprietorship- A sole proprietor is someone who owns an unincorporated

business by himself or herself. Therefore, under the sole proprietorship, the
business is owned by an individual person who makes every decision about
his/her business.
ii. Partnership- A partnership is the relationship between two or more people to do
trade or business. Each person contributes money, property, labor or skill, and
shares in the profits and losses of the business.
iii. Corporation and S Corporation- In forming a corporation, prospective
shareholders exchange money, property, or both, for the corporation's capital
stock. A corporation can also take special deductions. For federal income tax
purposes, a C corporation is recognized as a separate taxpaying entity. A
corporation conducts business, realizes net income or loss, pays taxes and
distributes profits to shareholders.
Note: An S corporation, also known as an S subchapter, refers to a type of
corporation that meets specific Internal Revenue Code requirements. The
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requirements give a corporation with 100 shareholders or less the benefit of

incorporation while being taxed as a partnership.
iv. A Limited Liability Company (LLC)- A Limited Liability Company (LLC) is a
business structure allowed by state statute (law). Each state may use different
regulations, therefore there must be variations in liability in running those LLC
among states. States do not restrict ownership, so members may include
individuals, corporations, other LLCs and foreign entities. There is no maximum
number of members. Most states also permit “single-member” LLCs, those
having only one owner. A few types of businesses generally cannot be LLCs,
such as banks and insurance companies.
Assignment
i. Write short notes on the concept entrepreneurship process
ii. Each venture-life cycle has its associated activities to be undertaken. With
examples, explain five main stages of venture cycles and associated activities of
an entrepreneur for venture’s survival.
iii. Every business conducted is either of a certain form. With examples, Identify
forms of business and their implications
4.0 BUSINESS START- UP PROCESS
At the end of this chapter, each student is expected to demonstrate knowledge and
skills about the following contents:-
i. Understanding business idea

ii. Identifying sources of business idea
iii. Identifying procedures for screening idea
iv. Identifying legal requirement for starting a business
v. Identifying requirement for opening a business account for any type of business
4.1 A business idea
A business idea is a concept that can be used for financial gain that is usually centered
on a product or service that can be offered for money (Wikipedia). It is a mental picture
about a kind of business to start.
4.2 Sources of business idea

It is not a single factor that may originate a business idea. The following are some of
the sources of a business idea.
✓ Interests and hobbies

✓ Customer surveys
✓ Brainstorming and dreams
✓ Franchises eg. contracts, permits etc.
✓ Mass media
✓ Personal experience and talents
✓ Trade fairs and exhibitions
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✓ Inheriting wealth and skills to establish an enterprise

✓ Arising of an innovative idea backed up the ability to start a business
✓ Prevailing problems in current jobs
✓ Willing to become own boss
✓ Realizing the need of earning money.
✓ Pursuing own ideas
4.3 Procedures of screening business idea

Idea screening is the process of making decision about which business to start. the
stage in the new product development process which follows idea (or concept)
generation. It often involves use of scoring models, checklists, or personal judgments
and is based on information from experience and market research. Therefore, before
making a decision about which business to start, make sure that you collect sufficient
information on a business you want to start so as to avoid failure of your business. This
can be done through a variety of activities such as;
• Brainstorm product issues

• Use your research and development (R&D) processes
• Review your quality assurance (QA) processes
• Review your customer complaint records
• Review your research
• Talk to your suppliers and other business partners
• Research and understand your competition
• Study catalogues and product information
According Walle (2017), the following procedures can be implemented while screening
for the best business idea.
i. Focus on your skills, experience and passion

Go with what you already know or don’t mind learning fast. You don’t need to be
an expert right away, but leveraging skills and experience you’ve gained can
increase your chances of success.
ii. Evaluate business-lifestyle fit
If balancing work and family life is important to you, then avoid businesses that
could require working 60 hours a week. If you hate being stuck in an office, then
look for businesses that can be operated remotely. In other words, match the
business idea to your lifestyle can prevent burnout.
iii. Test your idea
Before jumping in, make sure you’ve done your due diligence. Ask yourself: Is
there enough demand for the product or service in your market? Can you afford
the startup costs? How will you stand out from competitors? No matter what
business idea you decide to pursue, it’s smart to write a business plan that
details your goals and how you plan to achieve them. A business plan forces you
to examine the validity of your business idea, giving you a better shot at success.
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4.4 General legal requirements for starting a business

Each country has its legal procedures for busines starting. In Tanzania, after having the
clear plan of the business in the form of a business plan, the next step is registering
and licensing the business. Legally businesses registration and licensing is done by
organs like BRELA and TRA. In order to register for business, the following are the
steps/procedures one needs to adheres to;
i. Apply for clearance of the proposed Business name

In this, one needs to apply for the proposed business name by submitting three
names (Fist name, Second and Sir name). Submitting three names aims to ensure
that your business name doesn’t coincide with already existing business names.
Business Registration and Licensing Authority (BRELA) is responsible to register all
business
ii. Obtain a notarized declaration of compliance

In this an entrepreneur/business owner should visit the notary for notarization of the
declaration of compliance. Notaries do charge at the range of TZS 10,000-50,000,
for notarial services to normal documents.
iii. Apply for company incorporation and obtain the certificate of incorporation
A subscriber, secretary, or a person named in the articles of association as a
director must submit the following to the Registrar of Companies:
a) 14a (First Directors and Secretary and Intended situation of Registered Office).
Click here to see Form 14a
b) 14b (Declaration of Compliance on Application for the Registration of a
Company). Click here to see form 14 b (1)
NB: The Memorandum and Articles of Association are also filed with the forms.
After the forms are filed, the certificate of incorporation is usually processed
within 2-3 days. Registration forms are free, and applicable registration fees
(according to the New Companies Act 2002).
iv. Apply for taxpayer identification number (TIN) at the Tanzania Revenue
Authority.
TIN registration is free of charge. It takes a minimum of 1- 2 days to obtain a
TIN number, depending on the number of requests made to the Revenue
Authority (TRA) at the time. The Certificate of incorporation shall be attached to
the TIN application enclosed with Memorandum and Articles of Associations
when a person makes application to TRA.
v. Apply a business license
The business license is either issued by the Ministry of Industry and Trade or the
Local Authorities depending on the nature of the business. Together with the
application, the following documents must be submitted:
a) Certificate of incorporation
b) Memorandum and Articles of Association
c) Proof of Tanzanian Citizenship
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d) Proof of a suitable company premises

e) Taxpayer Identification Number (TIN)
vi. Apply for VAT certificate at the Tanzania Revenue Authority
Every business that has an initial capital registration of 50 millions for the first six
months of a business or 100 million in a year are required to register for value
added tax. The tax is not directly affecting MSMEs but rather incurred by the last
consumer. To register for VAT one has to go to the nearby TRA office to obtain
papers for registration. The registration applies to all with exception of those
businesses offering professional expertise services. Another registration option is
through TRA’s website.
vii. Register for workers’ compensation insurance at the National insurance

corporation or an alternative insurance provider
Register for workers’ compensation insurance, employers must complete the
Workmen’s Compensation Tariff Proposal Form. This is done at Workers
Compensation Fund (WCF) and Tanzania Insurance Regulatory Authority (TIRA).
This form should be completed once the firm begins hiring employees and just
before the firm becomes operational. However, because the insurance industry is
privatized in Tanzania, employers may opt to take an insurance policy instead of
the workmen’s compensation claims
viii. Obtain social security registration number from all mandatory social security
schemes
It takes a week to obtain a social security registration number. Every employer in
the formal sector is required to register his/her employees with any of the
mandatory schemes, provided that it shall be the right of the employee to
choose the mandatory scheme to register under. These mandatory schemes are
established by law and guaranteed by the Government to provide social security
benefits to employees
4.5 Requirement for opening a business account for any type of business
In the previous lesson we have seen legal requirement for starting a business.
However, requirements for opening of an account for business is determined by a type
of business you what to engage with. The Tanzania Revenue Authority (TRA) has
issued a guide for business startup ranging from individual to a company.
4.5.1 Individual
i. Application of TIN number
An individual whether resident or nonresident is required to visit TRA regional or
district office and fill TIN application form to apply for Taxpayer Identification
Number. The application can also be made online, however the applicant must
physically visit TRA offices for biometric scanning which involves taking
photograph, finger prints and signature.
ii. Application of business license
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After obtaining TIN certificate the applicant will be required to apply for business
license from the Trade office in District, Municipal, City and the Ministry of Trade
and Industry depending on the type of business.
iii. Certificate of Registration
An individual may opt to register the business name to the agency commissioned
by Ministry of Trade and Industry known as Business Registration and Licensing
Authority (BRELA). The registered name can be obtained before or after
application for TIN. The registered business name shall be indicated on the TIN
certificate together with an individuals’ name showing the owners name trading
as (T/A).
4.5.2 A Corporation (limited Company)

Besides other requirements, such as TIN number and business license, the
owner is required to apply for
i. The Certificate of incorporation from Business Registration and Licensing
Authority (BRELA) and
ii. Certificate and Memorandum and articles of association.
NOTE: The Certificate of incorporation shall be attached to the TIN application

enclosed with Memorandum and Articles of Associations when a person makes
application to TRA.The limited company shall apply for TIN certificate by filling
TIN application forms as follows:
• Application for the company.
• Application for each shareholders/directors, in case any director has already
issued with TIN certificates for other purpose he/she cannot make another
application. The same TIN number will be used.
• For non-citizen directors are required to fulfill all immigration procedure and
obtaining business permit from the Immigration Department working under
Ministry of Home Affair.
4.5.3 Partnership
The partners have to register for the firm at BRELA and acquire the certificate of
registration which shows the number and names of partners with their respective
distribution ratio. In applying for TIN the partnership firm shall apply for its certificate
by submitting the copy of certificate of registration obtained from BRELA. Each
individual partner shall apply for TIN, in case any partner has already issued with TIN
certificate for other purpose he/she cannot make another application. The same TIN
will be used.
4.5.4 Trust
Trust is an arrangement under which the trustees hold assets but excludes partnership
and a company. A trust has to register for the firm at BRELA and acquire the certificate
of registration which shows the names and addresses of trustees. Each trustee shall
apply for TIN, in case any trustee has already been issued with TIN certificate for other
purpose he/she cannot make another application. The same TIN will be used.
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4.5.5 Charitable organization

An entity will be recognized as charitable organization for tax purposes after been
issued with a ruling by the Commissioner General. The applicant has to acquire all
necessary documents from the Ministry of Home Affairs.
4.6 A summary of requirements for opening a business account for any type
of business
In Tanzania, the following are common requirements for sole proprietors, partnerships
and limited companies account opening:
i. Business license
ii. Passport photos. The of passport photos depends on bank requirements.
iii. TIN/VAT certificate and letter of introduction
iv. Address verification document (e.g. utility bills or title deed)
v. ID documents (passport, voter’s ID, driver’s license, or national ID)
For specific and limited companies, the following are additional requirements
SN Requirements Partnership Company

i. Board resolution No Yes
ii. Memorandum and articles of association no Yes
iii. Partnership deed Yes No
iv. Certificate of registration No Yes
v. Management structure and organogram Yes Yes
vi. Latest audited accounts No Yes
vii. Certificate of incorporation/compliance No Yes
Assignment
i. Each business starts with an idea. However not every business idea may suit
to an entrepreneur. With examples,
a) Explain at least five sources of a business idea
b) Identify determinants of screening business idea
ii. Every country has its own legal procedures for business starting. Using
Tanzania as your case study, identify legal requirement for starting a business
iii. Being one of an expert in business area who can assist other people who are
not familiar with business issues, explain requirement for opening a business
account for any type of business.
5.0 IMPLICATION OF A FIRM IN POVERTY ERADICATION IN TANZANIA
In this chapter each student is expected to demonstrate knowledge and skills related to
the following matters:-
i. Understanding a business firm

ii. Categorizing business firms in Tanzania and source of funding
iii. Describing advantages of operating small business
iv. Explaining problems faced by small business
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v. Stating contribution of the small business firms in the Tanzania economy

vi. Describing constraints of business firms in exporting
5.1 Meaning of a business firm
A commercial organization that operates for profit basis and participates in selling goods
or services to consumers. Therefore, it is a commercial enterprise that buys and sells
products and/or services to consumers with the aim of making a profit.
5.2 Categories of business firms in Tanzania and source of funding

There are four main categories of business firms in Tanzania namely sole
proprietorship, partnership, corporation and Limited Liability Company (LLC). However,
the first three are popular in Tanzania.
5.2.1 Sole Proprietorship

The definition of sole proprietorship is a business owned by one person, hence the word
sole, meaning one only.
Advantages
• The owner makes all the decisions. The owner is not obligated to confer with
anyone when it comes to deciding the location of the business, who to hire, what
to sell, etc.
• All profits are subject to the owner
• There is very little regulation for proprietorships
• Owners have total flexibility when running the business
Drawbacks/ disadvantages
• Owner is 100% liable for business debts. Personal liability means if the person or
entity wins the lawsuit, the court can make the owner sell business and personal
assets to satisfy the debt.
• If the owner dies, the business will become defunct or terminate
5.2.2 Partnership
A partnership is a business owned by two or more people. These come in two types:
general and limited.
➢ In general partnerships, both owners invest their money, property, labor, etc. to
the business and are both 100% liable for business debts. In other words, even
if you invest a little into a general partnership, you are still potentially responsible
for all its debt. General partnerships do not require a formal agreement—
partnerships can be verbal or even implied between the two business owners.
➢ Limited partnerships require a formal agreement between the partners. They
must also file a certificate of partnership with the state. Limited partnerships
allow partners to limit their own liability for business debts according to their
portion of ownership or investment.
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Advantages
• One major advantage of a partnership is funding. Each owner can help with
financing, start-up costs, or ongoing business expenses.
• Another advantage is shared knowledge and experience.
• Shared resources provides more capital for the business
• Each partner shares the total profits of the company
• Similar flexibility and simple design of a proprietorship
Disadvantage
• Sharing any profit with his partner.
• There is sometimes conflict of interest among members.
5.2.3 Corporation
It is a large company or group of companies authorized to act as a single entity and
recognized as such in law. Corporations are, for tax purposes, separate entities and are
considered a legal person. This means, among other things, that the profits generated
by a corporation are taxed as the “personal income” of the company. Then, any income
distributed to the shareholders as dividends or profits are taxed again as the personal
income of the owners.
There are several types of corporations such as

• S and C Corporations
• Regular Corporation
• Statutory Close Corporation
• Quasi-Closed Corporation
• Professional Corporation
• Non-Profit Corporation
• Limited Liability Company
➢ S and C Corporations
Most major corporations are C corps, most smaller firms are S corps. The
big difference between the two is that C corporation shareholders are
subject to double taxation. That means the government taxes the C
company’s income at corporate rates, and taxes the dividends after the
corporation distributes them to the shareholders. Dividends in this case
serve the same purpose that wages and salaries do for ordinary
employees in ordinary jobs.
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➢ Regular Corporation
The Regular Corporation is one with which most people are familiar. It is owned by
stockholder(s). These stockholder(s) elect a Board of Directors which elects officers and
hires employees to handle the day-to-day operations. There must be an annual meeting
of the stockholders to be held after proper notice is given.
➢ Statutory Close Corporation
A Statutory Close Corporation may operate without a Board of Directors and without
annual meetings. There are also other normal corporate requirements which do not
have to be met. The law does provide for restrictive "default" positions on many issues,
such as who may purchase stock from an existing stockholder.
➢ Quasi-Closed Corporation
A Quasi-closed Corporation enjoys the freedoms of the Statutory Close Corporation

without the restrictive "default" positions, but it is difficult to start up without significant
work on the part of the attorney.
➢ Professional Corporation
A Professional Corporation is for a professional firm which may not normally be

incorporated, such as accountants and lawyers.
➢ Non-Profit Corporation
A non-profit corporation is formed to carry out some charitable, education, religious, or

other activity for the public benefit. It is so formed such that it is tax-exempt from state
and federal taxes.
➢ Limited Liability Company
A Limited Liability Company (LLC) is, like a corporation, a creature of statutory law
which provides limited liability to its owners. It was originally created to give limited
liability protection to owners while affording owners pass-through tax treatment like a
partnership. LLCs are very flexible. In fact, almost all of the statutory provisions
governing interrelationships between individual members (as owners of an LLC are
called), and between individual members and the LLC itself can be changed by an
operating agreement.
Advantages of a corporation
• Limits liability of the owner to debts or losses
• Profits and losses belong to the corporation
• Can be transferred to new owners fairly easily
• Personal assets cannot be seized to pay for business debts
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Disadvantages
• Establishing a corporation is costly

• Start a corporate business requires complex paperwork
• With some exceptions, corporate income is taxed twice
In other books, corporations are of two categories ie. C corporation and s corporation.
The biggest difference between C and S corporations is taxes. C
corporations pay tax on their income, plus you pay tax on whatever income you
receive as an owner or employee. S corporation doesn't pay tax. Instead, you and
the other owners report the company revenue as personal income. This is when
shareholders report business income and losses on a personal tax return. So the only
taxes they face are the ones on their personal tax return. There’s no corporate tax.
5.2.4 Limited Liability Company (LLC)

Note: LLC can be owned by one or more individuals. Similar to a limited partnership, a
LLC provides owners with limited liability while providing some of the income
advantages of a partnership. Essentially, the advantages of partnerships and
corporations are combined in an LLC, mitigating some of the disadvantages of each.
Advantages of an LLC
• Limits liability to the company owners for debts or losses
• The profits of the LLC are shared by the owners without double-taxation
Disadvantages
• Ownership is limited by certain state laws
• Agreements must be comprehensive and complex
• Beginning an LLC has high costs due to legal and filing fees
5.2.5 Source of business funding

The following sources of business funding can be applied in business running such as
relatives and friends, money lenders and rotating savings and credit associations
5.3 Small Business Enterprises

5.3.1 Meaning of a small enterprise
A small enterprise is defined as a privately owned corporation, partnership, or sole
proprietorship that has fewer employees and less annual revenue than a corporation or
regular-sized business.
Note: In the first chapter we discussed about different ways of classifying business.
One among them, is the classification based on the size of the business in items of
capital, number of employees etc. Therefore, based on this classification, there small,
medium and large business. For example, in terms of a number of employees, in a
small and a medium-sized enterprises (SMEs) employ fewer than 250 people. SMEs are
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further subdivided into micro enterprises (fewer than 10 employees), small enterprises
(10 to 49 employees), medium-sized enterprises (50 to 249 employees). Large
enterprises employ 250 or more people. In the context of Tanzania, SMEs are defined
as micro, small and medium size enterprises in non-farm activities which include
manufacturing, mining, commerce and services. A micro enterprise is defined as a firm
with fewer than five employees whereas a small firm is a firm with 5 to 49 employees, a
medium enterprise is a firm with 50 to 99 employees. Any firm with 100 employees or
more is regarded as a large enterprise.
5.3.2 Common Features of small business

• Small businesses are characterized by either services or retail operations- For
example grocery stores, medical stores, tradespeople, bakeries and small
manufacturing units.
• Limited Investment: This is because a small business enterprise, its capital is
supplied by an individual or a small group of individuals.
• Personal Character/Owner-Management: A small business is identified with its
owners who themselves act as managers.
• Labour-Intensive: Small business enterprises are mostly labor-intensive. The
machinery and equipment used are not very sophisticated and are operated
manually.
• Unorganized Labour: Small business enterprises employ less number of workers
as compared with big business enterprises. Workers of these units do not form
labour unions and remain unprotected.
• Local Area of Operations: The area of operations of small units is generally local
as they have less capital and less marketing facilities at their disposal. There is a
local touch between employer and employees; and between employer and
customers though products of some small-scale enterprises are exported to
many countries of the world.
5.4 Advantages of running small business

• Faster response time to customer needs: In a small business, it is less likely that
difficult customer problems will fester because the owner will know sooner and
take action to fix it.
• Easier handling of clients’ questions and concerns immediately.
• Ability to offer personal ongoing service to customers: actually, Customers trust
businesses that offer them sincere personal attention, and they respond well to
businesses that know their names and remember details about former
transactions.
• Can send the experts for a lesser cost: Many small business owners are experts
in their fields before branching out and starting a business: a small advertising
business may be run by a former creative director of a large ad agency, thus
minimize other costs.
• Lower overhead costs: By being small, your business requires fewer resources to
operate and maintain. Your lower overhead costs can allow you to offer a
cheaper price, and even undercut a big competitor.
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• More nimble and flexible: Small businesses are more flexible and less bound by
policies and procedures.
• Quick to react to changing market conditions: Being flexible also relates to the
ability to react quickly to changing market conditions.
• Can work more closely with customers to correct the company’s shortcomings
than a large business/company.
5.4.1 Problems faced by small business in Tanzania
There are many problems faced by small business sector in Tanzania. Some of
the are as follows;
• Financial Problem: Small scale industries usually do not have sufficient funds to
meet their fixed capital and working capital requirements. Institutional lenders
are generally reluctant to advance money to small industries since.
• Faulty Planning: Faulty planning is a major problem of the small business since
no proper viability studies-technical or economic-are carried out by the small
firms before they are sponsored
• Shortage of Raw-Material and other Infrastructural Facilities: In most of the
cases, when raw materials are in short supply, large scale business enterprises
grab the entire supply, because of their stronger bargaining position. Small scale
enterprises also face lack of other infrastructural facilities like water, power
connections etc.
• Poor technology of production: Most of the small firms use old or outdated
techniques of production. They cannot afford new machines and equipment
based on latest technology; mainly because of financial crunch.
• Marketing Problems: Small firms face severe problems in the sphere of marketing
of their products.
• Lack of Appropriate Knowledge and Skills: For example, Small Medium
Enterprises (SMEs) in Tanzania have limited formal education and limited
training. About half of the population of entrepreneurs has completed primary
school; one-third secondary school; less than 10% obtained technical 17 training
after secondary school or pursued higher education. Some 70% did not receive
training before the start of the business.
• Taxation: In most developing countries, there are still complexity and/or
ambiguity of the tax laws, high tax rates, and the lack of an integrated fiscal
strategy that takes social taxes, and local taxes and fees into account when
determining the overall tax burden placed on the business community
• Innovation and Creativity: Tanzanian SMEs capacity to innovate and create is
limited to knowledge and available facilities. They lack market knowledge of
product life cycle, for that reason when the product reach the stage of maturity,
it decline indefinitely with no effort of changing strategies so as to make the
product continue to exist in the market.
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5.5 Efforts taken by the government of Tanzania in the development of

small business firms in the Tanzania economy
Tanzania has been struggling hardly for the development of small business in
Tanzania. Some of themes are as listed below.
i. Sustaining a favorable business environment: this includes enhancing awareness
of rights and obligations, efficient and reliable infrastructure; fair, simple,
consistent transparent laws and regulations.
ii. Providing supportive interventions including quality assurance, recognition, fiscal
and other incentive to encourage non-state service providers of training,
incubation, finance, advisory services, clusters, industrial parks, science parks,
etc to small firms.
iii. Designing SME development policies and strategies: reforming curriculum of
school, college and vocation training systems; co-coordinating reforms, actors
and initiatives; and providing information and dialogue platforms.
iv. Creating and maintaining semi-autonomous institutions/agencies that provide
direct support to small business in terms of training, premises, incubation,
finance, advisory services, industrial parks, science parks, etc directly to SMEs.
5.6 Contribution of the small business firms in the Tanzania economy

As for the recent research data in 2016, it is estimated that Tanzania's SME sector
consists of more than 3 million enterprises which contribute to 27% of overall Gross
Domestic Product (GDP). Most of them are in the agricultural sector, and more than half
are owned by women.
Generally, some of the contributions of small business firms in the Tanzania economy
are as follows:-
Small businesses are essential for a competitive and efficient market

This because they play the competitive game differently from the big corporates, their
nimble approach to competition drives efficiency and productivity.
Small businesses are critical for poverty reduction

The geographical location of most small-scale businesses SMMEs are outside of the big
metropolitan areas, thus, provides an opportunity to employ local people. This alleviates
poverty and encourages economic activity.
Promoting growth and innovation to the community

Small businesses contribute to local economies by bringing growth and innovation to
the community in which the business is established. Small businesses also help
stimulate economic growth by providing employment opportunities to people who may
not be employable by larger corporations.
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Quickly Adapting to Changing Climates

Small businesses actually accumulate less revenue than larger corporations, meaning
they may have less to lose in times of economic crisis. Therefore, they are able to stay
afloat during tough times, which can further strengthen local economies. This is due to
the fact that small businesses are often very customer-oriented and understand the
needs of the community.
Growth of large businesses

Small businesses contribute to the growth of larger as many large corporations depend
on small businesses for the completion of various business functions. Having a large
corporation can further help provide employment and stimulate the local economy,
creating a market that favors the development of additional small businesses.
Contributing Government with Taxes

When consumers patronize local small businesses, they are essentially giving money
back to their government. A thriving local business will generate high levels of revenue,
which means that the business will pay higher taxes, including local property taxes.
5.7 Governments’ commitments to the development of small firms in

Tanzania
As it was noted previously that small firms have greater role to the development of
Tanzania economy, Tanzania Government has continued to design several programmes
as follows;_
➢ Small Industries Development Organisation (SIDO)
This was established in 1973 by the Act of Parliament to plan, coordinate, promote and
offer every form of service to small industries. This is a main government arm for
promoting SMEs in Tanzania. Some of the things SIDO have achieved include situations
which aimed at supporting the development of SME sector, these include:-
• Establishment of 10 training-cum-production centres that offer simple rural

based technologies;
• Introduction of hire purchase programs through which more than 2000
entrepreneurs were assisted with machines and working tools;
• Setting up of regional extension services offices that render advice on setting up
of new industries, choice of technology, preparation of feasibility studies,
preparation of economic surveys, installation, operation of machinery,
maintenance and marketing of products; and
• Conducting training programme in Management, Financial and Marketing skills.
➢ Ministry of Industry, Trade and Marketing
Recently, the Ministry of Industry and Trade established the SMEs Department; this
department focuses on promoting the growth of SMEs in Tanzania.
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➢ Private organisations
Apart from organisations mentioned above, institutions in the private sector such as
Tanzania Chamber of Commerce Industry and Agriculture (TCCIA) and Confederation of
Tanzanian Industry (CTI) are also supporting SME development
➢ University of Dar es Salaam Entrepreneurship centre (UDEC)
The Faculty of Commerce of the University of Dar es Salaam established UDEC in 2001.
The Centre provides consultancy and training in SME related issues. Currently, the
centre has established the incubator whereby graduate entrepreneurs and other
managers/owner of businesses can be trained on entrepreneurship and related issues.
➢ Government /donor joint efforts
Joint Government and donors support institutions have been established also to support
enterprise development in Tanzania.
i. Running a business firm needs the owner to be conversant enough with it. In
your group discussion,
a) Define a business firm
b) Categorizing business firms in Tanzania and source of funding
ii. Small businesses are of paramount importance for both individual and
national development in in Tanzania. With five points each side, explain
advantages of operating small business and problems faced by small business
sector in Tanzania.
6.0 INTERNATIONAL PURCHASING

At the end of this chapter, each student is expected to be familiar with the following content;
i. Defining international purchasing

ii. Identifying reasons for and against international purchasing
iii. Identifying documents used in international purchasing
6.1 Meaning of international purchasing
Purchasing refers to the activities related to the acquisition of goods, raw materials or
services necessary for firms to accomplish their business goals. In a globalized context,
a businessman may sometimes interact with another person from a different country.
Based on this context, a business involves people of different countries. Therefore,
international purchasing refers to a commercial transaction between a buyer and a
supplier in different countries. This is referred to as the international purchasing when
those purchasing activities are carried out in international markets to support the firm’s
operations and ensure a reliable source of supply.
6.2 Why international purchasing is important

No matter how attractive your product or service seems to be, a strictly limiting yourself
to your domestic market will have a finite capacity. Because of these limitations wise
business owners are looking to go global and exploit international trade opportunities.
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Therefore, international transactions are important due to some of the following

reasons:-
Widening of local market

Your home market may be struggling due to economic pressures, but if you go global,
you will have immediate access to a practically unlimited range of customers in areas
where there is more money available to spend, and because different cultures have
different wants and needs, you can diversify your product range to take advantage of
these differences.
Increased chances of success in business

Overseas trade is a way to increase sales of your goods. Research has shown that
companies which go global for investments of their capital are more likely to survive
and excel than those who choose not to export.
Increased efficiency in trade

Benefit from the economies of scale that the export of your goods can bring – go global
and profitably use up any excess capacity in your business, smoothing the load and
avoiding the seasonal peaks and troughs that are the bane of the production manager’s
life.
Increased productivity
For example, statistics from UK Trade and Investment (UKTI) state that companies
involved in overseas trade can improve their productivity by 34%.
A means to avoid currency fluctuations

When the value of one currency fluctuates against other currencies, and you don’t
want to be caught out by any sudden upsurge in the value of your currency, investing
in other currency helps in resolving the challenge.
Stimulates Innovation in the business

Because you are exporting to a wider range of customers, you will also gain a wider
range of feedback about your products, and this can lead to real benefits. Therefore,
this encourages innovations in business.
Foreign currency
International trade is one of the means of income generation in the state. Some
international currency like dollars, pounds etc. are very important in the development of
the nation.
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6.3 Reasons against international purchasing

Despite the importance of international purchasing to individual and state economic
development, sometimes the government may pose several restrictions against it. Some
of the reasons against international purchasing include the following:-
Protecting domestic industries

For example, if domestic industries cannot compete against foreign industries, the
government will restrict trade to help the domestic industries develop. Governments
may also restrict trade to foster business at home rather than encouraging business to
move out of the country. These protectionist policies encourage prices to stay high and
help domestic industries to develop.
saving domestic jobs

international trade is associated with a transfer of expertism, advanced technology,
financial capital and others. All of these may lead to the decline of domestic jobs as
people in the local country fail to compete with foreign investors.
Creating fair trade

Not all the time the trade is fairly conducted. For example, there are fake contracts
made in mining industry, existence of money laundering etc. Therefore, reviewing
those fake contracts may lead to the restrictions in international trade among
beneficiaries.
Raising revenue through tariffs

Tariffs increase the price that consumers pay for the good, thus reducing the quantity
of the good demanded and making the price more in line with the price charged by
domestic producers.
6.4 Methods used in restricting international purchasing (trade)

Imposing trade Barriers
It may seem odd, but governments often step in to restrict trade. Why might a
government want to restrict trade? If domestic industries cannot compete against
foreign industries, the government will restrict trade to help the domestic industries
develop. Governments may also restrict trade to foster business at home rather than
encouraging business to move out of the country. These protectionist policies
encourage prices to stay high and help domestic industries to develop.
Government’s trade interferences through quota systems; tariffs; and subsidies.

• A quota system imposes restrictions on the specific number of goods imported
into a country. Quota systems allow governments to control the quantity of
imports to help protect domestic industries.
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• Tariffs are fees paid on imported goods. As previously presented that tariffs
increase the price that consumers pay for the good, thus reducing the quantity
of the good demanded and making the price more in line with the price charged
by domestic producers.
• Subsidies are grants given to domestic industries to help them develop and
compete with foreign producers. Through subsidies, domestic producers can
charge less for their goods without losing money due to outside grants
Trade Deficit
The difference between exports and imports is referred to as the trade deficit or the
trade surplus. When exports exceed imports, a trade surplus exists. When imports
exceed exports, a trade deficit exists.
6.5 Documents used in international purchasing

International market involves various types of trade documents that need to be
produced while making transactions. Each trade document differs from one another and
present the various aspects of the trade like description, quality, number, transportation
medium, indemnity, inspection and so on. So, it becomes important for the importers
and exporters to make sure that their documents support the guidelines as per
international trade transactions. Below are examples of those documents.
Bill of Lading (B/L)

Bill of Lading is a document given by the shipping agency for the goods shipped for
transportation form one destination to another and is signed by the representatives of
the carrying vessel.
Air Waybills
Air Waybills make sure that goods have been received for shipment by air. A typical air
waybill sample consists of of three originals and nine copies. The first original is for the
carrier and is signed by a export agent; the second original, the consignee's copy, is
signed by an export agent; the third original is signed by the carrier and is handed to
the export agent as a receipt for the goods.
Combined Transport Document

Combined Transport Document is also known as Multimodal Transport Document and is
used when goods are transported using more than one mode of transportation.
Commercial Invoice
Commercial Invoice document is provided by the seller to the buyer. Also known as
export invoice or import invoice, commercial invoice is finally used by the custom
authorities of the importer's country to evaluate the good for the purpose of taxation.
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Bill of Exchange
A Bill of Exchange is a special type of written document under which an exporter ask
importer a certain amount of money in future and the importer also agrees to pay the
importer that amount of money on or before the future date.
Insurance Certificate
Also known as Insurance Policy, it certifies that goods transported have been insured
under an open policy and is not actionable with little details about the risk covered. It is
necessary that the date on which the insurance becomes effective is same or earlier
than the date of issuance of the transport documents.
Packing List
Also known as packing specification, it contains details about the packing materials used
in the shipping of goods. It also includes details like measurement and weight of goods.
Inspection Certificate
Certificate of Inspection is a document prepared on the request of seller when he wants
the consignment to be checked by a third party at the port of shipment before the
goods are sealed for final transportation.
Documents for customs clearance

Used by authorities to check that the correct amount of VAT has been paid.
Goods on approval
This is an arrangement under which items of durable nature (such as appliances, books,
equipment) are provided to a prospective customer for a pre-purchase trial. These
items are returnable after a specified period in re-saleable condition if not accepted for
purchase.
Main documents
Request for Quote/Proposal (from buyer to seller)
Quote/Proposal (from seller to buyer)
Purchase Order (from buyer to seller)
Invoice (from seller to buyer)
Payment (from buyer to seller)
NB: The documents to be attached in international purchasing may vary depending on

individual national business rules and regulations.
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Assignment
i. In recent time, the international purchasing is very common among businessmen. With
at least five points per each discussed part,
a) Explain reasons for and against international purchasing.
b) Identify documents used in international purchasing.
7.0 INCOTERMS IN INTERNATIONAL TRADE
At the end of the following chapter, each student will be able to familiarize the following
content:-
i. Defining INCOTERMS
ii. Explaining grouping INCOTERMS as used in international trade.
iii. Identifying the limitation of Incoterms
7.1 Meaning of INCOTERMS
INCOTERMS are a set of 11 internationally recognized rules which define the
responsibilities of sellers and buyers. They are a globally-recognised set of standards,
used worldwide in international and domestic contracts for the delivery of goods. The
rules have been developed and maintained by experts and practitioners brought
together by the International Chamber for Commerce (ICC). They have become the
standard in international business rules setting
Incoterms specifies who is responsible for paying for and managing the shipment,
insurance, documentation, customs clearance, and other logistical activities.
The main purpose of INCOTEMS is to provide common interpretation for the different
trade terms used in international trade. In international business, parties are from
diverse nations due to different trade practices followed in those countries. Therefore,
INCOTERMS tries to harmonize them.
7.1.1 The 13 Incoterms

The 13 terms are grouped into four basic different categories
7.1.1.1 Group E: Departure term

Where the seller makes the goods available to the buyer at the seller's own premises,
(EXW)
EXW – (Ex Works) (... named place)

Where the seller makes the goods available to the buyer at the seller's own premises.
This is called EX Works (EXW). Ex works means that the seller fulfils his obligation to
deliver when he has made the goods available at his premises (i.e. works, factory,
warehouse, etc.) to the buyer. In particular, he is not responsible for loading the goods
on the vehicle provided by the buyer or for clearing the goods for export, unless
otherwise agreed. The buyer bears all costs and risks involved in taking the goods from
the seller's premises to the desired destination.
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Group F: Shipment terms - Main carriage unpaid

Where the seller is called on to deliver the goods to a carrier named by the buyer, (FCA,
FAS and FOB). These are shipment contracts with the shipment point named, and
carriage unpaid by the seller.
FCA - Free Carrier (... named place)

Free Carrier means that the seller fulfils his obligation to deliver when he has handed
over the goods, cleared for export, into the charge of the carrier named by the buyer at
the named place or point. In this, the seller's assistance is required in making the
contract with the carrier (such as in rail or air transport) the seller may act at the
buyer's risk and expense.
FAS - Free Alongside Ship (... named port of shipment)

Free Alongside Ship means that the seller fulfils his obligation to deliver when the goods
have been placed alongside the vessel on the quay or in lighters at the named port of
shipment. This means that the buyer has to bear all costs and risks of loss of or
damage to the goods from that moment. The FAS term requires the buyer to clear the
goods for export. It should not be used when the buyer cannot carry out directly or
indirectly the export formalities.
FOB - Free on Board (... named port of shipment)

Free on Board means that the seller fulfils his obligation to deliver when the goods have
passed over the ship's rail at the named port of shipment. This means that the buyer
has to bear all costs and risks of loss of or damage to the goods from that point. The
FOB term requires the seller to clear the goods for export. This term can only be used
for sea or inland waterway transport.
NB: With Free on Board, the seller is responsible for the goods until they are loaded on
a shipping vessel, then other costs later on are for the buyer him/herself.
7.1.1.2 Group C: Shipment terms - Main carriage paid
Where the seller has to contract for carriage, but without assuming the risk of loss of or
damage to the goods or additional costs due to events occurring after shipment and
dispatch, (CFR, CIF, CPT and CIP). These are shipment contracts with the destination
point named, and carriage paid by the seller.
CIF and CIP are the only Incoterms related directly to insurance cover. In these the
seller arranges the contract of carriage and payment of cargo and is regarded as being
in a better position than the buyer to arrange insurance.
CFR - Cost and Freight (... named port of destination)

Cost and Freight means that the seller must pay the costs and freight necessary to
bring the goods to the named port of destination but the risk of loss of or damage to
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the goods, as well as any additional costs due to events occurring after the time the
goods have been delivered on board the vessel, is transferred from the seller to the
buyer when the goods pass the ship's rail in the port of shipment.
CIF - Cost, Insurance and Freight (... Named Port of Destination)

Cost, Insurance and Freight means that the seller has the same obligations as under
CFR but with the addition that he has to procure marine insurance against the buyer's
risk of loss of or damage to the goods during the carriage. The seller contracts for
insurance and pays the insurance premium.
CPT - CARRIAGE PAID TO (... named place of destination)

Carriage paid to... " means that the seller pays the freight for the carriage of the goods
to the named destination. The risk of loss of or damage to the goods, as well as any
additional costs due to events occurring after the time the goods have been delivered to
the carrier, is transferred from the seller to the buyer when the goods have been
delivered into the custody of the carrier.
CIP - Carriage and Insurance Paid to (... named place of destination)

Carriage and insurance paid to..., means that the seller has the same obligations as
under CPT but with the addition that the seller has to procure cargo insurance against
the buyer's risk of loss of or damage to the goods during the carriage. The seller
contracts for insurance and pays the insurance premium.
7.1.1.3 Group D: Arrival Terms

Where the seller has to bear all costs and risk needed to bring the goods to the country
of destination, (DAF, DES, DEQ, DDU and DDP). These are arrival contracts.
DAF - Delivered at Frontier (... named place)

"Delivered at Frontier" means that the seller fulfils his obligation to deliver when the
goods have been made available, cleared for export, at the named point and place at
the frontier, but before the customs border of the adjoining country.
DES - Delivered Ex Ship (... named port of destination)

Ex Ship means that the seller fulfils his obligation to deliver when the goods have been
made available to the buyer on board the ship uncleared for import at the named port
of destination. The seller has to bear all the costs and risks involved in bringing the
goods to the named port of destination. This term can only be used for sea or inland
waterway transport.
DEQ - Delivered Ex Quay (Duty Paid) (... named port of destination)

Delivered Ex Quay (duty paid) means that the seller fulfils his obligation to deliver when
he has made the goods available to the buyer on the quay (wharf) at the named port of
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destination, cleared for importation. The seller has to bear all risks and costs including
duties, taxes and other charges of delivering the goods thereto.
DDU - Delivered Duty Unpaid (... named place of destination)

Delivered duty unpaid means that the seller fulfils his obligation to deliver when the
goods have been made available at the named place in the country of importation. The
seller has to bear the costs and risks involved in bringing the goods thereto (excluding
duties, taxes and other official charges payable upon importation) as well as the costs
and risks of carrying out customs formalities. The buyer has to pay any additional costs
and to bear any risks caused by his failure to clear the goods for import in time.
DDP - Delivered Duty Paid (... named place of destination)

Delivered duty paid means that the seller fulfils his obligation to deliver when the goods
have been made available at the named place in the country of importation. The seller
has to bear the risks and costs, including duties, taxes and other charges of delivering
the goods thereto, cleared for importation. Whilst the DDU should be used.
7.2 INCOTERMS 2020

The Incoterms rules were first introduced by ICC in 1936 to establish commonly
accepted definitions and rules related to the delivery of goods between trading parners
worldwide. Since then, ICC has periodically revised the Incoterms rules to reflect
changes in the international trade system. The International Chamber for Commerce
(ICC) has launched Incoterms in 2020, the newest edition of the renowned trade terms
for the delivery of goods, providing certainty and clarity to business and traders
everywhere.
The 2020 revised INCOTERMS are very important as they;
• Provides for demonstrated market need in relation to bills of lading (BL) with an
on-board notation and the Free Carrier (FCA) Incoterms rule.
• Aligns different levels of insurance coverage in Cost Insurance and Freight (CIF)
and Carriage and Insurance Paid To (CIP).
• Includes arrangements for carriage with own means of transport in FCA,
Delivered at Place (DAP), Delivered at Place Unloaded (DPU), and Delivered Duty
Paid (DDP).
• There is a change in the three-letter name for Delivered at Terminal (DAT) to
DPU.
• Includes security-related requirements within carriage obligations and costs
Incoterms 2020 – 7 Key Changes & Updates
The substance of Incoterms 2020 has not changed considerably, but the small subtle
changes are absolutely crucial for trade specialists. Here are the key differences
between Incoterms 2010 and Incoterms 2020:
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1. DAT (Delivery at Terminal) Incoterm changed to DPU (Delivery at Place Unloaded)

NOTE: With DAT, the seller clears goods for export and is fully responsible for the
goods until they have arrived at a named terminal at the end destination.
DAT required Delivery at Terminal (unloaded), however, following on from feedback to

the drafting committee, it was decided to change the term to DPU (Delivery at Place
Unloaded), to broadly cover ‘any place, whether covered or not’. This means, the seller
delivers the goods at the disposal of the buyer after they've been unloaded from the
arriving means of transport. The buyer and seller should specify and agree upon a
named place of destination. Therefore, the main difference between DAT and DPU is
now the buyer and/or seller may want the delivery of goods to occur somewhere other
than a terminal, such as a construction site.
2. Insurance cover differs between CIF and CIP
Under CIF / CIP, the seller buys insurance for the buyer. In Incoterms 2010, insurance
is required under clause C, but in Incoterms 2020, CIP requires insurance complying
with Institute Cargo Clause (A) whereas CIF requires insurance under Clause C.
Why? Because Clause A covers a more comprehensive higher level of insurance (e.g.
for the manufactured goods), whereas a lower level of cover from Clause C would
probably apply to the commodities world. Therefore, the main difference is that CIF
means Cost Insurance and Freight (followed by a destination) which means, the value
of goods sold includes cost of goods, insurance and freight up to destination
mentioned. CIP means, Carriage and Insurance paid (up to named destination)
3. The Listing of Costs
All costs are now listed in the ‘Allocation of Costs’ sections for each rule, to avoid
confusions. Because the ordering of articles within the Incoterms 2020 rules have also
changed, these now appear in the A9/B9 section of each rule.
Costs were a big issue in the 2010 Incoterms. Carriers often changed their pricing
structure to deal with add ons and sellers were often surprised by being back charged
terminal handling charges. The A9 sections in the Incoterms rules guide now collects
together the costs, with the principle aim of clearly stating the costs to each party.
4. Security Requirements
Cargo security has been particularly important since 9/11, and the 2020 rules now
address many of the security-related requirements that became so prevalent in the
early part of this century. From a carriage requirements perspective, security related
allocations have been added to A4 and A7 of each Incoterms rule, and the necessary
costs associated have been added to A9/B9 (see 3).
5. Own transport
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Incoterms 2010 rules assumed that goods carried from the seller to the buyer were via
a 3rd party. Incoterms 2020 allows for own means of transport by the buyer in the FCA
rules and by the seller in the D rules.
6. FCA and Bills of lading
Note : Free Carrier" means that the seller fulfils his obligation to deliver when he has
handed over the goods, cleared for export, into the charge of the carrier named by the
buyer at the named place or point.
According to FCA part B4, ‘The buyer must contract or arrange at its own cost for the
carriage of the goods’. There is a gap in delivery between FCA and FOB. If you’re selling
FCA, your delivery point is different to FOB. The difference between FCA and FOB to the
seller is a significant cost and risk. In the 2010 Incoterms rules, exporters of goods in
containers were encouraged to use FCA, which seemed best for both parties. However,
many people were using FOB when they should’ve really been using FCA.
The Incoterms 2020 FCA extra provision now states that if the parties have so agreed,
the buyer must instruct the carrier to issue to the seller, at the buyers cost and risk, a
transport document stating that the goods have been loaded (such as a Bill of Lading
with an on board notation)’
7. Presentation and design

Incoterms 2020 rules have much more extensive explanatory notes, with better
diagrams, a different structure for users and a reordering of rules to make delivery and
risk more obvious. Maritime related rules still haven’t changed and remain at the back
of the rule book as they still might be used for bulk commodities.
7.3 Limitations of INCOTERMS

Group C Incoterms generally expose the buyers to inflated costs, because the seller
bears the responsibilities for paying freight and insurance costs. This is a disadvantage
to the importer, especially if the exporter chooses to quote the final figure without
itemizing the individual entries for freight, insurance and currency fluctuation costs.
Mistakenly viewing incoterms as contracts of carriage rather than forming part of a

contract of sale. Whilst the contract of sale is necessarily between the Seller and the
Buyer the contract of carriage is between the party responsible for arranging transport
within the contract of sale, as determined by the appropriate incoterm, and a shipping
company.
Mistakenly considering that incoterms constitute an entire contract of sale rather than
being a part of it.
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Mistakenly applying incoterms to intangible goods such as software, irrespective of

whether that intangible good accompanies a physical commodity.
Four of the incoterms used under the Incoterms 2010 rules relate only to transportation
by water (FAS, FOB, CFR and CIF) and yet there are occasions when an airport is
named as the destination for such incoterms.
Additionally, whilst the FAS and FOB incoterms should state the port of shipment as
being relevant to the purported transportation risks agreed between the parties but
occasionally the port of destination is erroneously given instead.
Inconsistency between the chosen incoterm and the provisions of a sales contract. Such
inconsistency was one of the issues in the Euro-Asian Oil case. There the title transfer
provision of the contract and the stated documentary requirements for title delivery or
the period of time for payment did not conform to the relevant incoterm. Whilst the
court sought to be flexible to interpret the contract and look beyond what a “classic CIF
contract” was by applying custom and practice of oil trading contracts to assess if the
parties had special terms in mind. At some point during the series of transactions, the
court could not continue to square the circle.
Assignment
i. INCOTERMS serve several functions for international development of business.

However, many people at the local level are not familiar with INCOTERMS. As an expert
in the area of business,
a) Define the concept NCOTERMS
b) Briefly explain groups of INCOTERMS as used in international trade.
ii. Despite the importance of INCOTERMS, there are also some limitations. Validate
iii. Briefly explain improvements made under the 2020 revised INCOTERMS
8.0 PAYMENT PROCEDURES IN INTERNATIONAL PURCHASING

At the end of this chapter, each student will be able to familiarize the following
content:-
i. Describing international payment method
ii. Explaining risks of international payment methods.
iii. Identifying Measures for protecting payment risks
8.1 International Payment Method

When it comes to trading of commercial goods, there is always a certain level of risk and trust
involved. Whether you’re a buyer or seller, you are bound to be exposed to some risk when
dealing with international transactions. In large part, the amount of risk involved highly
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depends on the method of payment you use. There are plenty of international paying methods
for importers and exporters across the globe.
The main international payment methods used around the world today include: Cash in
Advance, Letters of Credit, Documentary Collections, Open Account Consignment.
8.1.1 Cash in Advance

Also known as pre-payments, cash in advance is as it sounds. The buyer completes the
payment and pays the seller in full before the merchandise is delivered and shipped off to the
buyer. This can be done via credit card payment, wire transfers (electronic payment via banks),
Debit card payment, Telegraphic transfer, International cheque etc.
Participants Advantage Disadvantages

Buyer Minimal →Risk of not receiving shipment or
receiving damaged shipment
→Unfavorable cash flow
Seller → Secure full payment before → Risk of losing business to
shipment competitors if offering this as the
→ No risk of non-payment only accepted international payment
method
8.1.2 Letters of Credit

A Letter of Credit is one of the most secure international payment methods for the importer and
exporter as it involves the assistance of established financial institutions such as banks as an
intermediary and a certain level of commitment from both parties. With a Letter of Credit,
payment is made through both the buyer and sellers’ banks. Upon confirmation of trade terms
and conditions, the buyer instructs his bank to pay the agreed-upon sum by both parties to the
seller’s bank. The buyer’s bank then sends a Letter of Credit as proof of sufficient and legit
funds to the seller’s bank. Payment is only remitted after all stated conditions are met by both
parties and shipment has been shipped.
Advantage Disadvantages
Buyer → Guarantee of cargo being shipped before payment → Reliance on seller to
→ Obligation by seller to fulfill stated and negotiated ship goods as specified
condition
Seller → Reliable proof of foreign buyers’ credit prior to → Minima
shipment of goods
→ Obligation by buyer to fulfill stated and negotiated
conditions
→ Payment by buyer’s bank in the event of a default
→ Low risk
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8.1.3 Documentary Collections

Documentary collections is a process in which both the buyer’s and seller’s banks act as
facilitators of the trade. The seller submits documents needed by the buyer, such as the Bill of
Lading, which is necessary for the transfer of title to the goods, to its bank. The seller’s bank
will then send these documents to the buyer’s bank along with payment instructions. The
documents are only released in exchange for payment, which is remitted immediately or at a
specified date in the future.
With documentary collections, also known as Bills of Exchange, the seller is basically handing
over the responsibility of payment collection to his bank.

Buyer → More economical than Letters of → Reliance on seller to ship goods as
Credit specified
Seller → Minimal → No verification involved
→ No guarantee of payment from bank
→ No protection against cancellations
8.1.4 Open Account
Under Open Accounts (also known as Accounts Payable), merchandise are shipped and
delivered prior to payment, proving to be an extremely attractive option for buyers especially in
terms of cash flow. On the other end of the spectrum, however, sellers are faced with high
risks.
With this payment option, the seller ships the goods to the buyers with a credit period attached.
This is usually in 30-, 60-, or 90-day periods, during which the buyer must carry out full
payment.
Open Accounts are usually only recommended for trustworthy and reputable buyers, for buyers
and sellers who have an established and trusting relationship, and/or for exports with relatively
lower value to minimize risk.

Buyer → Receives goods before payment is → Minimal
due
→ Positive cash flow
Seller → Can attract customers in competitive → High risk of default
markets
8.1.5 Consignment
The consignment process is similar to that of an open account whereby payment is only
completed after the receipt of merchandise by the buyer. The difference lies in the point of
payment. With consignment, the foreign buyer is only obliged to fulfill payment after having
sold the merchandise to the end consumer. This international payment method is based on an
agreement under which the foreign seller retains ownership of the merchandise until it has
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been sold. In exchange, the buyer is responsible for the management and sale of the
merchandise to the end customer.

Buyer → Payment is due only after final sale of
goods to end consumer → May have large inventory to manage
→ Quick receipt of goods → Minimal
Seller → Lower storage fees → Payment not guaranteed until end sale
→ Less inventory management → Lack of access to and management of
→ More competitive merchandise
8.1.6 Risks associated to each methods of international payment methods
In the previous section (8.1.5) we have seen pros and cons of various international methods.
The question is how those methods might have risks either to seller or buyer.
Methods Risks Applicability

Cash-in Exporter is exposed to virtually Recommended for use in high risk trade
advance no risk as the burden of risk is relationships or export markets, and appropriate
placed almost completely on the for small export transactions
importer
Letter of credit Risk is spread between exporter Recommended for use in higher-risk situations
and importer, provided that all or new or less established trade relationships
terms and conditions specified when the exporter is satisfied with the
in the L/C are adhered to creditworthiness of the importer’s bank
Cash against Riskier for the exporter, though Recommended for use in established trade
documents CAD terms are more convenient relationships, in stable export markets and for
and cheaper than an L/C to the transactions involving ocean shipments
importer
Open account Substantial risk to the exporter Recommended for use in (a) low-risk trading
because the buyer could default relationships or markets and (b) in competitive
on payment obligation after markets to win customers with the use of one or
shipment of the goods more appropriate trade finance techniques
8.1.7 Measures for protecting payment risks
Some of the recommended measures to protect a buyer or seller from risks in international
trade are;
✓ Take the time to get to know the other party: Before trusting foreign clients or
commercial partners, take the time to really get to know them. Many disputes are the
result of bad faith dealings by the other party.
✓ Testing is important before a serious investment (Start slow): Test the waters before
investing in big international transactions. Start with small transactions to see if
everything goes smoothly and the other party is dependable.
✓ Always use secure payment methods: Unless you’ve enjoyed a long relationship with a
foreign partner, you’ll have to protect yourself. National Bank can help you choose the
most appropriate and secure method for your situation. You can request advance
payment or get a confirmed letter of credit.
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✓ Establish a meaningful relationship: A solid and trusting relationship that facilitates

commercial exchange is priceless. Take the time you need to establish good relations
with your partners and clients.
Assignment
i. International payment can be done using different methods. Briefly explain pros and
cons of four common methods used in International payment.
ii. While using various methods for international payment, there are might be some
associated methods. With examples identify risks and Measures for protecting
international payment methods.
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REFERENCES
Gillham, J. (2019). Differences between a Businessman and Entrepreneur. Online
Journal. Retrieved from https://authoritywebsiteincome.com/10-differences-
between-a-businessman-and-entrepreneur/
Sinha, (2020). Top 10 Types of Entrepreneurs. Retrieved from

https://www.yourarticlelibrary.com/entrepreneur/top-10-types-of-entrepreneurs-
explained/40648
Caird, Sally (2013). General measure of Enterprising Tendency test. Retrieved from
file:///C:/Users/User/Downloads/Get2test_guide.pdf
Walle,S.N. (2017). Simple steps to choose the right business idea. Retrieved from
https://www.usatoday.com/story/money/business/smallbusiness/2017/05/10/sim
ple-steps-choose-right-business-idea/101466370/
Tanzania Revenue Authority (TRA). Retrieved from

https://www.tra.go.tz/index.php/starting-business
Kadete, A. Z. (2014). The Role of Government In Supporting SMEs Development in

Tanzania: A Case Of SIDO.
http://scholar.mzumbe.ac.tz/bitstream/handle/11192/1535/MSc_MBA_Albino%20
Zacharia%20Kadete_2014.pdf?sequence=1
UKEssays. (November 2018). The Small Medium Enterprises Sector In Tanzania

Economics Essay. Retrieved from
https://www.ukessays.com/essays/economics/the-small-medium-enterprises-
sector-in-tanzania-economics-essay.php?vref=1
Turkcan, K. (2015). Evolving patterns of payment methods in Turkish foreign trade:

Munich Personal RePEc Archive (MPRA). Retrieved from
file:///C:/Users/User/Downloads/Turkcan_MPRA_paper_65410.pdf
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Notes for basics of entrepreneurship, NTA 4

COLLEGE OF BUSINESS EDUCATION (CBE)

NOTES FOR BASIC ENTREPRENEURSHIP NTA 4

PREPARED BY COURSE INSTRUCTOR

2.3.5 Classification based on a size of the business ...................................................19

5.3.2 Common Features of small business ...............................................................38

Entrepreneurship, NTA 4 focusing on the course outline of the respective module.

pamphlet therefore, each SELO is treated as an independent chapter of discussion.

Furthermore, the discussion of each SELO is followed by assignments provided to

students for self-assessment of learning achievements or level of understanding of the

content discussed. Hopefully, my students will enjoy using this pamphlet.

A COURSE OUTLINE OF BASIC ENTREPRENEURSHIP, NTA 4

Sub-enabling learning Related tasks (RTs)

1. The background and a) Understanding key terms (Entrepreneurship, an Entrepreneur,

4. Business start- up process a) understanding business idea

1.0 THE BACKGROUND AND NATURE OF ENTREPRENEURSHIP FOR

i. Understanding key terms

Entrepreneurship is also defined as a capacity and willingness to develop, organize and

The main difference between an entrepreneur and an intrapreneur is that, an

1.1.3 Risk taking/ bearing

1.1.7 Entrepreneurial behavior

1.1.8 Entrepreneurial competences

1.1.9 Interneural culture

1.1.10 Business opportunity (bizopp)

1.2 The background of a concept an entrepreneur

• The word has been in use since the 16th century.

1.3 Historical development of entrepreneurship in Tanzania

1.3.1 Before Colonial Era

1.3.2 During Colonial Era

Therefore, manufacturing, importing, exporting, banking and insurance were mainly

1.3.3 Post-independence and Socialist Era (1967-1985)

In 1967, the government officially adopted a radical transformation to a socialist

In attempt to respond to challenges associated to economic crisis, Tanzanians from all

In 1983, the government implemented a ruthless campaign against “economic

1.3.4 Liberalization and Economic restructuring (1986 to date)

The Economic Restructuring Programme (ERP) involved liberalization of all sectors of

Since the mid-1990s, entrepreneurship as a career has been acquiring increasing

1.4 Rewards / importance of entrepreneurship in Tanzania

• Promotes the spirit of self-reliance

1.5 Possible risks associated entrepreneurship

1.6 Problems facing entrepreneurs in Tanzania

• Lack of entrepreneurship education to most people engaging with

flexibility in your thinking. This is an essential part of problem-solving. You want

xi. Knowing the business network

2.2 Different between an entrepreneur and businessperson

i. Business idea originality/ the source of business idea

vi. On how he sees the competition

NB: Remember despite the differences articulated between an entrepreneur and a

2.3 Types of entrepreneurship

2.3.1 Classification based on business done

middlemen as wholesalers, dealers, and retailers between the manufacturers and

2.3.2 Classification based on the use of technology

2.3.3 Classification based on business ownership

iii. Joint Entrepreneur

2.3.4 Classification based on gender

ii. Women Entrepreneurs

2.3.5 Classification based on a size of the business

2.3.6 Based on Clarence Danhof Classification