Topic outline

  • General



    Key Unit Competency: To be able to generate business ideas and take advantage of opportunities


    Many people worlds over and Rwanda in particular are in constant search for ways and means of starting their own businesses or improving on the existing ones. Many are driven into this by various reasons such as developing a career, self-employment, solving other people’s problems or meeting their needs, among others. Such people usually ask themselves many questions like:

                   •Which business can I do?

                   •What business would be safe for me to do?

                   •Which business would I be interested in?•Will the business be profitable?

                   •Will the business be able to attract customers?

                   •Will I be able to cope with competition if I was to start such a business?

                   •How much money will I need to start the business and where will I get it from?

    And so self-questioning and searching goes on and on.

    This unit therefore, is designed to guide you answer the above questions and finding an appropriate business idea and opportunity. It will equip you with knowledge and skills as well as attitudes that will enable you to generate business ideas and take advantage of opportunities. Under this unit, you will learn how to generate business ideas, assess and rank them to select those that constitute business opportunities that you can later develop into businesses to realize your business goals.

    Introductory activity

    Rwanda has grown tremendously in the past years in terms of social, economic, political, and technological as well as in other aspects of life. Today, the Rwandan population is highly enterprising leading to a number of business activities being set up.

    Referring to figure 1.1above and using your previous knowledge of entrepreneur-ship, answer the questions below;
    a. What do you think has led to tremendous growth in all aspects of life in Rwanda?
    b. What factors have led to Rwandans being enterprising?
    c. Give some sources of business ideas that have led to Rwandans being enterprising.
    d. Not all business ideas are business opportunities. Is this statement true or false? Give reasons to justify your response.
    e. What should one do in order to take advantage of business opportunities available in his/her community?

    1.1. Meaning of a business, a business idea and a business opportunity

    Activity 1.1

    Case study: A reality T.V. Show

    Rwiyemeza is a prominent entrepreneur dealing in growing and processing of Mushrooms in Kicukiro district. One day she was invited to give an interview on Rwanda Broadcasting Agency (RBA) about her business to the whole nation by Mr. Makuru.

    Read through the excerpts from the interview

    Makuru: How did you decide to get into mushroom growing and processing? How did you start?

    Rwiyemeza: It was during the long senior six vacations after failing to get a job as I waited for my results. I basically got the idea after listening to the radio, reading newspapers, and watching TV about how different people have succeeded by starting their own business activities. Coupled with my secondary school entrepreneurship competences, I decided to give it a try and started with very many ideas of business activities I could start.
    It was not an easy task deciding on one activity but after doing enough research from various people, I finally settled for Mushroom growing and processing.

    Makuru: What was the biggest challenge while starting your business activity? How did you overcome it?

    Rwiyemeza: There were so many challenges such as competition, unsure market, lack of experience but deciding on turning my business idea into a profitable business was most challenging. I had to make a lot of research from existing entrepreneurs, Sector offices, and financial institutions. I also had to do personal evaluation.

    Makuru: What are the benefits of your business to the community?

    Rwiyemeza: Aaahhh......there are so many I can’t exhaust them.... but I will start with employment to me and my family which has improved our standards of living. I have 5 workers who earn a monthly salary, I pay taxes, my business helps to conserve the environment. Most importantly, I have inspired a lot of other young entrepreneurs especially women to start their own businesses.

    Makuru: What advice would you give to the young people who may want to start business activities?

    Rwiyemeza: My advice would be that all around us are opportunities of business ideas but one has to be careful because NOT all business ideas can become business opportunities and therefore turned into profitable businesses. Before I finally decided to start mushroom growing and processing, I had tried a number of businesses which failed because they were not viable. So, I again advise the young people that take time and study/research the business ideas before investing money because “Not all business ideas are business opportunities”.

    Referring to the case study (A reality T.V. Show) above, answer the following questions

    a. What do you understand by business and what is Rwiyemeza’s business?
    b. Explain what you understand by a business idea. Mention any sources of business ideas for Rwiyemeza’s business activity.
    c. Rwiyemeza says it was not easy for her to start up the business activity. Explain what you understand by a business opportunity and identify some challenges Rwiyemeza faced.
    d. Why do you think it is very important to do a research and personal evaluation before deciding to start a business activity?
    e. Why do you think that it is important to generate business ideas?

    1.1.1. Meaning of business

    Business means the production, distribution, and sale of goods and services for a profit. Business, then, is a combination of all these activities: for example, cars can be classified as goods, services, on the other hand, are activities that a person or group performs for another person or organization. For instance, an auto mechanic performs a service when s/he repairs a car. A business therefore, can also be described as an organization that provides goods and services for human needs.

    1.1.2 Rationale for Business

    The simplest purpose of business is to solve a customer’s problem or meet the customers’ needs. By providing the goods and services that meet the customer’s needs, the business owner may realize profits (and at times may incur losses). Businesses exist to impact on people’s lives. This happens by businesses providing people with goods and services they desire to meet their needs. While the people buying the business’ products (goods and services) are meeting their needs, the business owners expect to realize profits. Businesses serve as conductors of economic activity and development.

    Business may be done by private individuals, government, companies, co-operatives or non-governmental organizations (popularly known as NGOs).

    1.1.3. Business idea and business opportunity

    An idea is like a seed, an impression of a concept or a notion that revolves around seemingly successful product or service. A thought needs some amount of commercial validation before it shapes itself into an opportunity. Opportunity is the care and nurturing that a gardener has to endeavor for to turn the seed into a seedling and then allow it to grow into a tall tree. The gardener ensures that it gets good soil, sunshine, proper environment and protection from harsh rains or weather conditions.

    A business idea may not necessarily be a business opportunity; one needs to filter and sift through these ideas to realize whether they are real opportunities. Most of the times, these ideas remain dormant because of the lack of courage, resources for example time and money or mere inability to take action. In addition, those who show courage to take action generally see their dreams go off track due to lack of farsighted vision or lack of preparedness. The business owner must own the responsibility of its success or failure regardless of the circumstances. Successful entrepreneurs are good at turning ideas into opportunities, they execute to make it all happen. It takes time, resources and hard work.

    Meaning of a business Idea

    A business idea can be referred to as the response of a person or persons, or an organization to solve an identified problem or to meet perceived needs, realize fantasies or dreams, improving on existing situations or products, etc.

    Finding or generating a good business idea is the first step towards transforming the entrepreneur’s desire and creativity into a business opportunity. Essentially, entrepreneurs need ideas to start and grow their entrepreneurial ventures. Generating ideas is an innovative and creative process.

    Meaning of a business opportunity

    An opportunity is a favorable set of circumstances that creates a need for a new product, service, or business. A business opportunity can be defined as an attractive business idea worth investing in or propositions that provide the possibility of a monetary return for the person implementing them or taking the risk of investing in them. Such opportunities are determined by customer requirements and lead to the provision of a product or service which creates or adds value for its buyers or end-users.

    Application Activity 1.1

    As a student of entrepreneurship, come up with ideas that may result into opportunities for you to start business activities to solve identified situations in your community below.
    a. Lack of sufficient safe water in your community.
    b. High demand for charcoal as source of energy in your community.
    c. Increased pollution due to increased disposal of wastes in your community.

    1.2. Characteristics/Qualities of business ideas and business opportunities

    Activity 1.2
    Think about people in your community who have started business activities. Have they all been successful? Give reasons to support your response.
    a. Why do entrepreneurs have to generate business ideas and opportunities?
    b. What do you think should make a good business idea?
    c. What do you think should make a good business opportunity?
    d. Think about people in your community who have started business activities. Have they all been successful? Give reasons to support your response.

    1.2.1. Why generate business ideas

    There are many reasons why entrepreneurs would need to generate business ideas. Some include:

    •You need an idea: A good idea is essential for a successful business venture – both when starting a business and to stay competitive afterwards
    •Respond to the market needs: Markets are made up essentially of customers who have needs and wants waiting to be satisfied
    •Changing fashions and requirements: Provide opportunities for entrepreneurs to respond to demand with new ideas, products and services
    •To stay ahead of the competition: Remember, if you do not come up with new ideas, products and services, a competitor will. So the challenge is to be different or better than others
    •To exploit technology – do things better: Technology has become a major competitive tool in today’s markets and for one to be better with changing technology, generation of business ideas is crucial.
    •Because of product life cycle: All products have a finite life. The firm’s prosperity and growth depends on its ability to introduce new products and to manage their growth
    •To spread risk and allow for failure: It is necessary for firms to try to spread their risk and allow for failures that may occur from time to time by constantly generating new ideas.

    Good entrepreneurial business ideas should be:

    a. Market driven
    •Solve a problem
    •Find a market need
    •Customer focused not product driven
    •Targets an identified sizeable market segment

    •Attractive –there is a demand
    •Achievable –it can be done
    •Durable –it lasts
    •Value creating –it is worth something

    c. Unique
    •Differentiated (commodity)
    •They have a “Special Sauce”

    d. Fundable
    •Having a consistent Revenue stream
    •Manageable risk
    •Sustainable -Market exists with frequency of purchase
    •Scalable or Replicable
    •Barriers to entry
    •Growth potential
    •Product pipeline
    •Exit plan

    1.2.2. Reasons for generating business ideas

    There are many reasons why entrepreneurs would need to generate business ideas.

    A good idea is essential for a successful business venture both when starting a business and to stay competitive afterwards. Some of these reasons include;

    •To respond to market needs: markets are made up essentially of customers who have needs and wants waiting to be satisfied.
    •Changing fashions and requirements: provide opportunities for entrepreneurs to respond to demand with new ideas, products and services.
    •To stay ahead of the competition: Remember, if you do not come up with new ideas, products and services, a competitor will. So the challenge is to be different or better than others.
    •To exploit technology(do things better): Technology has become a major competitive tool in today’s markets and for one to be better with changing technology, generation of business ideas is crucial.
    •Because of product life cycle: All products have a finite life. The firm’s prosperity and growth depends on its ability to introduce new products and to manage their growth.
    •To spread risk and minimize failure: It is necessary for firms to try to spread their risk and minimize failures that may occur from time to time by constantly generating new ideas.

    Good business opportunities should be represented by customers’ requirements and lead to the provision of the goods or service that satisfies the customers (creates or adds value for the buyers or end user).

    A good business opportunity must be carefully examined and should fulfill the following criteria:

    •Real demand should exist for the products to be produced.
    •Favorable return on the investment made.
    •Be able to favorably compete in the market (competitive).
    •Should meet the investors many objectives.
    •There should be availability of resources necessary for the investment.

    Application Activity 1.2
    Analyze the extract below and answer questions that followIn ‘tech’, there is an old saying, “an idea before its time is worse than a bad idea.”
    (Adapted from:

    a. What does the above extract mean to you regarding business ideas and opportunities?
    b. What should one do to avoid the situation in the extractiv1.

    1.3. Sources of good business ideas and opportunities

    Activity 1.3
    a. Referring to your community, give at least 3 examples of people or firms that have come up with good business ideas, and explain why you consider these ideas being good.
    b. Suggest any five (5) ways in which people in your community generate business ideas.
    c. Briefly explain any sources of business ideas and opportunities in Rwanda.

    1.3.1. How to generate business ideas (Techniques of generating business ideas)

    Where do you find new business ideas? In your own head! Of course, you can buy an existing business. But you could also find more exciting business ideas by looking around yourself, your community, country and the world to find out what needs to be fixed, what can improve on the existing situations, what is more exciting, what eases or saves people’s lives, what can take advantage of existing or future situations, etc. Entrepreneurs can generate business ideas through any of the following ways.

    a. Define the Problem. Any problem, challenge or unmet customer needs and gaps need to be solved or a solution found. By thinking about different ways of solving or meeting the customer needs results into business ideas. Therefore, to generate business ideas, one needs to first define the problem and then look for ways to solve it.

    b.Brainstorming: This is where a group of potential entrepreneurs get together to think and generate a list of solutions to challenges or ideas to solve unmet customer needs. As the group members think and mention the ideas that they have come up with, it is written down.

    c. Look at parallel problems and solutions: Relate your current problem to the one that you had in the past and check for parallels between the two. The way that earlier problems were solved can assist you greatly in generating ideas to solve subsequent and current situations.

    d. Look at each task as a challenge: It’s true that if you look at a problem simply as a “problem” then that is exactly how many will look at it. Sure it is a problem, and therefore, it needs a solution. Coming up with solutions to solve the problem or challenge will result into business ideas to that particular challenge.

    e. Daydreaming: Most people while undertaking their daily duties have their subconscious continue working (day dreaming). List your dreams. What have you always wished to do? Write them down. Then look for a way to turn these ideas into practical activities that have social, cultural or economic value for which someone out there could or may be willing to pay for.

    f. Carry a notepad: Always have a notepad with you. Make it a habit not to live without it. Write down any interesting idea your mind comes up with in response to every situation you may be faced with or environment you find yourself in. Capture and preserve your ideas for later use when you truly want them.

    g.List customers’ complaints: How many times have you complained about a bad service, poor or wrong timing hours, limitations of a product you have purchased, etc? If your complaint is not unique, then you have just found an area where you could help meet a need. For example, if you were searching for a good or service on the weekend, and the store or Service Company was closed, couldn’t you capitalize on that by offering expanded hours?

    h. Read. Read: Read virtually every newspaper, business magazine, marketing periodicals, entrepreneurship bulletins, etc that you can find. You may not get a winning idea from each issue, but always learn something new that you can use at a later date. The more information your mind has stored away, the greater the opportunity for creativity.Every time you read about an entrepreneur who is making it on his or her own, you should be processing the data from your mind on why such an entrepreneur is successful.

    i. Tap your interests: Thousands of clever people have taken up hobbies and turned them into successful businesses. Unfortunately, a number of people never consider it as an important piece of work when they are doing something they love.

    j. Travel: Traveling opens your eyes and increases the chances for you to generate business ideas. You will for example benefit greatly if you visit well known entrepreneurs or people so that you can listen to their experiences.

    k. Keep your eyes open: When you see something that attracts your interest, ask yourself; what is it about this situation that is special? Then narrow your focus, so that you keep an idea that could be useful at some time later. The process of zeroing in on an idea often spawns important niche markets.

    l. Library or internet Research: Libraries and internet are often the underutilized sources of information for generating business ideas. The best approach is to talk to the librarian who can point out useful resources, such as industry (specific magazines, trade journals, industry reports), etc. Simply browsing through several issues of trade journals or an industry reports on a specific topic can spark new ideas.

    1.3.2.Sources of business ideas

    •Personal interest in searching for new things/Hobbies.
    •Franchises (improving upon an existing idea).
    •Mass media (newspapers, magazines, TV, Internet).
    •Business exhibitions.
    •Customer needs, advice, complaints, preferences, wishes, etc.
    •Changes in society.
    •Being creative .
    •Prior jobs.
    •Seeing a need or a gap in the marketplace.
    •Using skills as foundation for a business.

    Application Activity 1.3
    1. Read the following and answer as required

    a. Generating business ideas from existing businesses: By reflecting on the entrepreneurs from your community; list the business activities that they are performing. Using the listed business activities, think and come up with your own business ideas.

    b.Generating business ideas from the available information: Take time to read newspapers, books or magazines, listening to the radio, watching television or search the internet. From whatever you have read, heard, watched or seen, generate and write business ideas in your note books.

    c. Generating business ideas from existing products: Analyze samples of existing products (e.g. 2 or 3 products) from your community and come up with a list of new products you think that you could make using these products (for example by improving on them, changing their uses, etc). As you think and propose the new products, be guided by their possible applications either at present or in the future.

    d. Totally new business ideas: Think and come up with business ideas that can satisfy or help your group achieve its dream. Present your group report to the rest of the class for discussion.

    e. Business ideas based on the learners’ community needs: Visit your community to observe or investigate about its existing un-served needs, future needs and dissatisfactions that they have and list them. Generate business ideas based on your findings from the community.

    f. Business Ideas based on existing local resources: Visit your community to observe or investigate about the existing local resources and list them. Then, discuss and generate business ideas that will make use of the existing local resources.

    g.Situations: Identify different real life situations (e.g. back to school days, festive seasons, weddings functions, political campaigns, road junctions, border crossing points, rainy or sunny days, etc). Based on 3 or 4 situations of your choice, generate business ideas that can take advantage of them.

    2. Why do you have to pay attention to issues such as gender, environment, peace among others while generating business ideas and opportunities from the different sources?

    1.4. Factors influencing choice of a business opportunity

    Activity 1.4
    In senior one, unit 4: Concept of needs, wants, goods and Services and Senior two unit 4: Markets, you studied the different forms of enterprises and the impact of the different types of markets. After graduating, you may want to start a business activity.

    Referring to application activity 1.3, chose one business opportunity you may decide to start and give reasons for your choice.

    Some factors considered while choosing of a business opportunity

    Most people have been looking for new business ideas since childhood. In their early years, they have started and tried a number of business activities such as rearing small animals, selling airtime cards, selling bakery products, among others where they have made many wrong mistakes. As they grow older (and wiser), they have learned to screen and evaluate opportunities more effectively before investing in them. Different people will have different criteria depending on things like risk tolerance, career goals, budget, inheritance, etc. Below are some factors to consider when deciding what business opportunity to pursue.

    1. Identified market need or gap: The nature of the identified need or challenge in the market or customer need will influence an entrepreneur’s choice of a business idea. A person is likely to choose an opportunity which he/she thinks will solve the identified market needs.

    2. Growing market: Most people do not want to avoid the hustles of starting a new business. So, they will choose ideas or opportunities that are easy for them to start their businesses while others may choose ideas that gives them a chance to be creative.

    3. Low funding requirements: The amount of funding required to implement a business opportunity may influence one’s choice of a business idea. Most people will choose opportunities that do not involve a lot of funding in relation to profits.

    4. Vision or goals: The choice of a business opportunity will greatly depend on the vision or goals of the entrepreneur. These could be short term or long term goals.

    5. High profit margins: Of course, on every entrepreneur’s mind is profit. The profit margin expected from the opportunity will greatly influence one’s choice.

    6. Not easily copied: Every entrepreneur of course wants to protect their ideas, protect intellectual property and developing a brand reputation. So entrepreneurs are likely to choose ideas/opportunities that cannot be easily duplicated in the market at least in the short run.

    7. Inheritance: Inheritance is the practice of passing on properties, rights, and obligations upon the death of an individual. Most people would prefer continuing in the line of family business than going for new business opportunities.

    8. Skill set required: If the skill set required to execute the opportunity counts to the survival of the business, then execution risk should be less. Therefore, most entrepreneurs would go for opportunities that are in line with their skill set or experience. This may also go as far as the human resources requirements are concerned.

    Application Activity 1.4
    Around your neighborhood there are many business activities taking place. Identify any 3 of them and give reasons why you think the owners chose those activities over others.

    1.5. Evaluating Business Ideas

    Activity 1.5
    There are plenty of opportunities out there in your community; it is just a matter of choosing which one is best. Many young entrepreneurs have burning ideas and visions for the future. Everyone’s personal criteria and factors will probably be different depending on their goals. Using prior knowledge on entrepreneurship and researching in different entrepreneurship books, identify at least five factors that can be considered while evaluating business ideas.

    Factors to consider when evaluating viable business idea and opportunities

    It is very important to examine your business idea and determine your potential for success before you spend time and money developing a business plan. If you want to start a business, you will need to think carefully about your business idea. Is it a great idea that could turn into a major brand or will it fall flat at the start line?

    Entrepreneur needs to determine whether the business idea they have in mind is viable or not. When evaluating the viability of the business opportunity, the following factors need to be taken into consideration:

    a. Potential for growth: An opportunity is said to be viable, when it has the ability to grow and expand.

    b.Infrastructure: Easy access to infrastructure such as roads, water, electricity, telephone and postal services among others enables business enterprises to easily make orders for goods and deliver them hence reducing operating expenses. With low operating expenses, profits can be maximized.

    c. Market for the goods and services: An entrepreneur has to assess potential and actual market for the goods and services he or she would like to sell. There must be a clearly defined market if the opportunity is to be considered.

    d. Rewarding to the investor: The opportunity should be rewarding to the investor (cost-benefit consideration). He should consider the expected returns against the expected cost to ensure that the benefits outweigh the cost.

    e. Price structure: One has to put into consideration the price-structure of the goods and services he would like to offer. Goods and services, which are subjected to constant inflation, are likely to change in terms of price.

    f. Competition and Competitive advantage: Competition is regarded as a threat to business of similar kinds operating in a similar location. Although competition is a threat, it is healthy in the sense that it goes along the way in controlling price of goods offered. It is crucial for entrepreneurs therefore to consider opportunities where competition is not high as this will enable them to get reasonable market share. They should venture where competitive advantage is.

    g.Incentives: Offered by the government and Non-Governmental Organizations, incentives are legitimate business opportunities to exploit as they save on costs. E.g. duty free importation of sugar and maize, tax waivers, etc.

    h. Legal Consideration: The new idea should be in line with the legal regulatory framework e.g. an idea to sell drugs may not be viable because it is illegal.

    i. Financial viability: The assessment of financial viability is of significant importance when looking at the viability of the business. Capital investment requirements, break even analysis, cash flow projections, profitability of the business have to be analyzed. This is because they determine the sustenance of the business in the market-mix.

    j. Personnel, Training and Management: Before starting a business, it is necessary to make an assessment of the required personnel training and management. Look at the ability, cost of hiring and training human resource. Management efficiency will enable the business to succeed.

    Application Activity 1.5
    Analyze the photo below and answer questions that follow;

    a. What kind of activity is represented in the photo?b. What are the effects of such business ideas to the community?
    c. As an entrepreneur, suggest any two business ideas you may generate in response to the effects of the activity above.
    d. Picking one idea, give the factors you will base on while choosing that idea.
    e. What advice would you give to potential entrepreneurs while generating business ideas in relation to the photo above?

    1.6. Evaluating business opportunities using the SWOT Analysis

    Activity 1.6

    1. Refer to the above figure and explain what the following terms may mean in relation to identifying and evaluating business opportunities:

    a. Strengths.
    b. Opportunities.
    c. Weaknesses.
    d. Threats.

    2. Identify one successful business in your community and a. Briefly describe the factors or things you think favored its growth.b. Briefly describe the factors or things you think might affect its growth.

    1.6.1. Meaning of SWOT Analysis

    As an entrepreneur, you want to know your business inside and out so you can make informed and moneymaking decisions. To do that, a SWOT analysis is the key. By conducting a SWOT analysis, you will have a comprehensive look at your company’s strengths, weaknesses, opportunities, and threats (which is what the acronym SWOT stands for).

    A SWOT analysis encourages owners to evaluate their businesses, looking specifically at strengths, weaknesses, opportunities, and threats that surround the company.

    A SWOT analysis is an analytical tool that can be used by the entrepreneur to check his/her business/product strength and weakness, opportunities and threats and to compare them with his/her competitors and therefore determine whether his/her business is in better position to compete or not.

    1.6.2. The purpose of SWOT

    For existing businesses, a SWOT report will:

    •Give you a new perspective about your business.
    •Provide valuable information that can be used to make strategic decisions.
    •Allow you to assess the health of your business in real time.
    •Identify areas for improvement.
    •Give employees a chance to weigh the overall wellness of the business.
    •Guide future plans.

    For new businesses, a SWOT report will:

    •Highlight the benefits of your proposed business.
    •Identify potential problems.
    •Encourage you to think critically about starting a business.
    •Provide valuable information that you’ll need to consider now and in the future.

    SWOT stands for:

    Strengths refer to the positive internal factors a business can draw from to accomplish its goals and objectives. For example:

    •Skilled and motivated staff.
    •Modern equipment.
    •High quality products.
    •Customer friendly but profitable prices.
    •Ability of the product to meet customers’ needs and preferences.
    •Efficiency at serving customers.
    •Good business location.
    •Good and trained marketing staff
    .•High and effective brand name, design, trademarks, packaging, etc.
    •Efficient advertising and product promotion terms and strategies.
    •Enough capital

    Tips to maintain your company’s strengths;

    •Be truthful: It probably goes without saying, that if you’re not truthful during this process, the entire analysis won’t be effective.

    •Allow for feedback: As you’re brainstorming strengths, make sure your employees are comfortable offering their feedback. You may not agree on some strength, but it’s best to talk to them through.

    •Stay focused: You want to hear many viewpoints, but when you get several people in a room, time can get away from you. Keep the group on task.

    •Keep your list of strengths handy: Keep your list in an accessible spot. You’ll analyze all of the data that you collect over the next few days at the end of the week.

    Weaknesses refer tothe negative internal factors that inhibit a business’ ability to accomplish its goals and objectives. For example:

    •Being new in the market.
    •Weak marketing image and distribution image.
    •Narrow product line; location of selling points not convenient or accessible to customers.
    •Inability to finance needed marketing changes.
    •High overall unit cost compared to the key competitors.
    •Marketing skills that are poor or below average.

    Tips to identify your business’ weaknesses

    •Be open-minded: As your employees suggest weaknesses, remain open-minded. It’s likely that an employee will bring up a weakness that you hadn’t thought of, or disagree with. When it happens, don’t be judgmental.

    •Be critical of your business: Now isn’t the time for rose-colored glasses, now is the time for pure honesty. Be prepared to look at your business inside and out critically.

    •Remember, every business has weaknesses: When you’re finished talking about the negative aspects of your business, you might feel a bit deflated. Remember, every business has weaknesses. Today is just part of a larger process that will help you better access your business.

    •Keep your list of weaknesses handy: Keep your list in an accessible spot. You’ll analyze all of the data that you collect over the next few days at the end of the week.

    Opportunities refer to the positive external factors that a business can exploit to accomplish its goals and objectives. For example;

    •Possibilities of landing big orders say from government or big institutions.
    •Sudden shift in tastes and preferences of consumers in favour of your products.
    •Market trend changes due to new development like a school or large business in the area.
    •Faster market growth.
    •Falling or removal of trade barriers in attractive markets whether foreign or domestic.

    Tips to exploit your business’ opportunities

    •Do your research: Finding answers to some of these questions might require some digging. Don’t be afraid to make some calls, set up meetings, and do some market research to gauge upcoming changes.

    •Be creative: To find an opportunity where your competitors cannot will take skill and creativity. Don’t be afraid to think outside the box when you’re listing possible opportunities.

    •Keep your list of opportunities handy: We’ll add to your SWOT analysis tomorrow, so keep your list of opportunities in a safe spot.

    Threats refer to the negative external factors that inhibit a business’ ability to accomplish its goals and objectives. For example

    •Competitors reducing their prices.
    •New businesses getting started.
    •Entry of lower cost foreign competitors into the market.
    •Changing tastes and preferences of consumers.
    •Negative population changes/demographic changes.
    •Sudden negative change in government policies
    .•Negative shift in forex rates and trade policies.
    •Rising sales of substitute goods.
    •Declining availability of raw materials for the product.

    Tips to identify and manage threats

    •Do market research: As you’re looking into possible threats, you will want to conduct market research to see how your target audience is shifting.

    •List every threat you can think of: If you think of a threat, list it. Even if that threat has consequences that won’t be felt immediately, it’s still better to have it on your radar.

    •Threats exist, don’t panic: Listing threats may cause some anxiety, but remember that all businesses have threats. It’s better to know about threats than it is to turn a blind eye to them.

    Application Activity 1.6
    Analyze the case study below and after answer questions that follow.

    Case study: KGF Breweries
    KGF Breweries is a medium-scale brewery that is located in the growing indus-trial center of Kigali, Rwanda. This is a relatively new business in its start-up phase having been incorporated recently.

    We are on the brink of penetrating a lucrative market in a rapidly growing econ-omy. The current trend towards an increase in the number of entrepreneurs and competition amongst existing companies presents an opportunity for KGF Breweries to penetrate the market. Our products will be positioned very care-fully. They will be of extremely high quality to ensure customer satisfaction, supported by impeccable service to our customers. Our primary goal will be to establish and strengthen our license to trade, which will be bestowed by the communities in which we function.

    As KGF Breweries prospers and grows, these communities will continue to ben-efit from both the value created by KGF Breweries and its behavior as a corpo-rate citizen.We are in a highly lucrative market in a rapidly growing economy. We foresee our strengths as the ability to respond quickly to what the market dictates and to provide quality brew in a growing market. In addition, through aggressive marketing and quality management we intend to become a well-respected and known entity in our respective industry. Our key personnel have a wide and thorough knowledge of the local manufacturing market and expertise, which will go towards penetrating the market. However, we acknowledge our weakness of a medium-sized company without a lot of experience, and the threat of new competition taking aim at our niche.

    a. Describe all the potential opportunities or positive factors that may favour the growth of KGF Breweries.
    b. Describe all the potential areas of weakness or limitations to the growth of KGF.
    c. Describe the likely effects of KGF on the community in general.
    d. Suggest possible strategies KGF may apply to regulate the effects on the community.

    Skills Lab Activity 1.7
    For the business you intend to start at home or for the products that already ex-ist in the club or at home, how will you improve or add value to them? Answer the following questions to explain the above.

    1. Relevance of the product or project to the community.

    a. What new or improved product are you making?
    b. What additional attributes will the product have?
    c. Explain how the product will be able to solve community problems.

    2. Increasing production.

    a. What will be production goal for the year?
    b. What strategies will you implement to have more output?
    c. How will you be managing produce (output produced?

    3. Making the product competitive.

    a. What will be the sales goal for the year?
    b. What strategies will be implemented to have a competitive advantage over other businesses in the community?
    c. How will the mentioned strategies above be implemented.

    4. Reducing negative effects on the environment.

    a. Why is it necessary for the clubs at school to be responsible with the environment?
    b. What measures will you put in place to reduce environmental hazards as a result of club activities?

    5. Recruitment more customers

    a. Discuss different strategies that you will employ to have more customers for your product.
    b. What measures will be put in place to maintain the clients?

    End of Unit 1 Assessment

    1. “Not all business ideas are business opportunities” What does this statement mean to you?

    2. Referring to your community,

    i. Identify any one unmet customer need.
    ii. Generate any three solutions to the unmet customer need identified above.
    iii. Choose one idea that you think may be turned into a profitable business, and give reasons to support your choice.

    3. Analyze the picture below and answer questions that follow.

    i. What is the problem in the picture above?
    ii. What are the effects of such situations to the community?
    iii. Suppose this was in your area, generate any 3 business ideas in response to the situation above
    iv. Use the SWOT analysis to evaluate any one business idea generated above (iii) for potential business

    Files: 2

    Key Unit Competency: To be able to make a valid contract and resolve conflicts in business operations


    The business environment is full of agreements between businesses and individuals. While oral agreements can be used, most businesses use formal written contracts when engaging in operations. Written contracts provide individuals and businesses with a legal document stating the expectations of both parties and how negative situations will be resolved. Contracts also are legally enforceable in a court of law. Contracts often represent a tool that businesses use to safeguard their resources.

    This unit is designed to equip you with knowledge and skills as well as attitudes that will enable you to: make personal and business contracts, handle conflicts in life and business, respect agreements with other people and seek for the appropriate institutions for conflict and dispute resolution.

    Introductory activity

    Referring to laws in business operations and role of standards in business covered in S4, answer the following questions:

    a. What is the importance of laws in business operations?

    b. What is the importance of standards in business operations?

    c. What do you think is a business contract?

    d. Your friend met with a businessperson on a football match who requested her to supply him with beans at a price agreed on from there among the two of them. After delivering 200kgs, she was not paid the full amount of money she had been promised by the businessperson.

    i. Has such a situation ever happened to you? When and what happened?

    ii. What do you think was the mistake your friend did? What should she have done?

    iii. How do we call such a situation?

    iv. Advise your friend what to do so as to be fully paid her money.

    v. What lessons do you learn from the above situation?

    2.1. Business contracts: Meaning and Forms of Business contracts

    Activity 2.1

    Read the following paragraph and answer questions that follow.

    Musabe is operating a micro enterprise in her local home area of Musanze. She wants Mugisha to supply her goods for her business. Musabe says Mugisha can start right away to supply the goods they will discuss other issues later on BUT Mugisha insists he needs an agreement between the two especially on issues such as payment terms, delivery period, quantity and quality, among others.

    a. How do you call the agreement Mugisha insists should be between them?

    b. Do you think Mugisha is right to have the agreement before starting the supply of goods? Give reasons to support your answer.

    c. In which form may the agreement be made between Musabe and Mugisha? Support your answerd. What do you understand by:e. Contract.

    f. Business Contract.

    2.1.1. Meaning of contract and Business contract

    A business contract is a legally binding agreement between two or more persons/businesses to perform an agreed business transaction. It is a legally binding agreement between two or more persons or entities.

    Dealing with contracts is part of running a successful business. You will have a number of business relationships involving some type of contractual commitment or obligation.You may:

    •Be a purchaser of goods and services - as a borrower of money, in rental agreements and franchise agreements
    •Be a supplier of goods and services – retailer, wholesaler, independent contractor
    •Have a partnering agreement with other businesses – partnerships, joint ventures, and consortium.

    Note: •Managing your contracts and business relationships is very important.
              •It is important that you fully understand the terms of a contract before signing anything. You are advised to seek legal and professional advice first.

    2.1.2. Forms of business contracts

    A business contract states the terms and conditions of any business transaction, including product sales and delivery of services. This helps the parties involved to avoid any type of misunderstanding that may arise in the absence of a written contract.

    If you are collaborating with a friend on your new business, then it is all more important to create a written contract. This will help you avoid any misunderstandings and consequently will save you from the rifts that might end your friendship.

    If you have an oral agreement, you might forget some points that you have agreed on verbally with the passage of time. However, with a written agreement, all the terms and conditions are clear at any point in time. Moreover, you can always amend the agreement with the consent of both the parties.

    Contracts can be verbal (spoken), written or a combination of both. Some types of contract such as those for buying or selling real estate or finance agreements must be in writing.

    Written contracts: This refers to the agreement between two or more parties in form of written words for example a property selling agreement, may consist of a standard form of agreement or a letter confirming the agreement.

    Oral/Verbal agreements (gentleman’s contract): These are agreements made between two or more parties by word of mouth or orally for example, telling the person to plough your piece of land without any written note, it relies on the good faith of all parties and can be difficult to prove.

    It is advisable (where possible) to make sure your business arrangements are in writing, to avoid problems when trying to prove a contract existed.

    Regardless of whether the contract is verbal or written, it must contain four essential elements to be legally binding.

    Application Activity 2.1
    Read the following statements and answer questions that follow

    Nkusi wants to lend his car to Niragire for 5,000Frw per day for five days.

    a. Niragire agrees with a handshake to borrow the car from Nkusi and pay the money in witness of Rukundo.
    b. Ntezimana promises to take his girlfriend Bagirishya for an outing to Lake Kivu.
    c. Niyokwizerwa promises to pay 10,000Frw to whoever finds her lost phone.
    d. Kato puts on paper his commitment to provide printing services to Umutoni on agreed terms.
    e. Mutesi promises to pay for her brother’s school fees and puts it in writing.


    Which of the above statements are:

    i. Contracts.
    ii. Not contracts.
    iii. Business contracts.
    iv. Verbal contracts.
    v. Written contracts.

    2.2. Elements of a written contract and a valid contract

    Activity 2.2
    Analyze the sample contract below and answer questions that follow

    a. Do you think the above sample is a contract? Give reasons to support your answer.
    b. Name the elements of the written contract above.
    c. Do you think the sample above is a valid contract? Support your response by mentioning the elements of a valid contract in the sample.

    2.2.1. Elements of a written contract

    Written contracts may follow a structure that can include, but are not limited to, the following elements:
    •Details of the parties to the contract, including any sub-contracting arrangements
    •Duration or period of the contract
    •Definitions of key terms used within the contract.
    •A description of the goods and/or services that your business will receive or provide, including key deliverables.
    •Payment details and dates, including whether interest will be applied to late payments.
    •Key dates and milestones.
    •Required insurance and indemnity provisions.
    •Guarantee provisions, including director’s guarantees.
    •Damages or penalty provisions.
    •Renegotiation or renewal options
    •Complaints and dispute resolution process.
    •Termination conditions.
    •Special conditions.

    2.2.2. Essential elements of a valid contract

    Contracts can be verbal (spoken), written or a combination of both. Some types of contract such as those for buying or selling real estate or finance agreements must be in writing.

    Regardless of whether the contract is verbal or written, it must contain the following essential elements to be legally binding:

    a. Intention to be bound by the contract: The two parties should have intended that their agreement be legal. Domestic agreements between husband and wife are not taken as valid.

    b.Offer and acceptance: There must be an offer and the two parties must lawfully come to acceptance leading to a valid contract. Until an offer is accepted, it’s not a valid contract.

    c. Consideration/price: This is the price agreed upon by the parties to the contract and paid by one party for the benefit received or promise of the other parties.

    d. Capacity of the parties: The parties to the contract must have contractual capacity for the contract to be valid, i.e. should be sober, above 18years old, not bankrupt, not insane, properly registered.

    e. Free Consent: Parties to the contract must agree freely without any of the parties being forced to accept or enter the contract.

    f. Legality/lawful object: The consideration/object of the contract must be legal and not contrary to the law and public policy.g.Possibility of performance: If the contract is impossible in itself either physically or legally, then such contract is not valid and cannot be enforced by law.

    h. Certainty: The terms of the contract must be clear and understandable for a contract to be valid. If the terms are vague or ambiguous, where even the court may be able to tell what the parties agreed, then it will be declared invalid.

    Application Activity 2.2
    Assume, you have rental houses at home; Help your parents design a rent-alcontract that will be signed with the tenants. (Refer to elements of written contract)

    2.3. Importance and termination of business contracts

    If you run a business, your business depends on all kinds of relationships: With customers or clients; with employees; with vendors of goods and services; with lenders and property owners, just to name a few. Each party to a business relationship brings to it a set of expectations with respect to what he or she will give and get. A contract is a useful tool for describing and defining the expectations of each party to a business relationship.

    Activity 2.3
    1. Referring to the activities in the previous lessons, do you think it is important to have contracts in business operations? Give reasons to support your answer.
    2. Referring to the Contract for the sale of used car in activity 2 above, what do you think or when do you think the contract may end?
    3. What do you understand by termination of business contract?

    2.3.1. Importance of business contracts

    A written contract plays a vital role in any business transaction. Apart from making the agreement between concerned parties legally binding, contracts can also serve as future references, part of the business’ policies, as well serve as proof in the event of misunderstandings, complaints or disputes needing litigation proceedings.

    Entrepreneurs sign many contracts with suppliers, financiers, workers, customers, transporters and government. A contract is important in the following ways:

    •Contracts reduce business risks by compelling business partners to perform what they have agreed to as per contract.

    •Business contracts specify terms and conditions of business transactions including price, quantities, quality, date of delivery, etc which avoids misunderstandings

    •Contracts help entrepreneurs to get goods on credit because the suppliers are aware that the entrepreneur is bound by contract and therefore will make effort to pay

    •Written contracts are important because it is easy to forget details you have agreed upon verbally and therefore provide a permanent record

    •Contracts may be used by entrepreneurs to convince bankers that the entrepreneur has a business that will generate income so as to obtain loans

    2.3.2. Termination of business contracts

    To terminate a contract means to end the contract prior to it being fully performed by the parties. In other words, prior to the parties performing all of their respective obligations required by the contract, their duty to perform these obligations ceases to exist.

    Most contracts end once the work is complete and payment has been made.

    Contracts can also end:

    •By performance: If the contract is performed and fulfilled as expected under the terms and conditions of the contract and both parties are satisfied, the contract may be terminated.

    •By agreement: The parties to the contract may freely agree to end the contract if both consent to end the contract.

    •By destruction of the subject matter: The contract may be put to an end when the subject matter of the contract ceases to exist such as being destroyed, stolen or died.

    •By operation of the law: The contract may be terminated by law if it is illegal, if one party becomes bankrupt, insane or dies.

    •By frustration: A contract can be put to an end when a condition set in hinders one of the parties from performing his/her contractual obligations.

    •For convenience: Where the contract allows a party to terminate the contract at any time by providing notice to the other party eg employment contract.

    •Due to a breach: Where one party has not complied with an essential contract condition, the other party may decide to terminate the contract and seek compensation for damages.

    Application Activity 2.3
    Read the following paragraph and answer questions that follow:Musoni started a business selling general merchandise in his community. He is renting the place where his business operates. He buys his goods from a nearby town through a fellow businessperson. He says he trusts his friend so they never write down anything when sending for goods but just gives him the money. He always sells good to his customers on credit but rarely make any record of such transactions. Recently, after some advice from a friend, he contracted a construction company to build for him a two-roomed building from where he will shift his shop.

    a. Mention some of the mistakes Musoni is doing in his business activities
    b. What are the likely consequences of Musoni’s actions mentioned above?
    c. What advice would you give to Musoni to avoid the consequences above and why?
    d. What may cause Musoni to terminate the contract with the construction company?

    2.4. Types of Common Business Contracts

    Activity 2.4
    Analyze the following statements and answer questions that follows.

    i. You order a meal at a restaurant.
    ii. ‘Lost wallet, brown with One hundred thousand Rwandan francs in it. Return to owner and receive a 10.000Frw reward.’

    a. Which of the above statements is a contract? Support your response.
    b. Concerning contracts, what is the difference between the two statements?

    c. What do you think is the difference between;

    i. Unilateral and bilateral contracts.
    ii. Gratuitous and onerous contracts.
    iii. Simple and adhesion contract.
    iv. Commutative and Aleatory contracts.

    Types of business contracts
    a. Unilateral and bilateral contracts: In terms of the number of people or parties promising an action, bilateral contracts need at least two, while unilateral contracts only obligate action on one part. Unilateral contracts involve only promisor while bilateral contracts involve both a promisor and a promisee.

    A unilateral contract is a contract in which one party makes a promise to whomever takes action as prescribed in the offer

    A bilateral contract is where two parties enter into an agreement where both parties promise to do something.

    b.Gratuitous and onerous contracts: Gratuitous contracts are those of which the object is the benefit of the person with whom it is made, without any profit or advantage received or promised as a consideration for it. A gratuitous contract is sometimes called a contract of beneficence.

    Onerous contracts are those in which something is given or promised as a consideration for the engagement or gift, or some service, interest, or condition is imposed on what is given or promised, although unequal to it in value.

    c. Simple and adhesion contract: A simple contract is one, the evidence of which is merely oral, or in writing, not under seal, nor of record.

    As contracts of this nature are frequently entered into without thought or proper deliberation, the law requires that there be some good cause, consideration or motive, before they can be enforced in the courts. The party making the promise must have obtained some advantage, or the party to whom it is made must have sustained some injury or inconvenience in consequence of such promise; this rule has been established for the purpose of protecting weak and thoughtless persons from the consequences of rash, improvident, and inconsiderate engagements.

    A contract of adhesion refers to a contract drafted by one party in a position of power, leaving the weaker party to “take it or leave it.” Adhesion contracts are generally created by businesses providing goods or services in which the customer must either sign the boilerplate contract or seek services elsewhere.

    d. Commutative and Aleatory contracts: Aleatory contract is a type of contract

    1. whose execution or performance depends on a contingency or an uncertain (random) event beyond the control of either party, and/or

    2. under which the sums paid by the parties to each other are unequal. Most insurance policies are aleatory contracts because the insured may collect a large amount or nothing in return for the premiums paid.

    Commutative Contract is one in which each of the contracting parties gives and, receives an equivalent. The contract of sale is of this kind. The seller gives the thing sold, and receives the price, which is the equivalent. The buyer gives the price and receives the thing sold, which is the equivalent.

    Application Activity 2.4
    Analyze the following statements and answer the questions that follow;

    1. You use your “Tap and Go card” to move from Nyabugogo Taxi park to Remera taxi park.
    2. Payment of insurance premium every month for your new car.
    3. The shop keeper hands you the new IPhone you have just paid for.
    4. You borrow a book from a friend who insists you have to buy an envelope to take it in but it seems not necessary to you.
    5. You continue paying service fee or monthly payments for water connections even when you no longer use the water.
    6. You promise to buy a new dress to your sister.

    With reasons, identify the types of contracts implied in the above statements
    1. ..........................................
    2. ..........................................
    3. .........................................
    4. .........................................
    5. .........................................
    6. .........................................

    2.5. General business contracts: Employment related contract and Leases

    Activity 2.5
    Complete the following statements as used in business contracts using the list of words below.

    1. (Bill of Sale, Agreement for the Sale of Goods, Purchase Order, Warranty, Limited Warranty, Security Agreement, Employment Agreement, Employee Non-compete Agreement, Independent Contractor Agreement, Consulting Agreement, Distributor Agreement, Sales Representative Agreement, Confidentiality Agreement, Reciprocal Nondisclosure Agreement, Employment Separation Agreement, Real Property Lease, Equipment Lease, Franchise Agreement, Advertising Agency Agreement, Indemnity Agreement, Covenant Not to Sue, Settlement Agreement, Release, Assignment of Contract, Stock Purchase Agreement, Partnership Agreement, Joint Venture Agreement, Agreement to Sell Business).

    a. ...................................Transfers ownership of a good from one party to another

    b. ................................... A contract for the sale, may be confirmed by a bill of sale after the transaction goes through.
    c. ......... .............. .......... First official offer made by a buyer to a seller.

    d. ......... ........................Any conditions or actions that would avoid the contract.

    e. ..................... ............Warranty limited to just one or a few parts.

    f. .................................. Contract between a lender and borrower of a loan.

    g. ............................... .... A contract for employment, including details about payment, job responsibilities, etc.

    h. .................................An agreement to not work for a direct competitor for a specified period of time after termination.

    i. .......................................Similar to an employment agreement, but outlines the terms to which the limited work contract applies.

    j. ..........................Outline of the tasks and responsibilities (and compensation in return) for a consulting relationship.

    k. ...........................Defines the relationship with a distributor.

    l. .................................Typically used to define the amount of commission, and how it’s tabulated, for a salesperson. m. ...............................Agreement to not disclose certain information to third parties.

    n. .........................................Non disclosure agreement in which both parties agree not to disclose certain trade secrets.

    o. .....................................Also referred to as a termination agreement, this formally ends the employment relationship.

    p. ...........................A contract to lease office, manufacturing, or commercial real estate between the landlord and the business.

    q. ..........................Agreement to lease equipment for a specified period of time.

    r. .........................Outlines the relationship between the franchisor and the franchisee, such as support, advertising, use of brand, etc.

    s. .................................Establishes the scope of duties to be performed by the agency, duration, payment, etc.

    t. .........................An agreement to transfer risk from one party to another.

    u. .........................One party claiming damages agrees not to sue the responsible party.

    v. ..........................Agreement between two parties to end a lawsuit in exchange for certain concessions (usually cash paid to the plaintiff ).w. ............Typically refers to a release from liability (which are common for businesses where customers assume a reasonable risk of some sort).

    x. .............................A legal transfer of the benefits and obligations of a contract from one party to another.

    y. ...............................Contractual agreement to sell a certain amount of stock to a named individual (often used for stock options at private companies).

    z. ...........................Official agreement among two or partners, including responsibilities of each.

    aa. .............................Lays out the obligations, goals, and financial contributions of all parties involved in a joint venture.

    bb. ................................Documents the terms of a business sale.

    Employment related contract
    While all valid contracts must include certain elements particularly an offer, consideration, and acceptance. There are several different kinds of contracts addressing various business scenarios. Most small businesses will end up using the same kinds of contracts at various times, such as employment contracts or purchase orders, and will become quite familiar with these.

    Some of the more common types of business contracts that you may enter into are included in the following:

    a. Sales-related Contracts;

    •Bill of Sale:Transfers ownership of a good from one party to another.
    •Agreement for the Sale of Goods: A contract for the sale, may be confirmed by a bill of sale after the transaction goes through.
    •Purchase Order: First official offer made by a buyer to a seller.
    •Warranty: Any conditions or actions that would void the contract.
    •Limited Warranty: Warranty limited to just one or a few parts.
    •Security Agreement: Contract between a lender and borrower of a loan.

    b.Employment-Related Contracts

    i. Employment Agreement: A contract for employment, including details about payment, job responsibilities, etc.
    ii. Employee Non-compete Agreement: An agreement to not work for a direct competitor for a specified period of time after termination.
    iii. Independent Contractor Agreement: Similar to an employment agreement, but outlines the terms to which the limited work contract applies.
    iv. Consulting Agreement: Outline of the tasks and responsibilities (and compensation in return) for a consulting relationship.
    v. Distributor Agreement:Defines the relationship with a distributor.
    vi. Sales Representative Agreement:Typically used to define the amount of commission, and how it’s tabulated, for a salesperson.
    vii. Confidentiality Agreement: Agreement to not disclose certain information to third parties.
    viii. Reciprocal Nondisclosure Agreement:Nondisclosure agreement in which both parties agree not to disclose certain trade secrets.
    ix. Employment Separation Agreement:Also referred to as a termination agreement, this formally ends the employment relationship.

    c. Leases

    i. Real Property Lease: A contract to lease office, manufacturing, or commercial real estate between the Property owner and the business.
    ii. Equipment Lease: Agreement to lease equipment for a specified period of time.

    d. General Business Contracts

    i. Franchise Agreement: Outlines the relationship between the franchisor and the franchisee, such as support, advertising, use of brand, etc.
    ii. Advertising Agency Agreement: Establishes the scope of duties to be performed by the agency, duration, payment, etc.
    iii. Indemnity Agreement: An agreement to transfer risk from one party to another
    iv. Covenant Not to Sue: One party claiming damages agrees not to sue the responsible party.
    v. Settlement Agreement: Agreement between two parties to end a lawsuit in exchange for certain concessions (usually cash paid to the plaintiff ).
    vi. Release: Typically refers to a release from liability (which are common for businesses where customers assume a reasonable risk of some sort).
    vii. Assignment of Contract: A legal transfer of the benefits and obligations of a contract from one party to another.
    viii. Stock Purchase Agreement: Contractual agreement to sell a certain amount of stock to a named individual (often used for stock options at private companies).
    ix. Partnership Agreement: Official agreement among two or partners, including responsibilities of each.
    x. Joint Venture Agreement: Lays out the obligations, goals, and financial contributions of all parties involved in a joint venture.
    xi. Agreement to Sell Business: Documents the terms of a business sale.

    Application Activity 2.5
    a. Read the following paragraphs and answer the questions that follow:While walking along the beach, you notice a sign attached to a palm tree that reads, ‘Lost wallet, brown with one million Rwandan francs in it. Return to owner and receive a 100,000Frw reward.’ This picks your interest, and you begin sifting through the sand, turning over seashells, and flipping beach towels in search of the missing wallet. After all, you could use the 100,000Frw claims!

    i. Name the form of contract above.
    ii. Name the type of contract above.

    b. Kizito offered 10,000Frw for the return of his lost dog, but then he refused to pay because he thought the person who brought the dog back had stolen it.

    i. Was there a valid contract in the paragraph above
    ii. Do you think Kizito is right? Give reasons to support your answer.
    iii. What advice would you give to the person who brought the dog back?

    2.6. Breach of a contract

    Activity 2.6
    Read the paragraph below and answer questions that follows.Kizito offered 10,000Frw for the return of his lost bag, but then he refused to pay because he thought the person who brought the bag back had stolen it.

    a. Was there a valid contract? Give reasons
    b. What do you think is happening in the paragraph?
    c. Do you think Kizito is right?
    d. How do we call the behavior of Kizito in business contracts?
    e. What should the person who brought the bag back do?
    f. How do we call Kizito’s behavior in business?

    2.6.1. Breach of a contract

    Breach of a contract is a legal term that describes a violation of a contract or agreement in which one party fails to fulfill its promises or by interfering with the ability of another party to fulfill its duties. A contract may be breached in whole or in part.

    Most contracts end when both parties have fulfilled their contractual obligations, but it is not uncommon for one party not to completely fulfill his or her part of the contract agreement.

    Breach of a contract is the most common reason contract disputes are brought to court for resolution. In order for a breach of contract to be upheld by a court it must meet all of these requirements:

    i. The contract must be valid; that is, it must contain all the essential contract elements so that it can be heard by a court. If all essential elements are not present, the contract is not valid and there is no lawsuit.
    ii. The accuser must show that the defendant breached the contract.
    iii. The accuser did everything required in the contract.
    iv. The accuser must have notified the defendant of the breach. If the notification is in writing, this is better than a verbal notification.

    Types of breach of a contract
    i. Material breach is a breach that is significant enough to excuse the aggrieved party from fulfilling its part of the contract.
    ii. Partial breach is not as significant, and it does not excuse the aggrieved party from its duties.
    iii. Anticipatory breach: A party may breach a contract by doing, or failing to do, something that shows intention not to complete duties under a contract.

    2.6.2. Defenses to breach of a contract
    A defendant may offer a reason (defense) why the alleged breach is not really a breach of contract. Common defenses against a breach of contract are:

    i. Fraud: Which “knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.” The defendant is saying that the contract is not valid because the plaintiff failed to disclose something important or made a false statement about a material (important) fact. The defendant must show that the fraud is deliberate.

    ii. Duress: Which occurs when one person compels another to sign a contract through physical force or other threats. This too invalidates the contract, since both parties did not sign of their own free will.

    iii. Undue influence is similar to duress: In that one party has a power advantage of another and uses that advantage to force the other to sign the contract.

    iv. Mistake: A mistake by the defendant cannot invalidate a contract and take away a breach of contract case. However, if the defendant can prove that both parties made a mistake about the subject matter (a car, let us say), it may be enough to serve as a defense.

    v. Statute of limitations: Many types of cases have a time limit by which a case must be brought. If the defendant can show that the statute of limitations has expired, the breach of contract case may be thrown out. Statutes of limitations are set by individual states. Here is an example of the state statutes of limitations on debt.

    2.6.3. Remedies to a breach of a contract
    If one party is found to be in breach of a contract, the plaintiff has several ways to be made whole; called a remedy. The most common remedy is monetary payment. Some other common remedies for a loss resulting from a breach of contract are:

    i. Damages: Including compensatory damages (to compensate for the actual loss) and punitive damages.

    ii. Injunction: To get a court to require the other party to stop an action that is causing damage.

    iii. Rescission: Sometimes the plaintiff has been so badly damaged by the breach that the injured party is allowed to rescind (terminate) the contract.

    iv. Consequential and incidental damages: Money for losses caused by the breach that were foreseen, that is each side knew at the time of the contract that its breach would cause loss to the other party.

    v. Lawyer’s fees and costs: These are paid if it was clearly stated in the contract

    vi. Liquidated damages: Damages stated in the contract that would be payable if there is any fraud, dishonesty or breach of the contract.

    vii. Punitive damages: Money charged to punish the offending person to discourage them from such behavior.

    viii. Specific performance of the contract: Under certain circumstances, the court may direct the breaching person or business to perform that very obligation which he had promised to undertake.

    Application Activity 2.6

    Analyze the illustration below and answer questions that follow.

    a. Do you think there was a valid contract in the illustration above? Give reasons to support your answer.
    b. Do you think there was a breach of contract in the illustration? Give reasons to support your answer.
    c. With reasons, which type of breach is illustrated?
    d. Suggest the possible remedies for the breach of contract above.

    2.7. Conflicts and disputes in business

    2.7.1. Business disputes and conflicts
    A business dispute is a disagreement over the existence of a commercial legal duty or right, or over the extent and kind of compensation that may be claimed by the injured party for a breach of such a duty.

    Conflicts between business owners and employees typically involve differences of opinion, style, or approach that are not easily resolved. These can lead to hurt feelings and altercations among employees.

    Conflict may occur between co-workers, or between supervisors and subordinates, or between service providers and their clients or customers. Conflict can also occur between groups, such as management and labor, or between whole departments.

    However, some conflicts reflect real disagreements about how an organization should function. If the winner of the conflict happens to be wrong, the organization as a whole could suffer. Some conflicts involve bullying or harassment of some kind, in which case a fair resolution must involve attention to justice.

    In addition, if one party out-ranks the other, the power disparity could complicate resolution even if everybody concerned means well.

    2.7.2. Business conflicts with stakeholders

    a. Conflicts with customers;

    i. Quality of products and services.
    ii. Prices agreed upon and prices charged.
    iii. Calculation of discounts.
    iv. Delivery delays.
    v. Nonfunctional products.

    b.Conflicts with Suppliers;

    i. Non-payment for supplies.
    ii. Non return of containers or packaging materials.
    iii. Sudden cancellation of orders
    iv. Delivery of damaged products.
    v. Delayed deliveries.

    c.Conflicts with Employees/workers;

    i. Non-payment of salaries and wages.
    ii. Illegal termination of employment.
    iii. Discrimination based on sex, race, tribe, religion, etc.
    iv. Poor working conditions.
    v. Absenteeism.
    vi. Misuse of business property and facilities.
    vii. Corruption, embezzlement and theft.
    viii. Unfair dismissal.

    d. Government and its agencies;

    i. Assessment of what and how much to pay.
    ii. Payment of taxes (time and rate).
    iii. Operation of business without valid licenses/documents.
    iv. Environmental degradation.
    v. Tax refunds.
    i. Use of wrong weights and measures.

    Application Activity 2.7
    1. The business deals with many other partners and therefore likely to get into conflicts with them during the numerous business activities. Mention any 3 causes of conflicts between the business and the following partners:

    a. Customers
    b. Suppliers
    c. Employees
    d. Government and its agencies
    e. Society

    2. What are the effects of such conflicts to the business and its operations?

    2.8. Resolutions to conflicts and disputes in business


    Activity 2.8
    Read the following scenario to the participants:

    1. Gilbert is a waiter at a popular restaurant. One Friday night, the busiest time for the restaurant, an impatient customer kept demanding better service – I want to order...Where is my food...Gilbert tried to reassure the customer that the kitchen staff was working as fast as they could. Suddenly the customer stood up and started yelling very loudly at Gilbert, attracting the attention of the other diners.

    If you are the manager of the restaurant, how could you handle the situ-ation?

    2. How are conflicts or disputes resolved (at least 2 arguments for each);
    a. At home.
    b. At school.
    c. By business and customers.

    2.8.1. Conflict resolution process

    Conflict resolution is a way for two or more parties to find a peaceful solution to a disagreement among them. The disagreement may be personal, financial, political, or emotional.

    Conflict resolution skills are a job requirement for many different types of positions. This is because conflict within organizations can reduce productivity and create a difficult work environment, leading to unwanted turnover in staff and reduced morale.

    The Conflict Resolution Processes

    Some conflicts are essentially arbitrary, meaning it does not matter who “wins,” only that the problem is resolved so everyone can get back to work.In any organization, conflicts, both major and minor, may arise.

    These conflicts can cause far-reaching negative effects on the people in a workplace.Absenteeism, high turnover, poor productivity, and even violence can be a result of conflict and contention.

    The resolution of conflicts in the workplace typically involves some or all of the following processes:

    i. Recognition by the parties involved that a problem exists.
    ii. Agreement to address the issue and find some resolution.
    iii. An effort to understand the perspective and concerns of the opposing individual or group.iv. Identifying changes in attitude, behavior, and approaches to work by both sides that will lessen negative feelings.
    v. Recognizing triggers to episodes of conflict.
    vi. Interventions by third parties such as Human Resources representatives or higher level managers to mediate.
    vii. Willingness by one or both parties to compromise.
    viii. Agreement on a plan to address differences.
    ix. Monitoring the impact of any agreements for change.
    x. Disciplining or terminating employees who resist efforts to defuse conflicts.

    2. 8.2. Examples of Conflict Resolution Skills

    The following skills are often important in conflict resolution. The list is not exhaustive, and of course, many more applications of each skill are possible.

    •Assertiveness: A supervisor might take the initiative to convene a meeting between two employees who have engaged in a public dispute. An employee might seek out a person with whom they are having conflict to suggest working together to find ways to co-exist more peacefully.

    •Interviewing and Active Listening Skills: A Human Resources representative might have to ask questions and listen carefully to determine the nature of a conflict between a supervisor and a subordinate.

    •Empathy: A mediator might encourage empathy by asking employees in conflict to describe how the other might be feeling and thinking and how the situation might look to the other party. Empathy is also an important skill for mediators, who must be able to understand each party’s perspective, without necessarily agreeing with either.

    •Facilitation: Managers of rival departments might facilitate a joint brainstorming session with their teams to generate solutions to ongoing points of conflict. Group facilitation techniques can also be used to avoid triggering conflict during group decision-making to begin with.

    •Mediation Skills:A supervisor might guide subordinates who are in conflict through a process to identify mutually agreeable changes in behavior.

    •Creative Problem Solving: A supervisor might redefine the roles of two conflict-prone staff to simply eliminate points of friction. Creativity can also mean finding new win/win solutions.

    •Accountability: A supervisor might document conflict-initiating behaviors exhibited by a chronic complainer as preparation for a performance appraisal. In this way, the supervisor helps establish accountability, since the employee can no longer pretend the problem is not happening.

    2.8.3. Resolution of conflicts in business

    Whether you are involved in a family or neighborhood dispute or a lawsuit involving thousands of dollars, these processes should be considered. They are often the more appropriate methods of dispute resolution and can result in a fair, just, reasonable answer for both of you and the other party. The following processes describe ways to resolve disputes.

    a. Negotiation:Negotiation is the most basic means of settling differences. It is back-and-forth communication between the parties of the conflict with the goal of trying to find a solution.

    You may negotiate directly with the other person. You may hire an attorney to negotiate directly with the other side on your behalf. There are no specific procedures to follow - you can determine your own - but it works best if all parties agree to remain calm and not talk at the same time.

    Negotiation allows you to participate directly in decisions that affect you. In the most successful negotiations, the needs of both parties are considered. A negotiated agreement can become a contract and be enforceable.

    Characteristics of Negotiation:

    i. Voluntary.
    ii. Private and confidential.
    iii. Quick and inexpensive.
    iv. Informal and unstructured.
    v. Parties control the process, make their own decisions and reach their own agreements (no third party decision maker).
    vi. Negotiated agreements can be enforceable.
    vii. Can result in a win-win solution.

    b. Mediation:Mediation is a voluntary process in which an impartial person (the mediator) helps with communication and promotes reconciliation between the parties, which will allow them to reach a mutually acceptable agreement. Mediation often is the next step if negotiation proves unsuccessful.

    The mediator manages the process and helps facilitate negotiation between the parties. A mediator does not make a decision nor force an agreement. The parties directly participate and are responsible for negotiating their own settlement or agreement.

    When you and the other person are unable to negotiate a resolution to your dispute by yourselves, you may seek the assistance of a mediator who will help you and the other party explores ways of resolving your differences. Mediation can be used in most conflicts ranging from disputes between consumers and merchants, property owners and tenants, employers and employees, family members in such areas as divorce, child custody and visitation rights, eldercare and probate as well as simple or complex business disputes or personal injury matters.

    Characteristics of Mediation:

    i. Promotes communication and cooperation.
    ii. Provides a basis for you to resolve disputes on your own.
    iii. Voluntary, informal and flexible.
    iv. Private and confidential, avoiding public disclosure of personal or business problems.
    v. Can reduce hostility and preserve ongoing relationships.
    vi. Allows you to avoid the uncertainty, time, cost and stress of going to trial.
    vii. Allows you to make mutually acceptable agreements tailored to meet your needs.
    viii. Can result in a win-win solution.

    c. Arbitration:Arbitration is the submission of a disputed matter to an impartial person (the arbitrator) for decision.

    Arbitration is typically an out-of-court method for resolving a dispute. The arbitrator controls the process, will listen to both sides and make a decision. Like a trial, only one side will prevail. Unlike a trial, appeal rights are limited.

    The result can be binding if all parties have previously agreed to be bound by the decision. In that case, the right to appeal the arbitrator’s decision is very limited. An arbitrator’s award can be reduced to judgment in a court and thus be enforceable. In non-binding arbitration, a decision may become final if all parties agree to accept it or it may serve to help you evaluate the case and be a starting point for settlement talks.

    A common use of arbitration is in the area of labor disputes - between fire fighters and the city in wage disputes, for example. You will usually be represented by an attorney in arbitration.

    Many contracts have clauses that require that disputes arising out of that contract be arbitrated. If you agree to arbitrate or sign a contract with an arbitration clause, you should understand that the arbitrator may make the final decision and that you may be waiving your right to a trial in court.

    Characteristics of Arbitration:
    i. Can be used voluntarily.
    ii. Private (unless the limited court appeal is made).
    iii. Maybe less formal and structured than going to court, depending on applicable arbitration rules.
    iv. Usually quicker and less expensive than going to court, depending on applicable arbitration rules.
    v. Each party will have the opportunity to present evidence and make arguments.
    vi. May have a right to choose an arbitrator with specialized expertise.
    vii. A decision will be made by the arbitrator which may resolve the dispute and be final.
    viii. Arbitrator’s award can be enforced in a court.
    ix. If nonbinding, you still have the right to a trial.

    d. Litigation (going to court/court interaction): Litigation is the use of the courts and civil justice system to resolve legal controversies. Litigation can be used to compel opposing party to participate in the solution.

    Litigation is begun by filing a lawsuit in a court. Specific rules of procedure, discovery and presentation of evidence must be followed. There can be a number of court appearances by you and/or your lawyer. If the parties cannot agree how to settle the case, either the judge or a jury will decide the dispute for you through a trial.

    If you cannot settle your differences through negotiation, mediation, arbitration or some other means, then you should pursue litigation through the courts with your lawyer.

    Characteristics of Litigation:

    i. Involuntary - a defendant must participate (no choice).
    ii. Formal and structured rules of evidence and procedure.
    iii. Each party has the opportunity to present its evidence and argument and cross-examine the other side - there are procedural safeguards.
    iv. Public - court proceedings and records are open.
    v. The decision is based on the law.
    vii. Right of appeal exists.
    viii. Losing party may pay costs.
    vi. The decision can be final and binding.

    The above processes of resolving conflicts and disputes in business can be applied through some of the following:

    •Trade associations: Where the disputing parties belong to a trade or business association, they may refer the dispute to the association for advice and a solution.
    •Mediation: This is where a neutral and independent third party facilitates communication between the disputing parties for a solution.
    •Refer to agreements: if an agreement or contract is made, then the best way to resolve a dispute is to refer to the contract.
    •Partnership deed or articles of association: Disputes relating to business ownership, management, sharing of profits and issues should be handled by referring to the partnership deed or articles of association.
    •Courts of law: The dispute may be referred to a court of law for arbitration.
    •Negotiation: Disputing parties communicate directly and try to reach an agreement without the costs of a mediator or arbitrator.

    Application Activity 2.8
    1. Analyze the following example of conflicts in business and answer questions that follow.

    a. Leadership Conflict:John has been the sales manager for over a year. His sales reports show an increase in sales and he seems to know how to motivate his reps/agents pretty well.

    However, a few of the reps repeatedly complain about John’s management style. He tends to get very involved with their techniques, calls them out when he thinks they are making a mistake, and does not take criticism himself very well.

    One of the top producing reps/agents complains more than the others, and he is threatening to quit.

    Which techniques will you use to resolve the conflict above?

    b. Work Style Conflicts:Ntaganzwa and Niyigena both work in accounting department. Ntaganzwa was hired a few months ago and Niyigena has been with the company for eight years.Ntaganzwa, while being a proficient worker, tends to wait until the last minute to get his work done. Niyigena works more steadily and keeps on top of her work daily. Niyigena complains that she feels she has to worry now about his work and her own. In addition, because they rely on each other’s tasks, she is uncomfortable with waiting until an hour or so before a deadline when they are forced to collaborate.

    Because of the conflict, Ntaganzwa is missing more work and you suspect it is because he wants to avoid Niyigena and her wrath/anger.

    What Conflict Resolution Strategies will you apply for the Co-Workers?

    Skills Lab Activity 2.9

    Shine Business club

    Shine business club wanted 3crates of soda which they wanted to sell to their school that was organizing a visiting day. Chantal an active member of the club having been close to Bizimungu an entrepreneur dealing in retail business convinced the club to deal with him. The club paid him and he agreed he would deliver the sodas to the club after three days but unfortunately after the agreed time, he didn’t deliver the sodas as expected. When the club contacted him for the sodas, he denied to have entered into any dealing with them that if he did he would be having at least a formal document to prove that. The club reported the matter to the school administration but it couldn’t help them since it was not notified of that dealing.

    1. What are some of the essential elements of a valid contract observed in the above case study?
    2. Was there a valid contract in the above case study? Support your answer
    3. What advice do you give to shine business club?
    4. How would you approach the situation or the above problem if it was your business club

    End of Unit 2 Assessment

    1. Analyze the example below and answer questions that follow:

    Nkusi and Mukarutesi are capable adults. Nkusi is in the need for a new car. it is on a budget, so he scans the classified ads and finds Mukarutesi, who is selling an old Toyota Carina for 2,000,000Frw. Nkusi calls Mukarutesi and offers 1,800,000Frw. Mukarutesi accepts Nkusi’s offer and they decide to meet. At the meeting, Nkusi hands over 1,800,000Frw and Mukarutesi hands over the keys for the Toyota Carina.

    a. Is there a valid contract in the above example? Referring to the elements of a valid contract, support your response;
    b. Which type of business contract is represented in the example above?
    c. Which form of business contract would you advise Nkusi to sign with Mukarutesi?
    d. What do you think may lead to the contract in the example above to be terminated?

    2. Read the following passage and answer questions that follow.

    Ntwali started a business selling general merchandise in his community. He is renting the place where his business operates. Ntwali paid his property owner three months’ rent in advance but never asked for receipt. After two months, his property owner says he wants the rent for the two months. Ntwali is perplexed and tries to remind the property owner that he paid his rent for three months. The property owner denies and asks Ntwali for proof of the payment which he does not have. Ntwali is stuck, does not know what to do while the property owner threatens to evict him if he does not pay his rent.

    a. What is the cause of the conflict in the example above?
    b. Advise Ntwali on how he can resolve the conflict with the property owner
    c. What are the disadvantages of the form of contract between Ntwali and the property owner?
    d. Help Ntwali design a written contract that he can sign with his property owner to avoid such conflicts again.



    Key Unit Competency:To be able to justify the need for taxes in economy


    Every business requires developed infrastructure such as roads, hospitals, legal protection, welfare security, environment preservation, among others to operate successfully. The government provides such infrastructure. It provides education, health services, and security to all citizens and helps to increase the standards of living of the citizens hence ensuring availability of skilled labor force. For all this to happen, the government needs funds. Taxes are like the income for the government, and so for their survival, business needs to pay taxes to the government.

    Introductory Activity: A case study

    Why Do You Have to Pay Taxes

    Every year around, before and after June 15, everybody especially business people will be discussing about tax changes in the national budget. This is because tax reforms and new taxes introduced are announced on that day. However, have you ever wondered why you and businesses need to pay taxes?In Rwanda, there are arms of the government (ruling bodies)from the village, sector, district, provincial and national levels. These bodies comprise: Legislature (who make laws), Executives (who enforce laws) and Judiciary (exercise laws).

    The salaries that public servants receive to do their jobs come from taxes. Paying taxes is considered as a civic duty, although doing so is also a requirement of the law.Taxes take many forms, too. When you work at a job to make money, you pay income taxes. Depending on how much money you make, a certain percentage (part) of the money you make is withheld (kept out of your paycheck and sent to the government).When you buy things at a store, you also usually pay sales tax, which is a percentage of the cost of the item charged by the store.

    If you own property, you also pay property taxes on the value of your property.Paying your taxes is considered a civic duty, although doing so is also a requirement of the law. If you do not pay your taxes, the government agency that oversees taxes — the Rwanda Revenue Authority (RRA) - will require you to pay your taxes or else face penalties, such as fines or going to jail.The money you pay in taxes goes to many places. In addition to paying the salaries of government workers, your tax dollars also help to support common resources, such as police and firefighters.

    Tax money helps to ensure the roads you travel on are safe and well-maintained. Taxes fund public libraries and parks. Taxes are also used to fund many types of government programs that help the poor and less fortunate, as well as many schools!Each year as the “tax day” rolls in, adults of all ages and businesses must report their income to the RRA, using special tax forms. There are many, many laws that set forth complicated rules about how much tax is owed and what kinds of special expenses can be used (“written off ”) to lower the amount of taxes you need to pay.For the average worker, tax money has been withheld from paychecks throughout the year. On “tax day,” each worker reports his or her income and expenses to the RRA.

    Alabestrum tesenih icipieris acchicuror licaetis publis; ne is, pro manum pl. Otierum te audem halegernum optessis pro, nos in in Itament urent, catant? Bem in Itandam ingultus pos rei popostilia? Saturec iactus, fit ficis Ahabunit, viver pore conoventius C. Batur quam ia? Quiu es optifex senium intilis pubis. Verma, non

    Employers also report to the RRA how much they paid each worker. The RRA compares all these numbers to make sure that each person pays the correct amount of taxes.If you have not had enough tax money withheld from your checks throughout the year to cover the amount of tax you owe, you will have to send more money (“pay in”) to the government. If, however, too much tax money was withheld from your paychecks, you will receive a check (get a “refund”) from the government.

    Adapted from

    From the passage, answer the following questions:

    a. What are the major changes expected by people especially business people on June 15, every year?

    b. What makes the business people so anxious to know the changes mentioned above in a)?

    c. Why do you think it is important for businesses to pay taxes to the government?

    d. How do the following benefit from taxes?

    i. Entrepreneur.

    ii. Government.

    iii. Society.

    e. What do you think are some of the obligations of those who pay taxes?

    f. Identify and briefly explain e types of taxes paid in Rwanda?

    g. What happens to businesses or people who do not pay taxes?

    h. What is the difference between tax and taxation?


    Activity 3.1

    Analyze the following scenario and answer questions that follow:

    Ruth is a prominent trader in one of the growing centers of eastern province. He normally buys his goods from the neighboring country of Uganda. In the previous budget, the minister announced that in order for the government to be able to fund its activities such as providing free education, road construction, all people will pay a certain amount of money to the government but charged on the goods sold and bought in form of taxes. Ruti realized that this might reduce his profits. Therefore, he decided that in order to continue getting the same profits, he would:

    •Pay some boys to get for him some goods from Uganda by crossing the river without going to customs to pay taxes.

    •For goods on which he would pay taxes, he would increase the prices charged to the customers.

    •Reduce or stop buying some of the goods on which the tax had been increased.


    From the scenario, what do you think is the meaning of the following,

    1. Tax.

    2. Taxation.

    3. Tax avoidance.

    4. Tax evasion.

    5. Tax shifting.

    6. From the decisions Ruti made, which of them is:

        a. Tax avoidance.

        b. Tax evasion.

        c. Tax shifting.

    7. Among the three actions, which one (s) do you think he can be penalized for? And why?

    Tax and Taxation, Tax Evasion and Avoidance, Tax shifting

    Tax is a fee without direct exchange requested to the members of the community by the State according to the law, to support financially the execution of the government tasks.

    Business tax refers to compulsory and non-refundable payments made by the business to the government or local authority to raise revenue to the government or local authority.

    Taxation is a system of raising money or revenue by the government from individuals/businesses and companies by law through taxes.

    It is a means by which governments finance their expenditure by imposing charges on citizens and corporate entities.

    Taxation refers to the practice of government collecting money from its citizens to pay for public services.

    Tax avoidance is a situation where a businessperson does not pay tax because s/he has avoided the product or activity on which the tax is imposed.It is the taxpayer’s exploitation of the loopholes in the tax system there by paying less tax than what they are supposed to pay.

    Some Examples of Tax Avoidance:

    •Taking legitimate tax deductions to minimize business expenses and thus lower your business tax bill.

    •Setting up a tax deferral plan to delay taxes until a later date.

    •Taking tax credits for spending money for legitimate purposes, like taking a work opportunity tax credit for hiring workers in your business.

    Tax evasion is the illegal practice of not paying taxes, by not reporting income, reporting expenses not legally allowed, or by not paying taxes owed. In businesses, tax evasion can occur in connection with income taxes, employment taxes, sales and excise taxes, and state, and local taxes.

    Examples of practices considered as tax evasion:

    •It is considered tax evasion if you knowingly fail to report income.

    •Under-reporting income (claiming less income than you actually received from a specific source).

    •Providing false information to the RRA about business income or expenses

    •Deliberately underpaying taxes owed

    •Substantially understating your taxes (by stating a tax amount on your return that is less than the amount owed on the income you reported).

    •An employer fails to withhold income tax from employee paychecks, or withholds but fails to report and pay these payroll taxes.

    •Employment leasing, which involves hiring an outside payroll service that does not turn over funds to RRA.

    •Paying employees in cash and failing to report some or all of these cash payments.

    •Filing false payroll tax reports or failing to file these returns.

    Tax shifting is the transfer of either part or the whole amount of tax imposed on a taxpayer to another party (other taxpayer).

    Business firms pay general sales taxes, but most of the cost of the tax is actually passed on to those who buy the goods that are being taxed.

    Example if the tax on sugar is increased and as result,a sugar producer or seller increases its price, in essence/reality the producer or seller is trying to recover the amount paid as the tax by collecting it from consumers in form of increased sugar prices.

    Application Activity 3.1

    1. With examples, differentiate

    a. Tax and Taxation

    b. Tax avoidance and Tax evasion

    c. Tax evasion and tax shifting

    2. What do you think is the purpose of taxation?

    3. Do you think tax evasion is good? Give reasons to support your response

    3.2. Benefits of paying taxes to Entrepreneur, Government and Society

    One of the most frequently debated political topics is taxation. Taxation is the practice of collecting taxes (money) from citizens based on their earnings and property. The money raised from taxation supports the government and allows it to fund police and courts, have a military, build and maintain roads, along with many other services.

    Activity 3.2

    1. With examples from your community or Rwandan community at large, why do you think people and business enterprises need to pay taxes to the government?

    2. As an entrepreneur to be or referring to activities of entrepreneurs in your community, how do you think businesses or entrepreneurs benefit from paying taxes?

    3. In general, how does your society benefit from paying taxes? Give examples to support your views

    3.1.2 Benefits of paying taxes to an entrepreneur

    •Paying taxes by the entrepreneur helps the business activity to continue, as it does not face penalties and associated costs from the RRA for non-payment.

    •When an entrepreneur pays taxes, it improves his/her reputation or public image which may result into increased customers and better services from the government

    •To avoid inconveniences of closure of the business and its associated costs: when entrepreneur fails to pay assessed taxes, his/her business is subject to penalty even closure to some cases.

    •Business needs certain infrastructure to operate successfully such as roads to move raw materials, finished goods, workers; security for their enterprises, goods, among others, which are provided by the government.

    •Paying taxes means contributing money to government agencies or departments such as Development Bank of Rwanda (BRD), Business Development Fund (BDF), which support entrepreneurs to operate business activities through soft loans and other financial support.

    3.2.2 Benefit of paying taxes to the government

    •Source of government revenue: taxes are the main source of government revenue to finance its public expenditure. So taxes enable the government to pay it workers, construct roads, maintain security, provide health care, education among others

    •Taxes benefit the Rwandan government to meet its objectives and goals such constructing affordable houses to the citizens which helps improve the standards of living

    •Taxes help government to finance its policies especially on poverty alleviation through programs such as “GIRINKA”, “VUP”, “UBUDEHE” among others

    •Taxes enable the government to regulate the prices of goods and services in the country hence ensuring a low cost of living and maintaining the standards of living of the citizens

    •Taxes enable the government to maintain a balance between the poor and rich. The government uses the taxes from business people to provide services needed by the poor, which otherwise the rich could not provide.

    •Taxes enable the government to promote its policy industrialization through reducing products from other countries that would otherwise out compete the home industries.

    •Taxes enable the government to ensure that the citizens have enough products. This can be through taxes charged to reduce products moving out of the country or removing taxes on goods needed in the country. This helps maintain a high standard of living.

    3.2.3. Benefits of paying taxes to Society

    1. There is reduced rates of poverty among the community due to a significantly equal distribution of income through various activities and projects set by the government

    2. Improved wellbeing among the vulnerable and elderly as they benefit from the different government programs financed through taxes.

    3. Reduced infant mortality rates and increased life expectancy due to improved access to health facilities and services.

    4. Increase in the percentage of the population that completes secondary and TVET education, reducing the literacy levels, improving on the peoples’ skills through programs such as 12YBE.

    5. Increased community/social solidarity, general happiness, life satisfaction, and a significant more trust among the community members and for public institutions.

    6. Taxes are charged on some products to discourage their production and usage hence controlling over-exploitation of resources as well as protecting the environment which is vital for the existence of the society.

    Application Activity 3.2

    1. By giving specific examples from your community, how does your society benefit from taxes?

    2. What do you think would happen to business activities if taxes were not paid?

    3.3. Principles of taxation

    Activity 3.3

    1. In your community, probably you have heard people and business people complaining about the taxes they pay or charged to different or similar items. Identify any 5 things you have heard normally people complain about.

    2. If you were the one determining or imposing taxes to people and businesses, mention any five things you would put into consideration.

    Principles or canons of taxation are rules and regulations that should be observed in the tax assessment, collection and administration. Adam Smith put forward the following canons/principles Convenience: Places, periods and seasons in which the tax dues are collected should be convenient to the taxpayer. For example, the convenient time to a trader is when s/he has made profit. For a farmer, is when s/she has sold his/her productivity

    3. Simplicity: The type of tax and the method of assessment and collection must be understandable by both the taxpayer and tax collectors. Complicated taxes may lead to disputes, delays and high costs of collection in terms of time and resources.

    4. Certainty: The taxpayer must know the nature, base and amount of a tax without doubt. Unpredictable taxes discourage investment and reduce work effort. Simply the tax should not be arbitrary.

    5. Economy: The cost of collection and administration of tax must be much lower than the tax collected

    6. Elasticity: A tax should change directly with change in the tax base. If the tax base increases, the tax charged on the tax base should also increase.

    7. Productivity: The fiscal authorities should be able to predict and forecast accurately the revenue a particular tax would generate and at what rate it would flow in.

    8. Equity: Tax assessment should be in such a way that tax payers bear a proportionately equal burden. I.e. people who earn more income should be taxed more than those who earn less income.

    9. Diversity: This canon requires that there should be a number of taxes of different varieties so that every class of citizen may be called up on to pay something towards the national priorities

    Application Activity 3.3

    1. Why is it important to have principles of taxation?

    2. Referring to the principles of taxation you know, briefly explain why each is important to the taxpayer and tax authority (RRA)

    3. From the list of principles of taxation, which one do you think is the most important than others? Give reasons to support your answer.

    3.4. Rights and obligation of the taxpayers

    Activity 3.4

    Basing on your knowledge on civic education, standards in business and other knowledge related to rights, answer the following questions:

    1. What do you understand by “Rights”?

    2. What do you understand by “Obligations/responsibilities”?

    3. Using examples, differentiate a “Right from an Obligation”

    4. If customers have rights, do you think taxpayers should also have rights? Give reasons to support your response.

    5. If your response is yes in 4 above, mention some of the rights you think taxpayers should have.

    6. Do you think taxpayers have obligations or responsibilities? Give reasons to support your response.

    7. If your response is “yes” in question 6 above, mention some of the obligations/responsibilities of taxpayers.

    3.4.1. Rights of taxpayers

    a. The right of appeal: The right of appeal against any decision of the tax authorities applies to all taxpayers, and to almost all decisions made by the tax authorities, whether as regards the application of the law or of administrative rulings, provided the taxpayer is directly concerned.

    b.The right to be informed: Taxpayers have the right to know what they need to do to comply with the tax laws.

    c. The right to quality service: Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the RRA, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the RRA.

    d. The right to pay not more than the correct amount of tax: Taxpayers should pay no more tax than is required by the tax legislation, taking into account their personal circumstances and income.

    e. The right to certainty: Taxpayers also have a right to a high degree of certainty as to the tax to be paid.

    f. The right to privacy: All taxpayers have the right to expect that the tax authorities will unnecessarily not intrude upon their privacy.

    g.The right to confidentiality and secrecy: Another basic taxpayers’ right is that the information available to the tax authorities on the affairs of a taxpayer is confidential and will only be used for the purposes specified in tax legislation.

    h. The right to legal representation: Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the RRA

    i. The Right to tax refund: A taxpayer gets a tax refund when he/she has overpaid taxes to the government. A tax refund is the difference between taxes paid and taxes owed.

    3.4.2. Obligations of taxpayers in Rwanda

    •Obligations of a VAT registered taxpayer: An article 57- 63 specifies the rights and obligations of a VAT registered taxpayer and include the following:

    a. Must clearly display the VAT registration certificate in a plain view at the entrance of his place of business for his/her client to see.

    b. Must issue a VAT invoice to his/her customers every time they purchase goods or services from him/her.

    c. Must file a monthly or quarterly VAT return on the appropriate form (UNG11).

    d. Must be available at all times to receive VAT officers and to make available to the officer books of accounts ascertaining to the business.e. Must use an Electronic Billing Machine in invoice issuing.

    •Other obligations of taxpayers include: The obligation to register with RRA (Rwanda Revenue Authority). Registration is immediately required whenever someone starts not later than seven (7) days of business activities, otherwise sanctions or penalties are required including that of business closure.

    -The obligation to be honest.

    -The obligation to be co-operative.

    -The obligation to provide accurate information and documents on time.

    -The obligation to keep records.

    -Providing accurate information to the Rwanda Revenue Authority .

    -The obligation of signing of tax returns

    -The taxpayer must sign the form on which s/he makes an annual statement of income and personal circumstances, used by the tax authorities to assess liability for tax.

    -The obligation to pay taxes on time

    Application Activity 3.4

    Analyze the following scenario and answer questions that follow

    Mutesi started a business dealing in selling agricultural products in one busy center in Musanze. She only got a trading license from the Umurenge (Sector) which used to carry out her business activities. She never kept records of her business transactions saying that as long as she can calculate the amount profit gained, the rest does not matter. She never issued receipts to her customers or not even asking for them from her suppliers. So, one-day staff from RRA visited her business and everything was a total mess.


    1. What mistakes did Mutesi do?

    2. Do you think Mutesi is supposed to pay taxes? Why?

    3. Which obligations/responsibilities did she not meet?

    4. What do you think are the likely consequences after the visit by RRA?

    5. Does Mutesi have any rights after the visit by RRA as a taxpayer? If yes, which are those rights?

    6. If Mutesi is to correct her mistakes, which rights will she be entitled to?

    3.5. Taxes imposed on business in Rwanda

    Activity 3.5

    Basing on your experience or knowledge,

    a. Mention any taxes paid in Rwanda by people and businesses you know

    b. “Even a one-day baby, pays taxes”. Is this statement true? Justify your answer.

    c. With examples, differentiate direct taxes from indirect taxes

    Direct and Indirect tax

    Central government raises revenue through a wide range of taxes. The tax law is made by statute. They are two types of taxes, namely: direct taxes and indirect taxes.

    Direct taxes
    Direct taxes are paid entirely by a taxpayer directly to the government. It is the tax where the liability as well as the burden to pay it resides on the same individual.

    Examples of Direct taxes

    i. Personal income tax:The tax levied on individuals whose income is above a certain level. It is generally progressive and deducted by the state. It applies to salaries, wages, rent, interests, employment income, business profits, and investment income.

    A resident taxpayer is liable to income tax per the tax period from all domestic source and foreign source.

    A non - resident taxpayer is only liable to income tax, which has a source in Rwanda.

    ii. Corporate income tax:Corporate income tax is deducted by the state on industrial and commercial income achieved by the firms working as commercial companies. It is generally proportional to the firm’s income. Where a company is registered in Rwanda and its management and control is exercised in Rwanda in a particular year, such a company is considered a resident company and is liable for taxation. Organizations with legal personality or organizations are subject to corporate income tax.

    iii. Trading license:The trading license tax is paid by any person who deals with a profit-oriented activity in Rwanda. It is paid before starting activities. It is paid every year not later than 31st March with ongoing business.

    iv. A professional income tax or PAYE (Pay-As-You-Earn):

    PAY E: is composed of Wages, salaries, leave pay, sick pay, medical allowances, pension payment etc. All kinds of allowances including any cost of living, subsistence, rent, and entertainment or travel allowances’.

    v. Withholding tax:Withholding tax of fifteen percent (15%) is levied on the following payments made by resident individuals or resident entities including the following:

    •Dividend, except those governed by Article 45 of this law;
    •Service fees including management and technical service fees;
    •Performance payments made to an artist, a musician or an athlete irrespective of whether paid directly or through an entity that is not resident in Rwanda;
    •Lottery and other gambling proceeds;

    vi. Rental income tax:The rental income tax is paid by any individual who earns income from renting out the fixed assets located in Rwanda, including land, buildings and improvements.

    vii. Fixed asset tax:The following persons have to pay fixed asset tax if they have the land title deed:

    •The owner of the fixed asset;
    •The holder of fixed asset who’s the legal owner is unknown for a period of at least 2 years;
    •The holder of fixed asset if the freehold land title is not yet registered in the name of the owner;
    •The proxy who represents the owner who lives abroad;
    •Usufructuary (one who is using the asset)

    Indirect taxes
    A tax imposed on consumption, sales, shipping, or production, rather than directly on the property or income of the consumer. Indirect taxes are generally included in the price of goods and services, so are less obvious to those paying the taxes than direct levies.

    Examples of Indirect tax

    a. Value Added Tax (VAT): VAT has been introduced in Rwanda in 2001. VAT is a tax on the added value achieved by a firm. This is the difference between the buying price (of raw materials) and the selling price of the product in whatever form it is sold.

    b.Customs duties: This is the tax imposed on imports and exports. They include:

    i. Import duty:This is the tax imposed on imported goods to

    a. Get government revenue
    b. Discourage imports so as to protect domestic industries
    c. Discourage imports so as to conserve foreign exchange

    ii. Export duty:This is a tax imposed on exports to raise the revenue and discourage the exportation of certain goods in order to satisfy the local market demand.

    c.Sumptuary tax: This is a form of a sales tax, which carries a very high rate imposed in order to discourage the production and consumption of a particular commodity on grounds of morality, health or economic consideration to maintain productive efficiency. Example; taxes on alcoholic drinks, cigarettes etc where wines pay 70%; brandies, liquor and whisky 70%, cigarettes 150%.

    d. Sales tax: Sales tax is imposed on sales of commodities. In Rwanda, the sales tax is charged to consumers based on the purchase price of certain goods and services. The benchmark used for the sales tax rate refers to the highest rate – 18%

    Application Activity 3.5
    1. Discuss the taxes vested to local authorities (Districts)
    2. Why do you think sumptuary tax rights are higher compared to others;

    3.6. Tax computations and exempts

    Activity 3.6
    1. Do you think it is important for an entrepreneur to know how to compute the amount of tax he/she is supposed to pay? Give reasons.
    2. What do you think the term “tax exempt means”?

    Tax computations

    a. Personal income tax

    Note:Benefits in kind (non-cash benefits) received from employment are generally taxable as follows:

    Note: Retirement contributions to an approved pension fund made by the employer on behalf of the employee and/or contributions made by the employee, to a maximum of 10% of the employee’s employment income, or 1,200,000Frw a year, whichever is the lowest.

    b.Corporate income tax

    Tax rate

    i. Taxable Business profit is rounded down to the nearest one thousand Rwandan Francs (1,000Frw) and taxable at a rate of thirty percent (30%).Newly listed companies on capital market shall be taxed for a period of 5 years on the following rates:

    •20% if those companies they sell at least 40% of their shares to the public;

    •25% if those companies sell at least 30% of their shares to the public;

    •28% if those companies sell at least 20% of their shares to the public.

    ii. Venture capital companies registered with the capital markets Authority in Rwanda benefit from a corporate income tax of zero percent (0%) for a period of five (5) years from the date the decision has been taken.

    However, a registered investment entity that operates in a Free Trade Zone or foreign companies that have its headquarters in Rwanda that fulfill the requirements stipulated in the Rwandan Law on Investment Promotion are entitled to:

    •Pay corporate income tax at the rate of zero percent (0%);

    •Exemption from withholding tax mentioned in Article 51 of the Law nº 16/2005 of 18/08/2005 on direct taxes on income;

    •Tax free repatriation of profit.

    iii. If a taxpayer exports commodities or services that bring to the country between three million (3,000,000) US dollars and five million (5,000,000) US dollars in a tax period, he or she is entitled to a tax discount of three percent (3%).

    iv. If he or she exports commodities or services that bring to the country more than five million (5,000,000) US dollars in a tax period, he or she is entitled to a tax discount of five percent (5%).

    v. Companies that carry out micro finance activities approved by competent authorities pay corporate income tax at the rate of zero percent (0%) for a period of five (5) years from the time of the approval of the activity.

    However, this period may be renewed by the order of the Minister.


    Alpha Ltd company has obtained an accounting income of 960000RWF. Morever the other expenses deductable amount to 90000RWF. 30% of the profit put in the reserve.


    1. Calculate fiscal (taxable) income of Alpha company?

    2. Calculate corporate income tax (at the rate of 30%)

    Possible solution :

    a. Net profit before tax=960000- 90000=870000Frw

    Reserve= 870000x30100 =261000Frw

    Taxable income =870000-261000=609000Frw

    b. Corporate income tax= 609000+30100=182700Frw

    c . Trading license

    Tax rate
    For, the taxpayer registered for VAT, the trading license tax is based on their respective turnovers of the previous year, as follows:

    For others not registered for VAT, the trading license tax depends on the type of activity and location, as shown in the table below:

    d. A professional income tax or PAYE (Pay-As-You-Earn)   

    The following relate to monthly salaries of Kanyarwanda enterprise employees for 2018:

    a. Rukundo earns 450,000frw
    b. Karinganire earns 89,000frw
    c. Keza earns 28500frw
    d. Buzima earns 12,5000frw

    Required:Calculate the total PAYE for above employees that Kanyarwanda enterprise pays to RRA every month.Solution:a. Rukundo :

    Step1: 30000 is exempted (30000*0)=0
    Step2: 100,000-30000 =70,000*20%= 14000Frw
    Step 3: 450000-100,000= 350,000*30%= 105000Frw
    Total TAX for Rukundo = 14000+105000= 119000Frw

    b. Karinganire :

    Step1: 30000 is exempted (30000*0)=0
    Step2: 89000-30000 =59000*20%= 11800Frw
    Total tax for Karinganire is 11800frw

    c. Since Keza earns less than 30000Frw she does not pay PAYE. Her total tax =0 (28500*0)

    d. Buzima

    Step1: 30000 is exempted (30000 *0)=0
    Step2: 100,000-30000 =70,000*20%= 14000Frw
    Step 3. 125000-100,000= 25,000*30%= 7500Frw
    Total tax for Buzima =14000+7500=21,500Frw
    Total PAY E for Kanyarwanda enterprise every month

    Exemption for PAYE is that every person who earns income less than 30000 does not pay PAYE to RRA.

    The “casual laborer” means an employee or worker who performs unskilled labour activities, who does not use machinery or equipment requiring special skills, and engaged by an employer for an aggregate period not exceeding thirty (30) days during a tax period.

    e. Withholding tax:Withholding tax of fifteen percent (15%) islevied on the following payments made by resident individuals or resident entities:

    •A withholding tax of five percent (5%) of the value of goods imported for commercial use shall be paid at custom on the CIF (cost insurance and freight value) before the goods are released by customs;

    •A withholding tax of three percent (3%) on the sum of invoice, excluding the value added tax, is retained on payments or by public institutions to those who supply goods and services based on public tenders.

    f. Rental income tax:The rental income tax is calculated progressively by revenue brackets as follows:

    •0% on brackets lower than 180,000Frw,
    •20% from 180,001 to 1,000,000Frw
    •30% above 1,000,000Frw

    The taxable income is obtained in one of two ways:
    •Deducting from the gross rental income 50%considered as the expenses incurred by the tax payer;
    •Deducting 30% from gross rental income as the expenses incurred plus bank interest on the rented fixed asset during the tax year;

    Tariff or tax rate
    The tax rate is fixed at 1/1000 of the taxable value per year.

    Tax rate
    The VAT rate is applied to duty-free goods. Several rates can be applied depending on the nature of products. The standards rate is usually 18%

    g.Value Added Tax (VAT):This is the tax charged on the difference between the buying price (of raw materials) and the selling price of the product in whatever form it is sold. VAT = F.P – I.C where F.P is final product, IC is intermediate costs

    UTEXRWA industry bought cotton from a local farmer worth 1200, 000frw to use in production of blankets.170blankets were manufactured and sold to wholesaler at a cost of 4,000,000frw which he later supplied to Lemigo hotel at a value of 8,000,000frw VAT included. Calculate the value of VAT paid on blankets.

    Possible solution
    Step 1: VAT paid by local farmer :

    VAT = FP - IC where FP is final product and IC is Intermediate Cost

    VAT =1,200,000Frw*18% = 216,000Frw

    Value added = Sales - Total Purchases


    VAT paid by wholesaler =2800, 000*18%= 504000Frw

    VAT paid by Lemigo hotel= 8,000,000Frw- 4,000,000Frw

    VAT = Value added * 18%
    = (4,000,000Frw*18%)=720,000Frw

    Therefore total VAT =216000+504000+720000 =1440, 000Frw

    VAT is calculated on sales.
    VAT = Sales *18%
    Which is equal 8,000,000frw*18%=1,440,000frw

    h. Sumptuary tax: Taxes on alcoholic drinks, cigarettes e.t.c where wines pay 70%; brandies, liquor and whisky 70%, cigarettes 150%

    i. Sales tax: The benchmark we use for the sales tax rate refers to the highest rate – 18%

    Application Activity 3.6

    Answer the following questions

    1. Mr. Bob is living in Nyarugenge district and he owns the following fixed asset for which he obtained the freehold land title in 2010:

    i. A parcel of land in Gasabo district of 1 hectare on which he plans to build his hotel. The square meter is valuated at 5,000 Frw at 1st January 2011;
    ii. Commercial house in Nyarugenge district valuated at 200,000,000 Frw at 1st January 2011;
    iii. Residential house in Nyarugenge district purchased in 12/ 2010 at 100,000,000 Frw.

    a. Calculate the total fixed asset tax to be paid by Mr Bob for 2011;
    b. Indicate the deadline of tax declaration and payment;
    c. Determine the fixed asset tax that belongs to each decentralized entity.

    2. Paul owns 3 houses located at Kicukiro district. For the year 2011, he received rental income of 12,000,000 Frw for each house.

    a. Calculate the tax on rent payable for the revenues received in year 2011;
    b. Indicate the deadline of the tax declaration and payment.

    3. Suppose Bank of Kigali has, a part of its Headquarters, six (6) branches in Nyarugenge district, five (5) branches in Kicukiro district and four (4) branches in Gasabo district. The following additional information is relevant:

    i. The turnover of Bank of Kigali for the year 2011, according to the information provided by RRA, is 6,000,000,000 Frw;
    ii. The turnover of each branch is the average from the total turnover.

    1. Calculate the total trading license tax for Bank of Kigali;
    2. Calculate the trading license tax that belongs to each district.

    Tax exempts
    Activity 3.6
    a. In Rwanda, not all goods and services pay taxes. Do you agree with this statement? Support your choice.
    b. Why do you think some goods should not pay taxes in Rwanda?
    c. Can you give some examples of goods and services you think should not pay taxes in Rwanda?

    Taxes exemptions
    The exemption generally refers to a statutory exception to general rule rather than the mere absence of taxation in particular circumstances, generally known as exclusion. Tax exemption also refers to removal from taxation of a particular item rather than a reduction.

    a. Exemption from corporate income tax: The following entities from the Government of Rwanda are exempted from corporate income tax:

    i. The City of Kigali, Districts, Towns and Municipalities;

    ii. The National Bank of Rwanda;

    iii. Entities that carry on only activities of a religious, humanitarian, charitable, scientific or educational character, unless the revenue received during a tax period exceeds the corresponding expenses to the extent that those entities conduct a business;

    iv. International organizations, agencies of technical cooperation and their representatives, if such exemption is provided for by international agreements;

    v. Qualified pension funds;

    vi. The Rwanda Social Security Fund;

    vii. The Rwanda Development Bank;

    b. Exemptions on Value Added Tax:The following goods and services shall be exempted from value added tax:

    i. Services of supplying clean water and ensuring environment treatment for nonprofit making purposes with the exception of sewage pump- out services;

    ii. Goods and services for health-related purposes: (health and medical services, equipment designed for persons with disabilities, goods and drugs appearing on the list made by the Minister in charge of health and approved by the Minister in charge of taxes;

    iii. Educational materials, services and equipment; books, newspapers and journals;

    iv. Transportation services by licensed persons;

    v. Lending, lease and sale: ( sale or lease of land, sale of a whole or part of a building for residential use, renting or grant of the right to occupy a house used as a place of residence of one person and his/her family) etc.

    vi. Financial and insurance services;

    vii. Precious metals: sale of gold in bullion form to the National Bank of Rwanda;

    viii. Any goods or services in connection with burial or cremation of a body provided by an Order of the Minister in charge of finance; ix. Energy supply equipment appearing on the list made by the Minister in charge of energy and approved by the Minister in charge of taxes;

    x. Trade union subscriptions;

    xi. Leasing of exempted goods;

    xii. All agricultural and livestock products, except processed ones. However, milk processed, excluding powder milk and milk derived products, is exempted from this tax;

    xiii. Agricultural inputs and other agricultural and livestock materials and equipment appearing on the list made by the Minister in charge of agriculture and livestock and approved by the Minister in charge of taxes

    xiv. Gaming activities taxable under the Law establishing tax on gaming activities;

    xv. Personal effects of Rwandan diplomats returning from foreign postings, Rwandan refugees and returnees entitled to tax relief under customs laws;

    xvi. Goods and services meant for Special Economic Zones imported by a zone user holding this legal status;

    xvii. Mobile telephones and SIM cards;

    xviii. Information, communication and technology equipment appearing on the list made by the Minister in charge of information and communication technology and approved by the Minister in charge of taxes.

    c. Exemptions on Fixed Asset Tax:The following fixed assets are exempted from the fixed asset tax if they are not used for profit - making activities:

    i. Fixed assets used for medical purposes, vulnerable groups, educational and sporting activities;

    ii. Fixed assets intended for research activities;

    iii. Fixed assets belonging to the Government, Provinces, decentralized entities;

    iv. Fixed assets used for religious activities;

    v. Fixed assets used for charitable activities;

    vi. Fixed assets belonging to foreign diplomatic missions in Rwanda if their respective countries do the same for Rwanda;

    vii. Land in use for agriculture, livestock or forestry if it is not more than 2 hectares. If this land is more than 2 hectares, the tax is imposed only on the excess land;

    viii. Fixed assets used for residential purposes, if the assessed value does not exceed 3,000,000Frw. If the assessed value exceeds such amount, only the excess value is taxed.

    d. Exemptions on trading license:The Government entities are exempted from trading license tax.

    e. Exemption on fees paid on parking:The following vehicles do not pay parking fees when in official duties:

    i. Vehicles owned by the State, its institutions and projects that is when they have their identification plates;

    ii. Vehicles belonging to an Embassy;

    iii. Vehicles of the United Nations affiliated international organizations and other international organizations having specific agreement with the Government of Rwanda;

    iv. Special vehicles designed for disabled persons.

    3.7. Tax conflicts and Resolution

    Activity 3.7
    In the previous unit (contracts in business), we looked at conflicts and resolution:

    a. What conflicts do you think may happen between taxpayers and tax authorities (RRA)?

    b. What do you think may cause such conflicts between taxpayers and tax authorities?

    c. How do you think such conflicts may be resolved?

    3.7.1. Tax conflicts

    Tax related disputes/disagreement may arise between taxpayers and tax authorities. Some tax conflicts arise under the following circumstances:

    •Disagreement on law: How the law is interpreted in relation to tax;
    •Disagreement on the tax rates and the amount to be paid by taxpayer;
    •Disagreement on exemption: Taxpayer may claim an exemption but tax collectors reject it;
    •Disagreement on the time of payment;
    •Disagreement on method of payment;
    •Disagreement on non-payment

    3.7.2. Resolution

    When tax related conflicts arise between the taxpayer and authority, settlement process starts as follows:

    1. Administrative appeal

    Appeal to the Commissioner General (CG)

    i. General

    •Taxpayer must appeal within 30 days after receipt of the notice
    •Forms of the appeal•Be in writing;
    •State the taxpayer’s identification number;
    •State the tax period;
    •Describe the assessment and the grounds of appeal;
    •Be signed by the taxpayer or his/her representative;
    •Contain all the evidences and legal arguments.
    •Appeal does not stop collection
    •Commissioner General (CG) may suspend the obligation to pay tax, interest and penalties, upon written request by the taxpayer, the Commissioner General (CG) may suspend the collection of the disputed amount for the duration of the appeal.

    ii. Decision

    •Commissioner General (CG) sends the decision within 30 days;
    •Commissioner General (CG) may extend once for 30 days and informs the taxpayer;
    •The appeal is supposed accepted, if decision is not made within 30 days;
    •The commissioner General (CG) informs taxpayer in writing about the decision.

    2. Amicable settlement

    •The taxpayer who is not satisfied with the decision of the Commissioner General may request the top Commissioner General for the amicable settlement.
    •In case both parties do not reach an amicable agreement, the taxpayer may make an appeal to the competent court.

    3. Appeal to the court

    •The taxpayer who is aggrieved by the decision of the Commissioner General (CG) may make a judicial appeal. This appeal is brought before the competent court within thirty (30) days after the receipt of the Commissioner General’s decision.

    Application Activity 3.7

    Analyze the following scenario and answer questions that follow Mutesi started a business dealing in selling agricultural products in one busy center in Musanze. She only got a trading license from the Murenge (Sector) which she used to carry out her business activities. She never kept records of her business transactions saying that as long as she can calculate the amount of profit gained, the rest does not matter. She never issued receipts to her customers or not even asking for them from her suppliers. So, one day staff from RRA visited her business and everything was a total mess.

    Assume, Mutesi is not pleased with decision of RRA officials regarding her tax situation, advise her on the process she should go through for her to resolve the disagreement with the official’s decision.

    3.8. Special and non-Fiscal tax collection

    Activity 3.8
    a. Referring to your community/sector, mention all the ways you know that your sector (all administrative units/levels including Police...) raise revenue or money for providing services to citizens

    b. From all the sources you have identified, list those that you think are in form of taxes and those that are not
    c. How do we call such sources that are not in form of taxes?

    d. Differentiate tax from non-tax collection

    Non-Tax Revenue is the recurring income earned by the government from sources other than taxes. In addition to taxes, business people pay other charges to the government and local authorities. These are non-tax collections or non-fiscal collections. The following are some of the non-tax collections that business people pay:

    a. Market Fees : Market fees are charged to a trader who sells goods or services in a place designed by the competent authority.The threshold of market fees is fixed by the district Council considering the size of the designated area and nature of the goods sold. The market fees are paid on monthly basis per stall and fixed as follows:

    b.Fees charged on public cemeteries: Fees are paid per tomb by individuals who need to bury their relatives. Fees charged per tomb range between 500 and 5,000 depending on area which the cemetery is located.The district council determines the area considered as public cemetery.

    c. Fees charged on parking: The parking fees are paid by any person who parks his/her vehicle in parking lots determined by a decentralized entity.Parking fees are paid per category of vehicles either per hour, per day or per month.

    d. Fees on public parking: Fees on public parking are paid by vehicles entering in the public taxi parking.Public parking fees are paid on daily basis as follows:

    e. Parking fees on boats: Parking fees on boats are paid by boats used for profit making activities that park in a boat parking area designated by the decentralized entity. Parking fees on boats are determined by the council of decentralized entity basing on the following threshold:

    Other sources of non-taxes revenues include:

    •Fines and penalties on road offences;
    •General fines;
    •Certificate fees;
    •Fees from the service provided by districts;
    •Fees that are paid to renew registration;
    •Optional dues taken from the value of the building sold by the public auction;
    •Fees from selling of plots

    Application Activity 3. 8

    1. Gaparayi is a registered trader in Nyabugogo market. On every Friday, he takes part of the goods to the newly constructed Shyorongi market to attract more clients outside Kigali. In Nyarugenge district, the threshold of market fees is fixed at 10,000 Frw per month and per stall in Muhima, Nyarugenge and Gitega Sectors. The council of Rulindo district has decided to fix at 3000 Frw market fees per stall in all constructed markets across the district.

    Calculate the monthly market fees to be paid by GAPARAYI.

    2. RRA is one of the institutions that owns many vehicles. The number of operational vehicles is estimated at 100 in Kigali city. The management has decided to settle vehicles related expenses on a monthly basis to facilitate the work of the accountants and reduce paper work.

    Calculate the amount of parking fees to be paid by RRA for its vehicles operating in Kigali City considering that all operational vehicles are in the category of “Small vehicles and motorcycles”.

    3. Mutake owns two Coasters capable of transporting 36 passengers each. They operate between Kigali and Kayonza, taking passengers from Remera main taxi park and Kayonza modern taxi park. In Gasabo, fees in public parking are fixed at Frw 3,000 while in Kayonza fees are fixed at Frw 2,000 per day for this category of buses.

    Calculate total public parking fees to be paid by Mutake on daily basis.

    4. Nyamasheke district has allocated a slot of 50 square meters as the boat parking area. The district council has fixed the boat parking per month as follows:

    Boat with engine capable to carry up 5 T ....................... 2,000Frw
    Boat with engine capable to carry more than 5T............ 3,000Frw
    Boat without engine........................................................ 1,000Frw

    Cooperative ABASAMBAZA owns 10 boats in 3 categories: 4 boats with engine transporting 3 tons each, 3 boats with engine with capacity to transport 7 tons each, 3 wooden small boats without engine for emergency. The cooperative management has decided to pay boat-parking fees on monthly basis.

    a. Calculate the monthly boat parking fees that should be paid by cooperative ABASAMBAZA.
    b. At which date should these fees be paid.

    3.9. Subscribing to tax system

    Activity 3.9
    Analyze the following extract from RRA regarding tax payment in Rwanda and answer questions that follow.

    Registration, taxpayer’s benefit and responsibility (Rwanda Revenue Authority)

    Cutting down the number of business informal sector is always identified as solid strategy and a way to establishing a secured and growing economy in any country. In this move, registering all businesses is the Government’s main focus in this financial 2014-15 year.

    In an entrepreneurship oriented state like Rwanda, registering a business is not only a law fulfillment; it’s also a way of enabling it to expand and blossom because businesses are widely encouraged and different incentives are given only to registered business people.

    Any person, who starts up a business or other income generating activities, is obliged to register with the tax administration within a period of seven days from the beginning of the business. Is also obliged to register for Value Added Tax (VAT) in seven days, any person who carries out taxable activities exceeding an annual turnover of twenty million Rwanda Francs (20,000,000 FRW), or five million Rwanda Francs (5,000,000 FRW) quarterly.

    Registration is done at any RRA Office, but when it comes to register a new business, a Taxpayer must also register it through the Rwanda Development Board (RDB) and get a registration certificate. In a bid to facilitate taxpayers, the RRA and RDB combined registration systems so that a Taxpayer Identification Number (TIN) can be issued at the same time of business registration at RDB. After registration at RDB, the taxpayer gets a Registration Certificate with a TIN referred to as the “company code” on the right-top side of the registration certificate.

    Business registration at RRA is free. In order to register, a businessman has to carry with him a copy of his Identity Card and one passport photo, and registration is done in five minutes.

    De-registration process has also been provided; this may happen in case for instance a Taxpayer decides to stop his business. In this case he first writes a letter to the Commissioner for Small and Medium Taxpayers or Commissioner for Large Taxpayers depending on the category of the taxpayer. The registration office analyse your de-registration request and if approved they call him/her to complete required de-registration procedures. A de-registering taxpayer will then be asked to file returns for the previous period: annual declaration (and payment if applicable) for Profit Tax and Monthly or Quarterly declaration (and payment if applicable) for VAT and Pay As You Earn. He will finally be requested to fill two de-registration forms and get them signed and stamped from the Tax administration. One copy will be kept by the Tax administration for Official use, and another one kept by the Taxpayer for personal record.

    Registration is also important because the law provides penalties to business persons who fail to register. Penalties vary from 100.000 to 500.000 Rwandan francs.

    a. In an entrepreneurship oriented state like Rwanda, registering a business is not only a law fulfilment. Why do you think it is beneficial to register a business in Rwanda?

    b. What are the obligations of any person, who starts up a business or other income generating activities in Rwanda?c. Briefly describe the process of subscribing or registering with RRA

    d. What are some of the basic documents involved in subscribing or registering with RRA?

    e. Briefly describe the process for a person/business who wants to de-register or stop subscription to RRA

    3.9.1. Conditions for subscribing to tax system include the following

    a. Filling in the registration form

    Any person who sets up business or other activities that may be taxable is obliged to register within the Tax Administration within a period of 7days from the beginning of business activity.

    An individual or group of persons may own a company. Rwanda Development Board (RDB) does registration via online services. This service is immediate and free of charge. Company registration certificate is issued by RDB.

    Also for individual businesses, registration can be done by RRA and the Tax Identification Number (TIN) certificate is issued freely at countrywide spread RRA branches. There is an RRA office at all 30 districts in Rwanda. The law provides penalties to businesspersons who fail to register; such penalties vary from 100,000 to 500,000Rwandan francs.

    b. Legal form of the business

    Registering with the Rwanda Revenue Authority

    i. Tax Identification Number (TIN):Within seven days of incorporation of a business, companies and individuals are required to register with the RRA to acquire a TIN. It takes 30 minutes to register and obtain a TIN.

    ii. Value Added Tax:Any company or individual that engages in business activities exceeding a turnover of 20,000,000Frwin a fiscal year or 5,000,000 Frw in the preceding calendar quarter is required by law to register for VAT with RRA within a period of seven days following the end of the year or from the end of the quarter mentioned above.However, any person/company who/which is not required to register for VAT by law may voluntarily register for it.

    c. Indicate all the type of taxes one owes to RRA: All taxpayers are expected to know all tax they will pay before starting business otherwise they are considered to make tax evasion; this will have direct impact on their business as sanctions and penalties.

    1. Certificate of registration (to be downloaded from RDB)
    2. Documents showing types of taxes (to be downloaded from RRA)
    3. His/her identification document:

    Requirements vary depending on whether the applicant is a physical person or a moral person.

    a. Physical persons (a person who has its own legal personality, that is an individual human being):

    •Photocopy of a national identity card/pass port
    •A passport size color photo;
    •A correctly filled application form

    b.Moral person/legal person, (which may be a private that is, business entity or non-governmental organization or public organization):

    •Correctly filled application form; these forms are available in two (2) languages, and taxpayers are encouraged to fill the form in the language they best understand in order to avoid errors;
    •Certified copy of a legal instrument of incorporation of the company/association;
    •Taxpayer Identification Number is required for shareholders if they are residents;

    3.9.2. Advantages of subscribing to tax system

    •Take part in business: if the business is registered with RRA, this is an indication that it will operate smoothly in business industry;

    •Take part in national building: if the business is registered with RRA, it will highly contribute to the nation development through taxes paid;

    •Get certificate: if the business is registered with RRA, it is the security that it is recognized by the government and should operate as admitted one by complying with tax laws;

    •Getting loans: when you apply for loan, you are going to have to prove that you are actually have a business. Lenders and investors will ask to see your business registration along with other application requirements before approving you for a loan;

    •Reputation with customers: customers and clients, especially people you have never worked with before, need assurance that you are a legitimate business. A potential client may suspect your business of being a “fly-by-night” operation if your company is not properly registered.

    •Supplier arrangements: a registered business also makes you eligible to receive supplier discounts that you would not normally receive as an unregistered operation;

    •Hiring employees: a business registration allows you to hire-full time employees and pay them in accordance to state laws. When you register your business with the state, you will receive a state identification number that allows you to route state taxes on the employee’s behalf. Therefore, if you plan to hire employees to your business, it is best to take care of registering your business with the state before you even start the search for workers.

    Application Activity 3.9
    Why is it important to register for taxes to the RRA?

    3.10. Sanctions/ penalties for not complying with tax obligation

    Activity 3.10
    What do you think may happen to an entrepreneur if he/she does not comply to the tax obligations?

    a. Penalties and Interest for not paying consumption tax

    •A taxpayer who fails to comply with the provisions of law determining and establishing consumption tax on some imported and locally manufactured products shall be liable to a fine.

    •Any taxpayer who fails to remit the tax due within the prescribed period is liable to a fine of five hundred (500) penalty units together with a late payment penalty of ten per cent (10%).

    b.Interest and fines for not paying fixed asset tax

    The interests, fines and penalties have to be applied for the following cases:

    •In case of absence, late submission, or incomplete or misleading tax declaration:
    •10 % of the tax due, if the delay is less than one month;
    •20 % of the tax due, when the delay is not more than two months;
    •30% of the tax due, in case the delay is not more than three months;
    •40 % of the tax due, if the delay is more than three months.

    In case of incomplete, incorrect or fraudulent information with an intention of evading tax, the offender is subject to a fine of 20% of tax due for one year when it is the first time and 40% of tax due for one year if the offence is repeated. In case of late tax payments (law no 59/2011, article 25):

    •Interest of 1.5% per month calculated from the date the taxes are due up to the date they are paid. •Surcharge of 10% of the tax due. However, such a surcharge must not exceed an amount of 100,000 Frw.

    c. Interest and fines not paying rental tax

    The interests, fines and penalties have to be applied for the following cases:

    In case of absence or late submission
    •10 % of the tax due, if the delay is less than one (1) month,
    •20 % of the tax due, if the delay is not more than two (2) months,
    •30 % of the tax due, if the delay is not more than three (3) months,
    •40% of the tax duel, if the delay is more than three (3) months.

    In case of incomplete, incorrect or fraudulent information with an intention of evading tax, the offender is subject to a fine of 20% of tax due of one (1) year when it is the first time and 40% of tax due of one (1) year if the offence is repeated.

    In case of late tax payments (law no 59/2011, article 25)
    •Interest of 1.5% per month calculated from the date the taxes are due up to the date they are paid.
    •Surcharge of 10% of the tax due. However, such a surcharge must not exceed an amount of 100,000 Frw.

    Any late declaration of zero (0) tariff shall cause the taxpayer be liable to a fine not exceeding five hundred (500) penalty units.

    d. Interest and fines for not paying trading license

    The interests, fines and penalties have to be applied for the following cases:
    In case of absence, late submission, or incomplete or misleading tax declaration:

    •10 % of the tax due, if the delay is less than one month;
    •20 % of the tax due, when the delay is not more than two months;
    •30% of the tax due, in case the delay is not more than three months;
    •40 % of the tax due, if the delay is more than three months.

    In case of incomplete, incorrect or fraudulent information with an intention of evading tax, the offender is subject to a fine of 20% of tax due for one year when it is the first time and 40% of tax due for one year if the offence is repeated.

    In case of late tax payments (law no 59/2011, article 25):
    •Interest of 1.5% per month calculated from the date the taxes are due up to the date they are paid.

    •Surcharge of 10% of the tax due. However, such a surcharge must not exceed an amount of 100,000 Frw.

    If the taxpayer fails to present, the trading license tax certificate is punished by an administrative fine of 10,000 Frw.
    If a trading license tax certificate is lost or damaged, a duplicate shall be issued by the concerned decentralized entity for a fee not exceeding 5,000 Frw.

    e. Penalties and Interest on not paying PAYE

    A taxpayer who fails to pay tax within the due date is required to pay interest on the amount of tax. Interest is calculated on a monthly basis at the inter-bank offered rate of the National Bank of Rwanda plus 2 (two) percentage points. For example, if the inter-bank rate is 9%, interest is imposed at 11% annually.

    f. Penalties and Interest for not withholding tax

    Failure to Withhold Tax
    A withholding agent who fails to withhold tax in accordance with law 25/2005 is personally liable to pay to the Tax Administration, as provided for by paragraph 2, Article 48 of this law, the amount of tax which has not been withheld including penalties and interest on arrears. However, the agent is entitled to recover this amount from the payee excluding the associated fines and the interest on arrears.

    g.Penalties and Interest for not paying VAT

    Value Added Tax violations

    “The following administrative fines are imposed to persons who do not comply with provisions of Value Added Tax:

    •in the event of operation without VAT registration where VAT registration is required, fifty percent (50%) of the amount of VAT payable for the entire period of operation without VAT registration;

    •in the event of the incorrect issuance of a VAT invoice resulting in a decrease in the amount of VAT payable or in an increase of the VAT input credit or in the event of the failure to issue a VAT invoice, one hundred percent (100%) of the amount of VAT for the invoice or on the transaction;

    •for issuing of a VAT invoice by a person who is not registered for VAT is assessed a penalty of one hundred percent (100%) of the VAT which is indicated in that VAT invoice and is due to pay the VAT as indicated on that VAT invoice”.

    Tax fraud
    “A taxpayer who commits fraud is subject to an administrative fine of one hundred percent (100%) of the evaded tax. With exception of that penalty, the Tax Administration refers the case to the Prosecution service if the taxpayer voluntarily evaded such tax, like use of false accounts, falsified documents or any other act punishable by law. In case of conviction, the taxpayer can be imprisoned for a period between six (6) months and two (2) years.

    Note: The Minister’s order determines an award given to any person who denounces a taxpayer who engages in tax fraud.

    •Closure of the business for 30 days;
    •Cancellation or withdrawal of registration certificate;
    •Fail to pay tax withheld: this undertakes 100% penalty and 3 months to 2 years in jail;
    •Obstructing or aiding: this undertakes fines and penalties equal to that of taxpayer;
    •Bar from public tenders;
    •Exposure in the media

    Application Activity 3.10
    1. Discuss why RRA charges fines and penalties?
    2. What do you think will happen if tax payers don’t pay both taxes assessed and fines/penalties?

    Skills Lab Activity 3.11
    Justify the following statements with concrete examples:
    1. “Taxes are more of a benefit than a cost to an entrepreneur”
    2. “Avoiding paying taxes is a shortcut to business growth”

    End of Unit 3 Assessment

    1. It is said that “tax is the free money to central or local authorities from taxpayers” do you agree with this statement. Justify your answer

    2. Explain different taxes vested to decentralized authority (District revenues)

    3. What is the role of EBM in Economic Development of Rwanda?

    4. Describe any four principles of tax5. How is tax used by government to;

    a. Support Entrepreneurs
    b. Support the community

    6. Calculate the tax liability to be paid by a resident individual whose annual income is 45,000,000Frw. The employee is provided with furnished accommodation and a fueled car for the private use. The employee has two children attending school. The employer provides an education allowance of 7,200,000Frw per a year, paid on a monthly basis.

    7. Fill in the gap the following:

    a. ............. punishment is the jail for a period between six (6) months and two (2) years; even the Minister’s order determines an award given to any person who denounces a taxpayer who engages in that act.

    b. ............. is the compulsory and non-refundable payment made by the business to the Government or Local Authority so as to raise their revenues.

    c. ............. is the one that is exempted from VAT.d. ............. one of the taxes vested to the local government (Districts).

    e. The degree to which the taxpayers meet their tax obligations as set out in the appropriate legal and regulatory provisions is............................


    Key Unit Competency: To be able to identify a business problem and carry out an investigation to solve it.


    In the present fast track business environment is marked by competition; many organizations rely on business research to gain a competitive advantage and greater market share. A good research study helps organizations to understand processes, products, customers, markets and competition, to develop policies, strategies and tactics that are most likely to succeed.

    For example, if you are planning to start a video library in the neighborhood, you need to ask yourself many questions including the following:

    •How many households possess television set?

    •How many households access this center?

    •What kind of movies do people generally enjoy watching?

    •How much does an average household spend on movies?

    •What is the current source of movies for these household?

    Generally, such questions are in the mind of every business man. However, appropriate answers to such questions will be obtained through market research because the right information is important for the success of every business activity. The need of information makes research an important component of every business activity.

    This unit is therefore designed to guide you answer the above questions and will help to equip you with appropriate research knowledge of identifying a business problem and carry out an investigation to solve it. Through this unit, you will gain competency that will help you demonstrate ability to interpret and use research findings in business decision making. Under this unit, you will also learn how to develop a critical thinking approach to problem solving in business.

    Introductory activity:
    Kamaliza’s Case Study

    Read Kamaliza’s Case Study and answer the questions below.

    Kamaliza is a senior five students at UBWOROHERANE secondary school. Having enough competencies in some senior four units among others, initiation to entrepreneurship, career opportunities and market research, she decided to start a small orange juice processing factory and her main market was the restaurants located in UBUMWE village. Two years later, she found that the level of sales was extremely declining and started wondering why? Thereafter, she decided to gather all relevant information regarding the likely causes of such a decline.


    Referring to the above text, answer the following questions:

    a. Why do you think it is very important for Kamaliza to gather information related to her sales decline?

    b. What is the meaning of business research?

    c. Why do you think it is important to carry out research in business?

    d. Explain the different sources of data that Kamaliza can use to obtain the relevant information.

    4.1. Meaning of research, business research and the importance of research in business

    Activity 4.1
    Analyse the photos below and answer the questions that follow;

    1. What do you think is this person busy doing?
    2. From the photo above, what do you understand by terms research and business research?
    3. Why is business research important for any business?

    4.1.1 Meaning of research and business research
    Research is a systematic process of collecting, logically analyzing and interpreting data for some purpose. John W. Creswell, states that “research is a process of steps used to collect and analyze information to increase our understanding of a topic or issue”. It consists of three steps: pose a question, collect data to answer the question, and present an answer to the question.

    Business research is the process of collecting and analyzing information for the purpose of initiating, modifying or terminating a particular business activity. Business research can be brought in the context of research as doing a feasibility study about a business before it is actually started.

    Aims or objectives of conducting a business research include:

    i. To find out the nature and type of products that is preferred by customers/clients at a given time.
    ii. To find out quality of the products that consumers desire to buy.
    iii. To determine the quantity or volume of the products to be put on the market i.e. finding out how much is to be bought presently and in future.
    iv. To find out consumer’s reactions on the ruling prices in the market regarding the entrepreneur’s products.
    v. To increase turnover (sales). This results into subsequent increase in the profit margin of the entrepreneur.

    4.1.2. The role or importance of research in business

    Usually people do business research in order to get the best business choice which can help in maximizing profits. Many people go into business ventures when they have not carried out the appropriate study leading to different businesses ending up closing sooner than they had expected.

    To understand the importance of research in business, consider a case where business customers are reducing. Someone may come up with a theory that people are generally poor and so their purchasing power has reduced. In this scenario, there is a need to conduct a systematic investigation to discover what the truth is, that is, you need to carry out research in order to establish, discover, and interpret behaviors and theories to come up with a definite answer.

    The roles of research in business include but are not limited to the following:

    1. Research, being a fact-finding process, significantly influences business decisions. The business management must choose the course of action which is most effective in attaining organization goals. Research not only provides facts and figures to support business decisions but also enables the business to choose the best one.

    2. Research plays a significant role in the identification of a new project, project feasibility and project implementation.

    3. Research helps the business management to discharge its managerial functions of planning, forecasting, coordinating, motivating, controlling and evaluating effectively.

    4. Research facilitates the process of thinking, analyzing, evaluating and interpretation of the business environment and of various business situations and business alternatives so as to be helpful in the formulation of business policy and strategy like where to buy, when to buy, how much to buy, and at what price to buy etc.

    5. Testing of new products. Business research helps in testing the possible success of fresh products. Businesses need to know what kind of services and products consumers want before they produce them. Research can help design a new product or service, figuring out what is needed and ensure that the development of a product is highly targeted towards demand.

    Application Activity 4.1

    Think about at least 2 people doing business in your home locality. Do they carry out research in their businesses?

    1. If not, explain the challenges they are likely to encounter in their businesses.
    2. Describe the challenges or obstacles to effective business research?

    4.2. Types of business research

    Activity 4.2
    Read the following case study about Mugabe and answer the questions below;

    Mugabe is a businessman in Kazi village. After recognizing increase in price of one of his preferred commodities “ibirayi bya Kinigi”;he decided to carry out a research to help him answer some questions like:

    •What are the causes of price increase for “Ibirayi bya Kinigi”?
    •How do you think will that research impact his business?

    While conducting a research, data was collected from MINICOM’s report showing the figures, observations, opinions and descriptions on the reasons for the increase in prices of “Ibirayi bya Kinigi”. Also, MUGABE collected some other data from different respondents (cultivators in Kinigi, Musanze District) using interviews and questionnaires.

    a. Describe the different types of research used by MUGABE.
    b. What was the purpose of using the different types of research you identified in the above question?

    The types of business research include the following:

    1. Quantitative research: This is the gathering and analysis of data that can be expressed in numerical form. E.g. Collecting data about prices, amount of money people earn, etc.

    Quantitative research: is a formal, objective, systematic process in which numerical data are used to obtain information about the situation. This research method is used: to describe variables; to examine relationships among variables; to determine cause-and-effect interactions between variables.

    . Qualitative research: This deals with the collection and analysis of non-numerical data.). Qualitative data describes items in terms of some quality or categorization that may be ‘informal’ or may use relatively ill-defined characteristics such as warmth and favour.For example, to find people’s opinions on a new product launched cannot be measured numerically, because they are just opinions based on an individual’s perception and beliefs.

    Qualitative research can also be referred to as a type of social science research that collects and works with non-numerical data and that seeks to interpret meaning from these data that help us understand social life through the study of targeted populations or places. Qualitative data can include well-defined aspects such as gender, nationality or commodity type, qualities of a good leader, etc.


    3. Primary research (field research): This is the collection and use of original data from the field. The researcher gathers information directly from the target groups. It involves the collection and use of data that does not already exist. It is the collection and use of original data.

    Some advantages and disadvantages of primary research

    4. Secondary research (desk research): This is the analysis and use of existing data and information. The information is available to the researcher from textbooks, magazines, newspapers, directories, trade publications, internal and external reports, government and its ministries, etc.

    For example, if you want to start a school in Ntarabana Sector in Rulindo District and you need the data about population, you can get statistics from the National Institution of Statistics of Rwanda (NISR) about population density, number of school going children in Ntarabana Sector, number of boys and girls, number of existing schools, sources of income and other data. You can use this data to analyse and make your own conclusion but using existing data.

    Some Advantages and disadvantages of secondary research

    Application Activity 4.2
    i. Examine the advantages of primary research over the secondary research

    ii. Imagine, you have a business you want to start, treating your class as a market; referring to the most pressing needs of your classmates, conduct a research to determine which product could be more feasible and profitable for you. Also be specific about which type of research you will have used.

    4.3. Key steps in research

    Activity 4.3
    Read the following case study clearly and answer the questions that follow;When Mr. MUHIRE completed his secondary school studies, he started a business dealing in trading of beans in Gasabo District. Six months later, he decided to carry out a research aiming at discovering which types of beans are preferred in the District as many of his loyal customers claimed on the type of beans delivered to them during the previous month. He took time to clearly decide on the objectives of the research and ways of collecting helpful information. He also scheduled how activities will be following each other. After getting the research funding, he started gathering information, intensively studying his data and came up with useful information from the data collected.

    1. Suggest and describe the steps that MUHIRE should follow throughout his research process.

    2. Go out in a nearby market or trading center and collect information about a specific product of your choice offered by different companies and find out what the users say about them.

    Steps that are involved in carrying out a business research

    1. Finding the topic of the research study. This is the title of all the research work that has to be done in the field. E.g. an evaluation of the influence of income levels of consumers to the growth of a business.

    2. Defining the research problem. This enables the entrepreneur to find out how to deal with prevailing situation which consequently enables him to achieve his/her target.

    3. Setting of objectives. Specifically show what the research wants to achieve at the end of the study. They should always be brief and SMART (systematic/specific, measurable, achievable, realistic, time bound).

    4. Selection of the basic data collection methods. (Observation, interview, questionnaire, field experiments, focus group etc.)

    5. Determine the scope. The researcher determines the limitations of his/her study. That is to say, areas to be covered and what to be included or excluded. (sample/population).

    6. Designing a clear schedule for conducting the research or coming up with a clear plan of the whole research process. Consider the example below;

    An example of a research schedule of activities on a topic of study “Customer perception towards a new brand of product from a given company”

    Customer perception towards a new brand of product

    7. Collecting data: The researcher collects data on a number of things such as price, product, promotion, target market etc. This is normally done in the real field study.

    8. Analyzing data: This is done during and after the real field study. It enables the researcher to know how the market will be especially in terms of demand.

    9. Presenting data: After data analysis, the researcher presents his findings to the relevant authorities for action. The researcher should ensure that he presents empirical data and not estimates or hypothetical figures to those who are supposed to take the action.

    Application Activity 4.3

    Read the story below and answer the questions that follow.

    AKEZA is a diary firm that heavily relies on production of yoghurt for their profits. They have been in this business for 5 years now. However, other firms have joined the industry and yoghurt is no longer profitable for AKEZA diary. The firm is contemplating about the introduction of new products; ghee and powder milk because no other firm is currently producing them for the market. The research and development department has been tasked to carry out a study on how the new products will help the firm to regain its profits.


    1. Suppose you are the researcher for AKEZA diary, what essential things would you consider before you carry out research to find out whether the 2 new products will help the firm to regain profits?

    2. What challenges are you likely to face when carrying out the research and how would you overcome them?

    4.4. Data collection

    Activity 4.4
    a. What do you understand by data collection?
    b. MAHORO, a trader in Rugwiro trading center carried out research for the problem of her “decrease of business’s monthly turnover” during eight consecutive months. While collecting data to find out the likely cause, MAHORO read the report of National Bank and discovered that one of the causes was the measures applied by the National Bank to reduce money in circulation.

    In the process of collecting data she used interviews and questionnaires as research tools.

    i. Describe the main sources of data used by MAHORO while conducting her research

    ii. Formulate five questions MAHORO would administer to collect the required data

    iii. Explain the types of data used by MAHORO in her research.

    iv. Differentiate between primary and secondary data and explain how they help in business research.

    4.4.1. Sources of Primary and Secondary data

    Data refers to all information a researcher gathers for his or her study. The word data comes from a Latin word“datum” which means a single piece of information. “In research, data is defined as recorded factual material commonly retained by and accepted in the scientific community as necessary to validate research findings; although the majority of such data is created in digital format, all research data is included irrespective of the format in which it is created.” The sources of data may be classified into: Primary data and Secondary data sources.

    Primary sources of data
    Primary sources are original sources from which the researcher directly collects data that have not been previously collected. The major sources of primary data include respondents, analogous case situations and research experiments.

    Respondents: As noted earlier, one of the sources of primary data is respondents; this is the very important source of first-hand information while conducting any research. In business research, the type of information that may be collected from respondents may include data on past behavior, intentions of likely behavior, extent of knowledge, attitudes and opinion and socio-economic characteristics and lifestyle data.

    Primary data from Analogous situations - Case Study: Evolved from the behavioral sciences, case study or case history is in extensive use in marketing research today. Using analogous situations to or relevant to the problem situation, an in- depth investigation is carried out to thoroughly study the case situation.

    Experimentation: Experimentation also represents a fairly rich source of primary data and is used mostly to study cause-effect relationships among research variables. For example, an experiment may be done to find out how sales will be affected when the colour of the product is changed by making sample products with the new colour, putting them on the market and observing customer reactions.

    Secondary sources of data
    These are sources containing data that have been collected and compiled for another purpose. It means that the data here is already in existence. Secondary data may be internal or external. Internal sources are within the organization while external sources are sources of secondary data that originate from outside the organization.

    These include the following:

    •The government and its ministries: For example, the ministry of education has data on schools, enrolment, distribution of tertiary institutions etc.
    •Trade publications especially industry magazines.
    •Bureau of statistics: (Data centers). The bureau of statistics has the important information used for research. In Rwanda the bureau of statistics the “National Institute of Statistics of Rwanda”.
    •Competitors: Company reports and websites are easily accessible and contain a limited amount of information.
    •The general media (newspapers, radio and television).
    •Company records and files.
    •Textbooks and other published sources.
    •Other researchers’ information.
    •Internal and external reports.
    •Associations, Databases and Directories.

    4.4.2. Methods of data collection

    Data collection techniques are means by which a researcher obtains data. There are various methods of data collection to choose from. In some instance, it is useful to use more than one method to collect the required data. Using more than one method to test a hypothesis is called triangulation or mixed method.

    Methods of collecting primary data

    The researcher directly collects primary data from their original sources. In this case, the researcher can collect the required data precisely according to his research needs, he/she can collect it when he/she wants it and in the form he/she needs it. But the collection of primary data is costly and time consuming.

    •Interviews: Interview as a source of research data refers to systematic talking and listening to people. The person asking questions is the interviewer while the person answering is called the interviewee or respondent. Interviews may be face to face or over a telephone.

    •Face to face interview: These are interviews where the interviewer and the interviewee face each other and talk directly to each other. The interviews have the advantages of allowing the researcher to establish some rapport with the respondents and in the process gain their confidence and trust.

    •Telephone interviews: Telephone interviews are conducted over a telephone line. The researcher and respondent do not meet face to face but questions are asked and answered over the telephone.


    •Computer Assisted Personal Interview (CAPI) is relatively new but modern method. Instead of respondents answering questions on paper, the researcher enters the information into the computer as respondents answer.

    Types of interviews

    There are different types of interviews and these include the following:

    •Structured (standardized) interview: With structured interviews, respondents are asked the same questions. The questions are the same and administered in the same order for all the respondents. If possible, they should even be read by the same person in the same tone.

    •Semi-structured interviews: These are non-standardized interviews. The researcher has a list of issues, topics and themes around which questions are asked. The nature and order of questions may be changed depending on the trend of the interview. Where possible, additional questions may be asked and the interviewer is free to rephrase and explain the questions.

    •Unstructured interview: This form is non-directed and casual. There is no interview guide. Each interview is different and each respondent may be asked their own questions.•Non-directive interviews: The interviewee leads the process and freely discusses a topic. There are no pre-planned questions.

    Advantages of using the interview method

    The advantages of using the interview method include:

    •Allow for more in-depth data collection and comprehensive understanding
    •Body language and facial expressions are more clearly identified and understood
    •The interviewer can probe for explanations of responses
    •Stimulus material and visual aids can be used to support the interview
    •Interview length can be considerably longer since the participant has a greater commitment to participate

    Disadvantages of using the interview method include;

    •Interviews are more time consuming to conduct
    •As a result of timing and travel, face to face interviews can be expensive
    •Interviews can deliver biased responses etc.


    Observation may be defined as a systematic viewing of a specific phenomenon in its proper setting for the specific purpose of gathering data for a particular study. Observation as a method includes both “seeing” and “hearing.” It is accompanied by perceiving as well. Using observation of customers, the researcher can observe peak days, time, age and sex of buyers, etc.

    For example, if you want to find out which age group buys most from Musanze market, observation method would be simple and straight forward to find out. The researcher positions him/herself in a strategic position near the market main entrance gate, counts and records the most age group of all the buyers entering the market. At the end of the research period, this data can be analysed to get the information required, that is which age group (male or female) shops most from Musanze market.

    Advantages of using observation method

    •Very direct method for collecting data or information and best for the study of human behavior.
    • Data collected is very accurate in nature and also very reliable.
    • Improves precision of the research results.
    • Helps in understanding the verbal response more efficiently.
    •Observation is less demanding in nature, which makes it less bias in working abilities.
    •By observation, one can identify a problem by making an in depth analysis of the problems.

    Disadvantages of using observation method include

    •Problems of the past cannot be studied by means of observation.
    •Having no other option, one has to depend on the documents available.
    •As observations require some special instruments or tools for effective results, this can be very much costly.
    •One cannot study opinions by this means.
    •Attitudes cannot be studied with the help of observations etc.

    Field experiments

    Field experiment relates to finding out what happens as a result of an action. For example, an experiment may be done to find out how sales are affected when the size of a given product is changed by simply making sample products with the new size, putting them on the market and observing customer reactions.

    Advantages of field experiments

    •Field experiments are conducted in everyday natural environment of participants, promoting high ecological validity. The experimenter still controls the IV (independent variable)
    •There is a much lesser risk of demand characteristics as participants may not be aware that they are being studied.
    •This method of research includes a real life situation and so the results are more realistic.
    •Decisions are made with lots of confidence which makes them accurate.

    Disadvantages of field experiments

    •It is expensive and takes a long time because the product must be produced and sold.

    •The sample market may differ substantially from the general market and so the result obtained in the experimental market may not apply in the other markets. For example, a sample cake produced and experimented within a local restaurant may not work out exactly the same way as in open markets.

    •External factors like weather, government policy, location and social trends may affect the results of the experiment.

    •If experiment is not controlled, it may lead to inaccurate results. For example, if you change the colour of a product during political campaigns, people may buy the product by associating it with the colour but the same behavior may not be observed during normal non-political times, etc.

    Focus groups

    A focus group is a small, but demographically diverse group of people and whose reactions are studied especially in market research or political analysis in guided or open discussions about a new product or something else to determine the reactions that can be expected from a larger population. It is a form of qualitative research consisting of interviews in which a group of people are asked about their perceptions, opinions, beliefs, and attitudes towards a product, service, concept, advertisement, idea, or packaging.

    Questions are asked in an interactive group setting where participants are free to talk with other group members. During this process, the researcher either takes notes or records the vital points he or she is getting from the group. Researchers should select members of the focus group carefully for effective and authoritative responses.

    Advantages of using the focus group method include

    •Through interaction, the researcher is most likely to learn more through non-verbal communication by observing gestures and body language.
    •They encourage participation of people who cannot read or write.
    •They enable people use different forms of communication that they use in their day to day interaction.
    •They encourage participation of those who may not feel comfortable with one on one interview.
    •Focus groups also allow the respondent to share experience and come up with more informed responses.

    Disadvantages of using the focus group method include

    •Groups are more difficult to manage than one individual; interviewer must keep track of what is going on in the group.
    •Unexpected conflicts, power struggles, and other group dynamics may inhibit discussion.
    •Shy persons may be intimidated by more assertive persons.
    •One person may dominate to the exclusion of others.
    •Data may be more difficult to analyze.
    •Moderators need to be skilled in working with groups.
    •The environment can have an impact on the responses.

    Case studies

    The term case study usually refers to a fairly intensive examination of a single unit such as a person, a small group of people, or a single company. Case studies involve measuring what is there and how it got there. In this sense, it is historical. It can enable the researcher to explore, unravel and understand problems, issues and relationships. It cannot, however, allow the researcher to generalize, that is, to argue that from one case study the results, findings or theory developed apply to other similar case studies. The case looked at may be unique and, therefore not representative of other instances. It is, of course, possible to look at several case studies to represent certain features of management that we are interested in studying. The case study approach is often done to make practical improvements.

    Case studies help researchers to analyse complex issues by studying and analyzing a limited number of events or situations.

    Advantages of using case study method include but not limited to:

    •Case studies allow detailed information to be collected that would not normally be easily obtained by other research designs. The data collected is normally a lot richer and of greater depth than can be found through other experimental designs.

    •Case studies tend to be conducted on rare cases where large samples of similar participants are not available.

    Disadvantages of using the case studies method include:

    •One of the main criticisms is that the data collected cannot necessarily be generalized to the wider population. This leads to data being collected over longitudinal case studies not always being relevant or particularly useful.
    •Case studies are easier and cheap to conduct.

    Using case studies method, the selection of the case and how wide it is may determine how applicable the collected data may be represented. A poorly selected case may lead to wrong conclusions.

    The Questionnaire
    A questionnaire is a pre-determined set of questions used to get information from a client. These questions are presented in a written form and taken or given to the respondent. Questionnaires can be fact or opinion based. Respondents are expected to return the filled questionnaire to the researcher for analysis. The questionnaires should be well planned and carefully formulated if it is to generate the right data.

    Questionnaire questions

    Questionnaire questions can either be open ended or closed ended questions.Open-ended questions:

    Open-ended questions are questions that allow someone to give a free-form answer. These questions are asked to encourage a meaningful and full answer using the respondent’s own knowledge. Examples;

    a. What do you think about the new product?
    b. How is your relationship with your loyal customers?

    Closed ended questions: These questions require the respondent to respond by choosing from a limited range of responses pre-determined by the researcher


    a. What is your gender?

    b. How are you likely to transact with our business this month?
        •Very likely

    There are several basic principles to remember when developing such questions.

    •The question should match the research objectives: You must know why you want to conduct the survey in order to be able ask the right questions.

    •Understand the participants: It is important to remember that it is your respondents (and not you the researcher) who will be answering the questions. Compose questions that they understand and not those that you understand because it is them (the respondents) answering and not you the researcher.

    •Use familiar and natural language: Use the language level that is understandable by your respondents. Consider their level of education and age. Also consider your religious, social, political and cultural background in phrasing the questions.


    Meaning of sampling

    Sampling refers to the process of selecting units (e.g. people or organization) from a large population. By studying the sample, we may fairly generalize our results about the population from which the sample was chosen.

    Population, as used in research, refers to as a collection of all the items about which we would like to know some characteristics. Examples of population include the people in a market. The population that we are interested in is the target population.

    A sample is the subset or segment of a population that is used to represent the entire group as a whole. When doing research, it is often impractical to survey every member of a particular population because the sheer/total number of people is simply too large. To make inferences about characteristics of a population, researchers can use a Random sample. For example, 500 buyers in a market.

    Different types of sampling methods

    Sampling methods are mainly divided into two; these are:

    a. Probability sampling
    b. Non probability sampling

    a. Probability sampling

    The following sampling methods are examples of probability sampling:

    i. Simple random sampling. This is obtaining data by choosing elementary units in such a way that each unit in the population has an equal chance of being selected. Simple random sampling should be free from bias.

    ii. Stratified sampling. Using this method, the population is divided into separate groups basing on some variable/ characteristics such as income or age. These groups are referred to as strata. Select from each stratum a given number of units which may be based on to draw conclusions.

    iii. Cluster sampling. This is obtained by selecting clusters from the population on the basis of simple random sampling. A cluster may be something like a village, a school, a class or a hospital.

    b. Non-probability sampling

    The following sampling methods are examples of non-probability sampling:

    i. Convenient sampling. Where the researcher questions whoever is available. This method is quick and cheap. However, we do not know how representative the sample is and how reliable the results are.

    ii. Quota sampling. Using this method, the sample elements are made up of potential purchasers of your product. For example, if you feel that your typical customers will be females between the age of 19-25, then some of the respondents you will interview should be of this age group. In this case quotas are given.

    iii. Judgmental sampling/ purposive sampling. This sample is obtained by basing on the idea that people who are deemed to be having more relevant information are sampled out especially if they have the relevant characteristics of the target population.

    iv. Snowball sampling. This is a method in which the researcher identifies one member of the target population, speaks to him/her and asks that person to identify others in the target population that the researcher might speak to. This method has an interesting application to group membership.

    Importance of sampling

    Sampling is important in all kinds of research for the following reasons:

    i. Sometimes, research involves “testing”, “measuring” or some form of demonstration that may result in the destruction of the subject. For example, to see the quality of an orange, a trader splits one orange to see the inside.

    ii. It is cheaper to deal with a sample than dealing with the entire population. In example of buyers in a market used earlier, it is cheaper to interview a sample of 500 buyers rather than looking for every individual buyer throughout the market. Sometimes, it is not possible to access all units of the population. Some units of the population may not be obtainable at the time of the research. For example, to find the quality of bread, you cannot access all the loaves of bread and so you resort to a sample. To test the rate of air pollution, you cannot collect all the air molecules from an entire province, so you collect and test samples.

    Application Activity 4.4

    Imagine a situation when you have finished your secondary school studies and one of your family members learns that you studied entrepreneurship and so accepts to grant you capital to start your own business. But before he gives you that money he asks you to first carry out market research for the feasible business.

    He then asks you to first carry out the following business research task after which you prepare report and present it to him for you to obtain the promised capital.

    •What products (goods or services) that people in your community would like to have but are currently not being provided?

    •Choose one product that you would be interested in dealing with.

    •Who from your community can give you information about the product you identified?

    •Decide the population sample (the number of people identified in no. 3 above) to ask

    •Formulate questions that you will use to collect the data that you require about the product that you chose in no. 2 above)

    •Make a plan of how you will collect the data and how you will analyze it.

    •Proceed to collect the information/data.

    •Methods of collecting secondary data

    Activity 4.5
    Suggest at least five sources of secondary data

    Secondary data collection

    Secondary data refers to the data which have already been collected and analysed by someone else. When the researcher utilizes secondary data, then s/he has to look into various sources from where s/he can obtain them.

    Collection of secondary data majorly uses documentary method: documents are an important source of data in many areas of investigation. Review of the documents shows that the researcher is aware of the available functions of research. In documentary analysis, the following may be used as sources of data records: various published or unpublished data, books, magazine, newspaper, trade journals, reports, printed forms, letters, diaries, compositor’s themes or other academic work, pictures films and cartoons

    Unpublished data may be found in: letters, diaries, unpublished biographies or work.

    Before using secondary data, you need to consider the following;

    Reliability of data: Who collected the idea? From what source? Which methods? Time? Possibility of bias? Accuracy?

    Suitability of data: The object, scope and nature of the original inquiry and studies and then carefully scrutinize the data for suitability.

    Adequacy: The data is considered inadequate if the level of accuracy achieved in data is found inadequate or if they are related to an area which may be either narrower or wider than the areas of the present enquiry.

    Application Activity 4.5
    Discuss the advantages and disadvantages of using secondary data in business research.

    4.5. Data Analysis

    Activity 4.6
    Observe and analyse these photos and answer the questions below.


    In any research project, the researcher goes through a given process to obtain usable and useful information from the data collected.

    a. Identify the research stage illustrated above
    b. Explain the process of the research stage identified in (a) when using qualitative data.The purpose of analysing data is to obtain usable and useful information. The analysis, irrespective of whether the data is qualitative or quantitative, may:
       i. Describe and summarize data.
       ii. Identify relationships between variables.
       iii. Compare variables.
       iv. Identify the difference between variables.
       v. Forecast outcomes.

    Data that is not sorted and analysed is of no value. When it is sorted, arranged and analysed it generates useful information. Data analysis comes after data has been collected. You have to analyse the data collected to come up with the conclusions. Without analysis, data alone does not provide meaningful and useful information.The research process at this stage may have generated two types of data, qualitative (non-numeric) data and quantitative (numeric) data.

    Analysis of qualitative data
    Qualitative data is data that consists of words, observations and descriptions but not numbers. Analyzing qualitative data is also called content analysis. Analyzing qualitative data is rather a tricky process since each respondent gives a unique response.

    Qualitative data comes in varied forms. This may include short answers from open ended questions, long answers from interviews and in many other different forms. Qualitative data may be produced from any of the following:

    •Open ended questions and comments from questionnaires. Such questions may generate single words, short phrases or even complete sentences and paragraphs.

    •Discussion groups. These may generate qualitative data in form of notes and observations recorded by the group moderator or leader.

    •Interviews. These generate data in form of brief notes or recordings.

    •Other sources like case studies, documents and reports also generate qualitative data.

    The qualitative data analysis process

    Step 1:Understand your data. Under this stage, the researcher tries to understand the data by reading the data over and over again. If the data is recorded, the researcher listens to it as many times as possible to understand the quality of data.

    Step 2:Focus on the analysis. At this stage, the researcher reviews the purpose of the research and what he/she wants to find out, what questions he/she wants answered and what he/she wants to use the findings for.

    Step 3:Categorization of data. This stage may be called coding data or indexing data. The researcher identifies themes and patterns in the data and organizes the data in groups. This involves reading and re-reading over the data to identify similarities in responses.

    Step 4:Sort and organize the data. Here, the researcher identifies patterns and relationships within the data. This includes identifying relative importance of particular response (what percentage shop from boutiques), relationship between the data (people who say they buy shirts from shops also prefer long sleeved shirts).

    Step 5:Interpret the data. Use the interpretations, themes and connections between data to explain your findings.

    Analysis of quantitative data

    Quantitative data analysis is a systematic approach to investigations during which numerical data is collected and the researcher transforms what is collected or observed into numerical data. It often describes a situation or event; answering the ‘what’ and ‘how many’ questions you may have about something. This research involves measuring or counting attributes (i.e. quantities). The quantitative data is subjected to various tests and measures namely:

    •Measures of central tendency (mean, median and mode)
    •Measures of variability (range, standard deviation).

    Manual data analysis
    Before the computers and specialized computer programs were developed, research was always done and the data collected was analysed. People used manual methods to analyse data. This is very tiresome, slow and at times difficult altogether because more errors are likely to be committed and difficult to detect.

    Electronic data analysis
    There are various computer programs that are specifically made to analyse data collected from research and present results. There are also several statistical packages that can be used to analyse data.

    Data analysis using software
    Nowadays many computer applications that can be used to analyse research data are available. When choosing which software to use, the following are taken into consideration:

    •The cost of the software
    •The volume and nature of data available
    •The skills of the researcher and the kind of analysis required.

    The common software for research data analysis includes: METLAB, SPSS, STATA and Microsoft Excel. Microsoft Excel is the most common and basic program that can be used for research data analysis.

    Entering data into excel
    You need to get familiar with the basic features of MS Excel workbooks, worksheets, formula and functions before you start using MS Excel to enter and analyse data. Like a book with many pages, an excel file is called a workbook and in each workbook, there are several sheets called worksheets. Different data may be entered in different worksheets in the same workbook. You can enter and edit data from worksheets. Different kinds of data may be entered in different worksheets in the same workbook.

    Excel helps a researcher analyse data. It is important to understand that before thinking of using Microsoft Excel to analyse research, the important thing is to have useful and relevant data and then excel will sort and analyse it.

    The researcher must plan on how data will be arranged in a systematic way that will allow sorting and analysis. The researcher must decide on what goes into the columns and the rows. For example, data that involves names of sellers, sex, age, sales in January, February, March and April may be arranged in the following way using excel.


    Entering the data into a spreadsheet is always a three step process, which are:
    •Click in the cell where you want the data to go
    •Type the data into the cell
    •Press ENTER key on the keyboard or click on another cell with the mouse.

    Using Microsoft excel, research data can be analysed using bar graphs, pie chart and line graphs. Having completely entered the data, the data can be graphed by selecting the data, then the type of graph and excel will generate a graph on the selected data. It is important to be as accurate as possible when entering data for analysis.

    Graphical analysis and presentation of data in excel
    For example, a producer who wants to introduce a new product in the market carries out a research using a single multiple question that follows:

    The questionnaire is administered to 500 buyers in the market. When the questionnaires are collected and tabulated, the following is obtained:

    You have to first of all correctly enter the data in excel and use excel graphing functions to analyse and display the information graphically.

    The same data may be presented graphically as a pie chart. A pie chart is a type of graph in which a circle is divided into sectors that each represents a proportion of the whole.

    From the same data, we used to draw a bar graph, we can also use excel to make a pie chart.

    Frequencies and percentages

    Frequency is the number of times something has occurred. A frequency table shows the number of times a given event has happened. For example, for a statement that requires a YES or NO response (selecting one of the options).


    Have you at least transacted with our business one time?
            YES                                    NO

    You may get something like this after tabulating the data from the responses.

    The above data can be expressed in percentage form as follows:

    If 162 respondents transacted with the business.

    162/520× 100= 31.15%, so 31.15% transacted with the business at least one time.
    Out of 520 respondents, 358 didn’t transact with the business.
    358/520× 100= 68.84%, so 68.84% never transacted with the business.

    Measuring central tendencies in data
    A measure of central tendency is a single value that attempts to describe a set of data by identifying the central position within that set of data. As such, measures of central tendency are sometimes called measures of central location. They are also classed as summary statistics. The mean (often called the average) is most likely the measure of central tendency that you are most familiar with, but there are others, such as the median and the mode.

    The mean, median and mode are all valid measures of central tendency, but under different conditions, some measures of central tendency become more appropriate to use than others. In the following sections, we shall look at the mean, mode and median, and learn how to calculate them.

    What is the mean?

    The mean is the sum of the value of each observation in a data set divided by the number of observations. This is also known as the arithmetic average.

    Looking at the retirement age distribution again: 54, 54, 54, 55, 56, 57, 57, 58, 58, 60, 60

    The mean is calculated by adding together all the values (54+54+54+55+56+57+57+58+58+60+60 = 623) and dividing by the number of observations (11) which equals to 56.6 years.

    There are specific functions for calculating the mean of a data set using excel. Considering the monthly expenses of the following people, determine the mean:
    To find the mean,
    •Add up all the incomes= 18,000+200,000+50,000+100,000= 368,000Frw
    •Divide by the total number of elements(people) in data set= 4
    •The mean = 368,000/4= 92,000

    What is the median?
    The median is the middle value in distribution when the values are arranged in order of magnitude (smallest first).

    The median divides the distribution in half (there are 50% of observations on either side of the median value). In a distribution with an odd number of observations, the median value is the middle value.

    Looking at the retirement age distribution (which has 11 observations), the median is the middle value, which is 57 years: 54, 54, 54, 55, 56, 57, 57, 58, 58, 60, 60

    When the distribution has an even number of observations, the median value is the mean of the two middle values. In the following distribution, the two middle values are 56 and 57 like:52, 54, 54, 54, 55, 56, 57, 57, 58, 58, 60, 60

    Therefore, the median equals (56+57)/2 which give56.5 years:

    Using the previous example of income, we have to first sort the data (income) in descending order and then determine the median.

    The median is 50,000; there are 2 data items before the median and 2 data items after the median.

    What is the mode?

    The mode is the most commonly occurring value in a distribution.

    Consider this data set showing the retirement age of 11 people, in whole years: 54, 54, 54, 55, 56, 57, 57, 58, 58, 60, 60

    This table shows a simple frequency distribution of the retirement age data.

    The most commonly occurring value is 54; therefore, the mode of this distribution is 54 years.

    Application Activity 4.6

    Mr. HABINEZA needs to start a business in Rulindo district at the end of his secondary studies. After making a research in his district, he realized that people in his district consume products per month as stated in the following table:

    i. Use the bar charts to present the consumption of those goods in rural area.
    ii. What is the most needed product in rural and urban area?
    iii. According to the above mentioned data, which kind of business can be started in both areas?
    iv. Use the pie chart to graphically present the consumption of those goods in urban area.

    Skills Lab Activity 4.7
    Given the questions below, carry out a survey in your community and thereaf-ter make a report according to the findings from the research.

    Interview questions:
    1. What do you like most about the products that you normally buy and why? If you have a business club at the school, ask them what they find interesting about the club products

    2. What changes would you propose to the above product (ones they normally buy?)

    3. What do other products similar to the above product differ from others?

    4. As aspiring entrepreneurs, advise us on how can we best extend our products to bigger markets outside our community?

    5. Name other products we could make from locally available resources that can be most competitive

    End of unit 4 assessment

    1. Choose the best answer for the following statements

    i. Having no research questions or poorly formulated research questions will lead you to poor research findings because:

    a. You will only consider epistemological queries
    b. Marks are allocated for having a research question and without them my project will be penalized.
    c. You won’t know what data analysis method used.
    d. Your research is likely to be unfocused and you are likely to be unsure what data to collect.

    ii. What is data collection?

    a. Collecting the research question and objectives together
    b. Gathering the information (data) which will help you address your research question
    c. Reviewing the literature review
    d. Outlining how you will gather the information for your research question.

    2. Using the knowledge obtained from this unit, outline the essential things to put in consideration when conducting an interview.

    3. As an entrepreneur, you are planning to initiate a new product “Made in Rwanda sandals” in the market. This is an activity that requires deep and serious research so as you produce a product that will be appreciated by the buyers. You particularly want to find out the following:

    •Characteristics of a good sandal
    •Size of the market
    •Appropriate price

    i. Identify the sample
    ii. Design a questionnaire to be used while collecting data
    iii. Administer and collect the filled questionnaires
    iv. Using Microsoft Excel, analyse and interpret the data collected.

    4. Explain how research can help the marketing department of a business in achieving its target.


    Key Unit Competency: Evaluate the factors that lead to business growth.


    The business environment is not static rather; it keeps on changing. Take an example of a small shop selling foodstuffs. After say three years, you may notice some changes that have taken place since it was started. Once those changes are positive, it will be an indication that the business is growing. Some indicators of business growth may include: increased profit, increase of assets, opening more branches, increased employees, etc. Many entrepreneurs normally begin with small business with the hope that they will grow up to bigger enterprises resulting to high profits. However, it is not automatic; entrepreneurs have to strive in order to achieve it.

    Ideally, if you intend to start a business, you need to ask yourself questions such as:

    •Why do some businesses start and grow while others fail?

    •Do I have the required capital and other resources to make my business grow?

    •What are the factors and strategies for business growth and development?

    •What are the barriers/hindrances to business growth and development?

    This unit is designed to equip you with knowledge, skills as well as attitudes and values that will enable you assess the factors and strategies for business growth and development and, identify indicators of business growth and development as well as its hindrances.

    Introductory activity:

    Gasana’s Case StudyGasana lives in Kamonyi District where he started a small boutique in his village with a small capital of 150,000Frw. During his absence he was helped by his wife and sometimes by his children during school holidays. Gasana worked so hard and provided good customer care to his customers. After four years, he got many customers and his capital doubled.

    Since that time Gasana’s capital continued to grow and his profit increased tremendously from time to time. Now he has opened two more shops selling various items in Kamonyi District employing five skilled workers and has got enough market for his products. Gasana is also planning to start a wholesale shop in Kigali buthe isuncertain if he will succeed.


    Referring to the above text, answer the following questions:

    1. Differentiate between a growing business from a declining business

    2. Describe the different strategies Gasana used to grow his business

    3. Propose the possible solutions to the constraints (barriers/hindrances) for business growth and development.

    5.1. Business growth and business development

    Activity 5.1

    a. Think about people in your community who have started small businesses. Have they succeeded or not?

       i. If yes, what do you think are factors that facilitated their growth?

       ii. If no, what do you think are factors that hindered their growth?

    b. What do you think are strategies to business growth and development?

    The meaning of business growth and business development

    Business growth refers to the process by which business enterprises increase their production, profitability and size. It is the expansion of the business enterprise. Business growth can also be defined as a stage where the business reaches the point for expansion and seeks additional options to generate more profit.

    Business development is the business growth in terms of sales revenue, business expansion, increasing market and profitability. It can also be seen as the activity of pursuing strategic opportunities for a particular business or organization, for example by enforcing partnerships or other commercial relationships, or identifying new markets for its products or services.

    There is a relationship between business growth and business development since all involve growth in terms of revenues, business expansion, increasing market and profitability.

    A Roadmap to Business Development

    Application Activity 5.1
    Analyze the photograph below and answer questions that follow.

    1. Analyze the photograph above and make comments in relation to the different stages of a plant.
    2. Assume you plan to start a business after school, do you think it is possible to grow in one or two months? Justify your answer.
    3. Referring to the above photo, what advice would you give to entrepreneurs who wish to grow their businesses?

    5.2. Indicators of business growth

    Activity 5.2
    Kayitesi started a business of selling women shoes in Muhanga town. She started the business with little money. After one month she would sell an average of five shoes per day. Five months later, the number of customers had increased to an extent that she could sell an average of twenty shoes per day. She used the business profits and a small loan from the bank to increase the stock and after a short time the shelves were full of shoes. One year later, Kayitesi had thought of expanding her business by opening another shop in Kigali city.

    Strategically, Kayitesi used advertisement on different radios and televisions to inform people about her new branch in Kigali and prices of the shoes, as a result, there was increase in customers and sales respectively.She is now a successful business woman who sells shoes in large quantities and has a license to import shoes from Italy.

    This, coupled with other factors mentioned above enabled her to accumulate a lot of profit.


    a. Referring to Kayitesi’s business, what are the indicators of business growth?
    b. Suggest other indicators for a business that is growing.

    The indicators of business growth

    There are many indicators of business growth. They include the following:

    1. Increased capital: If the capital of a business is increasing, then it is the indicator that the business is growing.
    2. Increase of assets: Another indicator of business growth is the increase of assets like buildings, vehicles, bank deposits, etc. The total value of business assets can be revealed by the balance sheet of the business for a particular period of time.
    3. Increase of business profit: When the business profits are growing, then it is an indicator of business growth.
    4. Opening more branches: Opening more branches is an indicator that the business is covering more areas and is serving more customers. This is an indicator of business growth.
    5. Increased market share: When the market share of the enterprise is growing, the enterprise is growing because it is serving more customers.
    6. Increased sales revenue: Increased sales revenue for a business is an indicator of the business growth.
    7. Increased number of employees: When the business grows, it normally increases the number of departments and employees. For example, a restaurant that started with four workers and expands into a hotel, it will need to recruit more employees than previously.
    8. Use of advanced technology: Most businesses start with simple technology but as the business expands, they use more advanced technology.


    9. Increased stock of goods: When the enterprise grows, it produces and sells more products. For example, in a shop there are more and wider variety goods.


    10. Better salaries and wages paid to workers: When a business is growing, it is able to give better wages and salaries to its workers due to increased profits.

    Application activity 5.2
    Case study: Moses the maize farmer
    Moses is a farmer of maize in eastern province. He started growing maize on a small piece of land using traditional techniques like hand hoes and did not used fertilizers to increase production. He employed two man powers in his small farm. One day Moses got the chance of being selected by the Ministry of Agriculture in the two days training that had the following theme “Doing agriculture oriented to the market”.
    When Moses went back home, he tried to improve on the methods he used to grow maize and decided to take a small loan from Umurenge Sacco with the purpose of buying another land to grow maize and acquiring enough capital to buy fertilizers that he mixed with manure.

    Since that time, the production increased considerably. In the season that followed, he increased the number of workers from 2 to 50 workers. After one year, he thought of using irrigation system in order to cope with climate change. He also used tractors in farming instead of man powers. Now he harvests more maize and sells it to maize processing industries in Kigali and in other provinces across Rwanda.

    Basing on the above passage answer the following questions:

    a. From the above Case study, what are the indicators of his business growth?
    b. Think about the barriers that might hinder Moses’s business.
    c. Assume you are doing the same business as that of Moses, How can you overcome those barriers?
    d. What strategies can you use to grow if you have a small business?

    5.3. Growth strategies

    For a business enterprise to survive and expand it needs to have specific growth strategies. There are two separate types of business growth strategies which are internal and external growth. Therefore, integration of both internal and external growth strategies is crucial to the overall development of a business and continuous increase of revenues.

    These growth strategies are implemented using various resources such as financial, human and material resources.

    Activity 5.3
    Basing on your knowledge of entrepreneurship subject and other knowledge related to business, answer the following questions:
    a. What do you understand by a growth strategy?
    b. Describe any 5 internal growth strategies which you think entrepreneurs in your community should use to grow their businesses.
    c. Propose any 5 external growth strategies used by business people in your community.
    d. What the importance of using the above growth strategies in business?

    5.3.1. Internal business growth strategies

    Internal business growth strategy refers to the expansion of a business enterprise using internal resources and capabilities. This means that all business growth is established without using external resources or external parties. It refers also to the growth within the organisation by using its own internal resources to increase their size, scale of operations, resources (financial and non-financial) and market penetration.

    The internal growth strategies which can be used by companies include the following:

    1. Improving customer care: This involves offering good customer care to the customers as a way of attracting them.

    2. Delivering quality products and services: This strategy involves providing quality products and services. This helps the company to grow.

    3. Offering discounts to customers:A discount is a deduction on the price. As a growth strategy, discounts attract customers and increase sales revenue.

    4. Carry out sales promotion: This growth strategy involves all activities done to inform and attract customers to buy more of the business products. For example, giving discounts, advertising on Radio, Television, Newspapers, etc.

    5. Human resources development: A business may seek to grow by improving the quality and efficiency of its workers through trainings and workshops. Better quality workers increase the productivity and efficiency of a business leading to higher profits.

    6. Creating new distribution channels and locations: This involves opening new branches and making products available in new outlets. This increases sales and generates extra profits for the business.7. Bundling products: This involves selling a bundle of products as one kit. For example, Mobile phone and SIM Card, Toothpaste and Tooth brush bread and butter, etc. Even services can be bundled where two separate services are packaged into one product and sold together. For example, for computer software. Software is often sold in “suites” bundle that contains multiple applications. If you buy Microsoft office, you pay a single price and get Word, Excel, Power point, Publisher and Access, etc.

    Another example for service bundle is where some colleges and universities may say that if you pay for a diploma or a degree course, you will receive free computer training. This means that the degree/diploma has been bundled with the computer training. Bundling helps the company to sell two products at the same time, attract more customers and earn more revenue.

    8. Market penetration and development: This involves selling more of the company’s products or services to the existing as well as to the new markets. This strategy is about reaching new customer segments by targeting new both internal and external markets.

    5.3.2. External business growth strategies

    External growth strategies refer to the expansion of a business enterprise by using external resources. These growth strategies focus on increasing output using resources and capabilities that are not internally developed by the company itself. Rather, these resources are obtained through the merger, partnership with other companies, joint venture and franchising the business model. The larger the number of business partners and/or franchisees, the greater the net worth of the company and throughput of cash. The goals of external growth strategies are to provide larger opportunities to increase the worth of the company, and for this reason external growth strategies tend to produce immediate return on investment.

    The external business growth strategies include the following:

    1. Merging with other firms or Mergers
    Merging of firms refers to the combination of one or more corporations, Limited Liability Companies (LLCs), or other business entities into a single business entity; the joining of two or more companies to achieve greater efficiencies of scale and productivity. In most cases, this is done by the companies producing and selling the related goods or services as a way of reducing competition among themselves, increasing profits, etc.

    Types of mergers
    The following are the types of mergers:

    •Horizontal merging (integration): Horizontal merging occurs when two or more firms which are at the same industry of production join/merge into one e.g. two hair dressing salons join together to form one bigger hair dressing salon.

    •Vertical merging: This is merging of two or more firms which are at different stages of production in the same industry. In this merging, a business merges with another that is at the next or previous stage of production process e.g. coffee farm combining with a coffee factory.

    •Conglomerate merging: This is merging of two or more firms which produce unrelated products which do not compete with each other e.g. if a book shop merges with a restaurant. Another example, if a shoe manufacturing firm merges with a restaurant. The idea behind this merger is to get a bigger market e.g. shoe clients going to the restaurant and vice versa.

    •Concentric Mergers: Concentric mergers take place between firms that serve the same customers in a particular industry, but they don’t offer the same products and services. Their products may be complements, product which go together, but technically not the same products. For example, if a company that produces DVDs merges with a company that produces DVD players, this would be termed as concentric merger since DVD players and DVDs are complements products, which are usually purchased together. These are usually undertaken to facilitate consumers, since it would be easier to sell these products together. Also, this would help the company diversify, hence higher profits. Selling one of the products will also encourage the sale of the other, hence more revenues for the company if it manages to increase the sale of one of its product.

    The advantages for companies to merge

    The following are the advantages of merging:

    1. It increases profits of the mergers: After merger, the new company will have adequate financial resources/capital to invest in heavy investments; this increases profits for the merged company.

    2. Growth and expansion: Mergers help companies to grow and expand their business activities.

    3. Entry in global market: Global market means a huge world-level market in which any company can sell their goods and services. This market does not have any restrictions for entrances. Merger helps merged companies to get an entry in the global market which encompasses various regions.

    4. Increase in market share: Merger helps the merged company to increase the market share. This rise in market share is achieved by:
    •Providing an adequate supply of goods or services as needed by clients.
    •Entering into agreements with clients for continuous supply of goods and services.

    5. Increases goodwill: Merger helps the merged company to boost its goodwill in the market. It creates good will by:
    •Increasing the confidence of shareholders of the merged company.
    •Creating a good image of the merged company among the customers.

    6. Leads to economies of scale: Mergers result in economies of scale for the company. Economies of scale are the costs benefits that a company obtains due to over expansion. The union of two or more firms leads to the costs reduction and the lower costs enable lower prices for consumers. This gives the merged firm a competitive advantage.

    7. International competition: Mergers help the merged company to compete at both national and international markets. It helps also the merged company to deal with the threat of multinationals companies. This is increasingly important in an era of global markets. A unique large company will become competitive and it will retain or grow a competitive edge.

    8. Tax benefits: The biggest advantage for merging firms is tax benefits. This means that under one ownership, the union of two or more firms pay a tax as a single firm. The merging firms also can get tax benefits when a company enjoys a subsidized rate of taxation.9. Mergers may undertake big investment: This is because the new firm will have more profit which can be used to finance risky investment. This can lead to a better quality of goods for consumers.

    10. Greater efficiency: Under mergers ownership, workers are properly supervised and work efficiently. This increases the productivity and profitability of the firm.

    11. Diversification: Because of increased financial capacity and using high technology in production, there is a possibility for mergers to introduce new products or services to sell on internal and external markets.

    12. Mergers may allow greater investment in research and development: Merger enhances the research and development programs of the merged company. This is because the new firm will have more profit which can be used to finance extensive research and development programs aiming at improving production.

    The disadvantages of merging include:

    1. Limited degree of independence: After merging of firms, every company loses its independence because firms act as one single firm under one ownership.

    2. Over expansion can lead to diseconomies of scales: The new larger firm may experience diseconomies of scale from the increased size. This is because as a firm increase in size the costs in terms of communication costs, salaries for workers, research and development costs, etc. may also increase, hence diseconomies of scale.

    3. Reduced competition leading to monopoly and inefficiency: Monopoly is a market structure characterized by a single seller/company selling products with no close substitute in the market. A merger can reduce competition and give the new firm monopoly power.With less competition and greater market share, the new firm can usually increase prices for consumers, producing poor quality products, etc. because such a company faces no competition, this leads to inefficiency.

    4. It leads to unemployment: If two or more firms/enterprises merge into one large company, some employees in those companies may lose their jobs. The new company also will have a single manager; this means that other managers who were in the previous firms lose their job positions but get new jobs in the new firm.

    5. Over production and hence wastage: Sometimes the merging firms produce more output than that is needed on the market because of increased capacity and capital, this may lead to overproduction and wastage of resources.

    6. Duplication: Merging of two or more firms that are doing similar activities may mean duplication and over capability within the company that may need retrenchments.

    7. Over exploitation of resources: Merging can lead to over exploitation of resources due to the use of high technology and modern machines to exploit natural resources. For example, fisher’s cooperative in Rwanda merge to form one big cooperative, due to increased financial capacity and skills they can acquire modern fishing machines and therefore there could be a possibility to over exploit fishes in KIVU Lake and other water bodies in Rwanda.

    2. Franchising

    Franchising: A franchise is an arrangement where one party gives another the right to use its trademark or trade name to produce and market a good or service e.g. telecommunication companies like Mtn, AirtelTigo etc.

    A franchiser (or a franchisor) is the owner of the name, logo and business model who sells it for use by third parties.

    A franchisee is the person or company who buys another company’s name, logo and business model for use in his own business.

    Companies can use franchising as a business growth strategy in two ways:

    •By buying a franchise from well-known and reputable companies. This helps it to sell more in the markets it would have found harder to penetrate.
    •By selling the franchise. By selling its name and logo, to be used by other companies, a business can spread further than it could have done alone

    The following are the advantages of franchising
    •It helps to reduce wasteful competition.
    •It helps to increase sales and profits.•Banks can easily lend you money to buy a franchise that has a very good reputation.
    •The business is based on a proven idea and so chances of business success are higher.
    •It helps to attract customers who are already familiar with the name and logo.
    •The franchisee can get ideas from other business people who operate similar franchises.
    •The owner of the franchise normally provides support, trainings and advice to the franchisee.
    •A franchise gives you exclusive rights to sell the product or service in your region.
    •It is easier for a franchisee to perform better than a start-up business whose name is not known and which has no reputation.

    3. Joint-ventures

    A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance.

    A joint venture can also be defined as a strategic alliance between two or more entities to engage in a specific project. It may take place between two or more entities, between an entity and the government or between two or more individuals to carry out a specific project or undertaking. Partnerships and joint ventures can be similar but in fact can have significantly different implications for those involved. A partnership usually involves a continuing, long-term business relationship, whereas a joint venture is based on a single business project.

    Companies typically pursue joint ventures for a number of reasons: to access a new market, particularly emerging markets; to gain scale efficiencies by combining assets and operations; to share risk for major investments or projects; or to access skills and capabilities. Companies that form joint ventures share the profits and losses while simultaneously pooling their resources to complete the specific objective.

    The advantages of using joint venture as a business growth strategy:

    •Forming a joint venture can help your business to grow faster.
    •It increases productivity and generate more profits.
    •It increases the chances of business success.
    •Leads to the access to new markets and distribution networks.
    •It reduces competition among partners.
    •It increases capacity in terms of capital.
    •Forming a joint venture will give you access to better resources such as specialized staff and technology.
    •Provide companies with the opportunity to gain new capacity and expertise
    •It leads to economies of scale.
    •Both parties share the risks and costs.
    •It builds business relationship and networks between business partners.
    •Allow companies to penetrate new markets quickly and expand the market size.
    •Joint ventures can be flexible. For example, a joint venture can have a limited life span and only cover part of what you do, thus limiting both your commitment and the business’ exposure.

    The disadvantages of using joint venture as a business growth strategy:

    •It takes time and efforts to form the right relationship.
    •Lack of communication between the partners may affect the business.
    •Disagreement between partners may arise over the operating policies.
    •It can restrict the activities of your whole business.
    •There is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners.
    •The partners don’t provide enough leadership and support in the early stages.
    •Different cultures and management styles may result in poor integration and co-operation.
    •There is a high cost associated with the formation and operation of a joint venture. •Competing against your joint venture partners on other projects. For example, your joint venture has an exclusive long-term arrangement to pursue water supply project in Rwanda. Eventually you will wind up competing against each other on non-water supply projects or you could wind up competing against each other non-water supply projects outside of Rwanda.

    Application activity 5.3

    1. Distinguish between organic and inorganic growth strategy.
    2. With examples in your community/village, describe at least 2 people or entrepreneurs whose businesses have grown up. If you know or heard how they started, what strategies did they use to grow?
    3. Referring to business activities of entrepreneurs in Rwanda, what do you think are the benefit from establishing clear growth strategies?
    4. What do you think would happen to business enterprises, if their owners do not apply growth strategies?
    5. Assume you have a small business with a small capital and there are more competitors where your business is located. Do you think it will be possible to compete successfully with your competitors? What will you do to continue operating and over compete your business rivals?

    5.4. Factors that lead to business growth

    Activity 5.4
    Answer the following questions:
    1. Give any three examples of entrepreneurs in your community/village who have achieved businesses growth.
    2. Think about any two main things that lead businesses to grow.

    5.4.1. Factors that lead to business growth
    Business growth can be achieved either by boosting the top line or revenue of the business with greater product sales or service income, or by increasing the bottom line or profitability of the operation by minimizing costs. There are many factors that determine business growth these include,

    i. Availability of market: The market plays a big role in determining the success of a business. A big and reliable market helps a business to grow. More buyers will mean more sales and more revenue for the business.
    ii. Enough capital: The amount of capital available to a business determines its growth.
    iii. Competent business management: The quality and ability of the business management team determine the growth of a business. If the management is competent and hardworking, then the business will grow faster.
    iv. Proper location of the business: A suitable location may determine the growth of a business. A business will grow if it is located near the customers. In addition, a business may succeed if it is located in a secured place without robbers.
    v. Level of competition: Competition may force a business to be more efficient and as a result it grows.
    vi. Technology used by the business: Technology as a method of production determines the quantity and quality of output. It is a factor that determines the growth of a business.
    vii. Favourable government policies: Government policy may directly affect business growth. Favourable government policy like low taxes, tax holidays, subsidies, etc. determines the growth of a business.
    viii.Political stability and security: The political environment affects business growth, a peaceful political environment enables a business to grow
    ix. Quality of workers: The quality of workers in terms of skills, trainings, experience and commitment is factor of business growth.
    x. Proper business planning: Business planning is also a factor which determines the growth of a business. Planning enables the business to set targets to be achieved and properly control its resources and time.
    xi. Favourable economic environment: The economic environment in which the business operates in also determines its growth.
    xii. Presence of business support services like banks, insurance companies, telecommunication companies, etc. This also determines the business growth.
    xiii. Good entrepreneurial characteristics (traits) like self-confidence, risk taking, perseverance, creativity and innovation, etc. This also determines the growth of a business.

    Application activity 5.4
    Basing on your prior knowledge about business growth,
    a. Evaluate the factors that lead to business growth.
    b. Explain briefly the following statement ” try and fail, never fail to try”. How can this statement help you to make your business grow?

    5.5. Factors that hinder business growth

    To achieve a business growth is not an easy task. It requires an entrepreneur to make efforts and working hard towards achieving the set targets. This is because there are thorns and barriers that a company can meet during the implementation of the set targets. A number of firms particularly small firms wish to grow, but they are prevented from doing so by ‘barriers’. There are internal constraints of business growth that come from (within) the enterprise itself and external constraints of business growth which originate from (outside) the enterprise.

    Activity 5.5.1
    Visit a small scale business near your school or in your home village. Interview the business owner and ask the owner to explain reasons why his/her business has not grown to a large scale. Based on the explanations the owner has given to you, make a report summarizing the external and internal constraints to business growth in this area.

    5.5.1. Internal factors that hinder business growth
    Internal factors that hinder business growth can be:

    i. Lack of enough capital or capital constraint: Some businesses lack sufficient capital to increase their stocks, buy modern machines and spares. This hinders them to expand their operations.

    ii. Poor management of the business: Most businesses fail because of poor management.When the business is poorly managed, workers will be inefficient, business assets are misused and lost, workers will waste time because there is no supervision and the various departments are not properly coordinated.This will hinder the business growth.

    iii. Lack of skilled workers: Most business relies on the skills of workers. Customers tend to come to the business because of such workers. When such skilled and reputable workers leave the business, some customers also leave. For example,some people go to certain salons because of certain skilled people whom they expect to give them a good service. When such skilled workers leave, customers also leave.

    However, there are some entrepreneurs who employ unskilled labour without paying them such as their relatives, they tend do this in order to cut costs. These workers don’t take business seriously as they know they are owned by their relatives.

    In the long run it is the business enterprise which suffers as it is constrained from growing. Labour is a factor of production and so without proper labor force productivity is low in terms of quality and quantity. This hinders the business to grow.

    iv. Lack of proper record keeping: In business, improper record keeping comes as a result basically of inadequate education and training in business, because of this the business loses track of its cash flows and in turn leading to cost control and liquidity problems. If the records of the transactions a business undertakes are not kept properly, growth for such business cannot be achieved.

    v. Lack of background and experience in the business: The experience automatically gives the entrepreneurs or managers adequate managerial capabilities to handle and overcome more easily the problems which are experienced in their businesses. The lack of background and experience by entrepreneurs and managers is a factor limiting the growth of their companies.

    vi. Lack of business plan/vision for the business: For entrepreneurs who have no proper business plans at start, face the most challenges during the course of their lives. In a business, a business plan is needed in order for proper goals and objectives of the firm to be laid out in the open so that the team in the organization/firm works together for the same goals in their minds. If a business has no business plan/vision it will find it difficult to grow.

    vii. Inadequate education and training: Education is a key constituent of the human capital needed for business success. This is because education and training provides the basis for intellectual development needed by entrepreneurs in business to be successful. Moreover, they provide the entrepreneurs with confidence to deal with clients. As seen for many companies, the educated entrepreneurs showed more promising results in terms of how their business is doing. For this, it has been seen that inadequate education and training may also be a barrier to the business growth.

    viii. Embezzlement and misuse of business funds: Misuse of business funds is one of the most common causes of business failure. Some entrepreneurs, business managers and workers divert business funds to personal uses like buying clothes, cars and paying personal debts. As a result, the business fails to function properly and collapses. This stops the businesses from expanding.

    ix. Low quality products:If products sold by a business are of low quality, many people will not buy the products and this may limit its growth.

    x. Poor location of the business: The location of a business is very important for success of the business. If the business is located in a bad area where there are very few buyers, poor road network, no electricity, insecurity then the business cannot grow.

    xi. Lack of motivation and drive: Some entrepreneurs start businesses with no clear visions and goals for their businesses meaning they are just about being in business to earn normal income to meet their basic human needs. Those entrepreneurs’ especially small business owners lack positive motivation in their mindset and waste a lot of time in thinking about negative motives. This hinders their businesses to grow. It is quite obvious that positive motivations of the entrepreneur(s) are more likely to establish a business that grows than those with negative motivations. Positive motives include such things as the perceptions of high demand for a product and market opportunities while negative motives may include expecting loss or giving up because of big and excessive competitors. The more positive motivation of the entrepreneur(s) the more likely the business will grow.

    xii. Failure to manage stock: Businesses own stock of finished products, raw materials and goods purchased for resale. For a trading business like a shop, when the business person fails to manage stock properly, customers fail to get what they want from the shop and they stop coming to the business. Proper stock management includes making sure the products are not stolen and that only the right quantities are stocked or that there is no shortage. If proper stock management is not done, the business will not expand instead it will make losses.

    xiii. Bad debtors: Most businesses allow some customers to take products without paying cash and promise to pay later. Bad debtors are customers who take goods on credit and fail to pay for a long period. This means that there is almost no hope that they will pay. When this happens, it means the business will lack the capital to continue operating since much of the money is with debtors. In the end, the business fails to continue running because of excessive debts.

    xiv. Poor customer care: Customers are very important in any business. If there are no customers, there is no business. Customers are lifeblood and backbone of a business. When the customers are poorly handled, they will even tell other people about the poor service. The business will lack customers (market) and at the end it will not grow.

    5.5.2. External factors that hinder business growth

    Activity 5.5.2
    Basing on your prior knowledge from entrepreneurship lesson in ordinary and advanced level, discuss the external factors that hinder business growth in your community and suggest the possible solutions to overcome those hindrances.

    The external factors that hinder business growth include;

    1. Corruption: Corruption prevents fairness to prevail and therefore it is to a large extent a cost/ expense to a business owner or individual, the community and the government as a whole. As corruption deprives people of their rights, this means businesses cannot be established by deserving individuals; customers and buyers of products are reaped off (prices become high) since businessmen want to compensate for the money paid out as bribery, productivity is lowered, customer loyalty and demand falls as a result and therefore growth of small firms is affected in a negative way. The problem of corruption is a barrier to growth in business.

    2. High competition: At times some businesses do not expand because of stiff competition. This may happen if a new and bigger company or individual joins the business and is able to produce better quality products, provide better services, and charge lower prices. In industrial sector, there is also competition with imported products from industrialized countries like China, Japan and Germany. Local manufacturers find it very hard to produce high quality products at low prices to compete with products from highly industrialized countries. This hinders the business growth for both trading businesses and manufacturing businesses.

    3. Change in government policies: When the government changes its policies, it affects businesses. For example, when the government decides to ban some products like polythene bags, people who manufacture such products and those who sell them both suffer losses of business.

    4. Technological barrier: Small firms may fail to afford modern technological tools since they are expensive to buy and maintain

    5. Unfavorable economic factors: Unfavorable economic factors like low demand of products due to inflation, poverty and unemployment are barriers to the business growth. Other unfavorable economic factors that hinder business growth include high interest rates, low purchasing power of customers, problems of currency exchange rates affecting the exports or imports of a particular product and the underestimation of the rise of costs of production due to scarcity of resources, etc.

    6. Bureaucratic procedures: Small businesses find it difficult in terms of procedural processes in areas such as obtaining business license, registering a business, tax matters and soon.

    7. Small local markets: Most businesses face the problem of small local markets and foreign markets are not easy to get. For example, industrial businesses can produce a lot of products if they have a large market but they produce below capacity due to lack of markets. This hinders them to grow.

    8. Natural calamities: Natural calamities like floods, earthquakes, droughts,etc are also barriers to the business growth. This is because such calamities cause business to lose their property and stock. When the losses are very big, the business may collapse. This is even worse for the business if it has not insured itself against such risks.

    9. Poor infrastructures: Poor infrastructures like roads do not ease the transportation of raw materials, finished products, workers by manufacturing businesses and even the transportation of goods for resale from town centers by trading businesses. This makes transport expensive and increases the costs of the business which in turn hinders the business to grow.


    10. Political instability and insecurity: Political instabilities like civil wars, strikes and riots are serious barriers to the growth of businesses. When there is political instability, people destroy properties, burn buildings and vehicles. When a lot of the business’ property is destroyed, the business cannot expand, it will collapse.

    11. Limited to finances/funding: Sometimes, it is difficult for some entrepreneurs mostly those who own small businesses to access proper financing from financial institutions due things like lack of collateral security, inadequate business plan, state of economy and bureaucratic procedures in applying for loans/finances. This is a constraint for that entrepreneur to grow their businesses.

    Application Activity 5.5
    Some entrepreneurial practices below hinder business growth, identify the hindrances resulting from those practices and propose the corresponding solutions to those barriers of business growth.

    i. Not employing a professional accountant in a large enterprise.
    ii. Not insuring business assets and stock in insurance companies.
    iii. Use business money in private affairs.iv. Employing unincompetent manager in business.
    v. Being impolite and using negative words when treating customers.

    Skills Lab Activity 5.6
    1. Given a form of business growth strategy as
        •Promotion and discount
        •Developing new product
        •New distribution channels,

    Discuss the following questions.

    i. Where does the given growth strategy fall? (internal or external growth strategy) explain your answer
    ii. Explain the activities can be done in order to apply the above strategies in the business club activities or in the business you want to start back at home.
    iii. Draw an action plan showing when the above activities will be done.
    iv. What are the advantages and disadvantages of each of business growth strategies?

    End of Unit 5 Assessment

    1. Assume your business is attaining the following, fill in the blanks below:

    a. Increase in production, profitability and size.
    This is .................................................

    b. A prolonged period of little or no growth for companies.
    This is ................................................

    2. Assume that you have a mini-supermarket selling fresh milk, juices, bread and cakes in Kicukiro District;

    a. How would you know that your business is growing?
    b. How would you know that your business is declining?
    c. What can you do to minimize such a decline?


    Key Unit Competency:To be able to describe the role of technology and its impact on businesses.


    We are living in the 21st century and the word “Technology” is not new for many people. It has greatly changed the way our forefathers used to live. It affects our lifestyle in many ways, like choosing between modes of travelling to ways of shopping, it helps us to make informed decisions in different kinds of situations. When we are short of time, we choose to travel by air mostly and when we don`t have cash in hand, we prefer shopping from shopping center, supermarket, points of selling terminals, etc. that offer credit card facilities.

    While technology has made a huge impact on our living style, in this 21st century, technology has changed the way people conduct business especially in the flow of information, production methods used, sales and distribution of goods and services. No matter the size of your enterprise, the use of technology in business operations plays a vital role for the success of any business.

    It has both tangible and intangible benefits that will help you make money and produce your customers demand. Technological infrastructure affects the culture, efficiency and relationships of a business. It also affects the security of confidential information and trade advantages. It helps the businesses to communicate with clients through websites, email and social media and this saves time for both parties involved.

    Since the use of technology in business activities plays a tremendous role in developing a country, the government of Rwanda has taken several strides in developing policies on ICT in all sectors of the economy to make it an ICT based economy by 2020.

    In this century, the question isn’t how much can technology improve your business but is it possible to conduct business without relying heavily on technology? Therefore, this unit is designed to equip you with knowledge, skills, attitudes and values to: Appreciate the importance of technology in the business world, differentiate types of technology and how they are used, select appropriate technology for any given business and identify technological limitations.

    Introductory activity

    Analyze the Photos below and answer the questions that follow.


    i. Looking at picture 1 and 2, which production technique do you think is faster and yields more output?

    ii. Pictures 3 and 4, which production method will bring quality output and employs few people?

    iii. Explain the advantages and disadvantages of using the above techniques in the production of goods and services.

    iv. Distinguish between labor intensive technology and capital-intensive technology.

    v. Which type of technology is suitable for your school business club and give reasons to justify your answer.

    vi. Identify various ICT tools used in the business world today.vii. Discuss the various business opportunities that can be started basing on ICT.

    viii. Examine the impact of using technology in businesses today.From the above observations, we realize that all these production methods are good in one way or another and this brings us to our topic of Technology in business.

    6.1. Meaning of technology in business.

    Activity 6.1

    a. Refer to your school and describe how technology has helped in the efficiency of the school for both students and the school itself.

    b. Look around in your community and find a feasible project that you may start. Which type of technology will you use in your business?

    c. Why would you use this type of technology?d. How would you define the term technology as used in business?

    Technology means the use of knowledge, tools, techniques or specific methods to solve a problem or serve a purpose. It is a term referring to whatever can be said at any particular historical period, concerning the state of the art in the whole general field of practical know-how and tool use. It therefore encompasses all that can be said about arts, crafts, professions, applied sciences and skills.

    Information technology involves the use of electronic means to help to transmit and interpret information internally and externally. Examples of the use of the information and technology include word processor, spread sheet, data base, bar code scanners, and internet. Managers who have good access to information will benefit from being informed and making better decision than their rivals.

    Appropriate technology is the method of production that is relevant and suitable for the condition of an enterprise and properly fits into the level of the development of the country. In other words, it is a production technique which matches with the country’s level of growth and development.

    Appropriate technology is also designed with special consideration to the environmental, ethical, cultural, social, political, and economical aspects of the community it is intended for. Appropriate technology can be capital intensive, labor intensive or intermediate technology.

    6.2. Types of Technology.

    Activity 6.2.

    Referring to the types of technology you mentioned in activity 1 above, discuss why it is important to use more machines than labor in production process.

    From the above activity, we learn that using more machines than labor in the production process is what we call Capital-intensive technology and the use of more labor than machines is called labor intensive technology.


    6.2.1 Capital Intensive Technology

    Capital intensive technology is a production method which uses more capital or machines than labor. It is also known as labor saving technology that is, we save more labor to use machines.

    Many heavy industries are capital intensive industries for example construction, mining, textile and communications industries.

    A business is considered capital intensive if the ratio of the unit’s capital required is greater than units of labor used. The use of tools and machines makes labor more effective hence pushing up labor productivity. Capital intensive societies tend to have a higher standard of living over the long run.

    Advantages of Capital Intensive Technology

    •Commodities of high quality are produced which compete favorably both in the domestic and international market.

    •There is mass production with the use of machines more output is produced which stimulates the rate of economic growth in a country.

    •Exploitation of idle resources is encouraged since it is efficient which increases the production of more goods and services.

    •Promotes development of skills using machines requires highly skilled labor therefore encourages people to do research, innovations and inventions.

    •Reduces labor unrest for instance demonstrations and strikes this increases production of more goods and services therefore it is easy to control machines than labor.

    •It saves time and increases labor productivity because a worker who uses a machine will do his or her work in a shortest period of time and are less exhausted than using manual labor to perform a given task.

    •Increases a country’s assets which can be used as collateral security to acquire loans.

    •Promotes specialization which leads to production of excess (surplus) at a low cost. The surplus is exported yielding foreign exchange earnings.

    •High profits for the entrepreneur since it minimizes costs in form of wages bills and other fringe benefits.

    •It is appropriate where labor is scarce and not applicable for example heavy duty and highly risky jobs like mining are best done by machines.

    •It promotes industrialization when capital intensive technology is adopted, many industries will come up and development of other infrastructures such as roads hence promoting the tertiary sector.

    •It strengthens good relationships between countries where machines are exported or imported hence fostering trade.

    Disadvantages of capital intensive technology.

    •It is very expensive to buy machines most developing countries depend on foreign aid and loans to finance their budgets so if they adopt the use of machines they will have too much debt.

    •It leads to technological unemployment since more machines are used than labor in the production process therefore most labor will be unemployed which is an economic problem.•It widens the income inequality gap where a few skilled labor will be engaged in the production process to run machines and the unskilled will remain unemployed hence widening the gap.

    •High costs as a result of maintenance, repairs when broken down and depreciation. therefore, it is expensive because it requires a lot of foreign exchange to import spare parts and other machines.

    •It encourages rural- urban migration since most machines are used urban centres. This leads to development of shanty towns or slums in cities.

    •It is not helpful in the eradication of poverty since there are very few people employed in the production of goods and services.

    •It is inappropriate technique in some activities that require human judgement such as picking flowers and tea, sorting printed papers. In this instance machines may not be applicable at all stages of production.

    •It may promote over exploitation of natural resources, leading to their quick depletion.

    •It requires infrastructures like power, transport etc. which may not be adequate in developing countries.

    •It also leads to social costs like noise, air and land pollution.

    6.2.2. Labour Intensive Technology

    Activity 6.3

    a. Which economic activity is taking place in figure 6.2?
    b. What is meant by the term capital saving technology?
    c. Why do most economies in Africa employ labor intensive technology in their production process?

    Labor Intensive Technology
    Labor intensive technology is the production method/technique which uses more labor than machines to produce its goods or services. It is also called capital saving technology meaning we save capital to use more labor. Examples where labor-intensive production is common are hotels, restaurants, small scale farming, fishing, mining etc.

    In Rwanda, the largest part of the population is employed in the primary sector, which uses more labor than machines. Most labor is employed in agriculture, fishing, mining, and the service sector. Labor intensive technology has many advantages and that’s why it employs a bigger percentage in our economy. Although, it is associated with very many challenges like, being very expensive to maintain through medical insurance, wage bills, low and poor-quality output, strikes and labor gets tired and exhausted easily, unlike the use of machines.

    The question of the day should we continue to use this type of technology? Despite its challenges and short comings it has the following advantages,

    •It generates more employment opportunities: for nationals due to investments in various sectors. This leads to even distribution of income in country since they are many people involved.

    •It reduces costs of production since in most countries it is cheap and abundant.

    •It helps to reduce rural-urban migration (RUM): Since it can easily be established in the rural areas where labor is abundant. This leads to rural transformation hence reduction in poverty and crime rate levels.

    •It increases effective demand: Many people are employed which increases their chances of investing in an economy.

    •Monopoly control: It minimizes monopoly tendencies in the industry since the economic power cannot easily be concentrated in a few hands.

    •Labor is more mobile than capital technology: It’s easy to move workers from one town to another compared to moving machinery or capital assets.

    •It does not require a lot of skills and is suitable to work with in industries that require human judgment. For instance, picking flowers, picking tea leaves.

    •Labor can provide feedback and craftsmanship in the production process: This provides ideas for continuous improvement hence workers can also adapt to introduce innovative ideas in hand crafts.

    •It encourages decentralization: As it allows industries to be established in various parts of the country. That is to say, the rural areas and small towns.

    •It minimizes the dependency on technology: which might be complex and very expensive hence increasing self-reliance.

    •It is flexible: Unlike machinery, it can be used to meet the changing levels of consumers demands.

    •It helps to improving the standards of living: When labor intensive techniques are adopted, many people in families will get jobs and earn income hence increasing their standards of living.

    •It encourages infant industries acting as training grounds for man power and this helps in the acquisition of skills. These also play a vital role in the economic development of a country.

    •Personal touch: People can interact properly with customers and most services cannot be done with the use of machines for instance hair dressing.

    Disadvantages of labor intensive production

    •It is relatively expensive in the long-term when compared to machinery: Because it is associated with other labor costs. For example, housing, insurance, medical bills which increases cost of production.

    •Inferior quality products are produced: When labor intensive techniques are adopted, many people produce products without carrying research thus poor-quality products.

    •Limited hours of work: Machines can work day and night hence produce high output. Economic Growth remains low in a country with the use labor intensive technique of production.

    •It requires a lot of supervision: Which leads to under-utilization of resources and increased costs.

    •Lack of uniformity in production: With the use of labor intensive techniques of production there are most likely to produce products that are not uniform this makes them not competitive to the market.

    •Specialization is not promoted: In the production process which may slow down the production process.

    •Managerial complexity arises: It is not easy to manage people since they have individual differences, especially when a business grows. this may further lead to bureaucracy in decision making.

    •Difficulty in getting skilled man power: It is easy to get machines than skilled labor in a given field and this hampers the production of goods and services.

    •Problems in personal life: could easily affect the performance at work and lead to inconsistence in the production process.

    •Industrial disputes: such as strikes may be destructive and time wasting which may retard/delay production yet with the use of machines this cannot happen.

    •Labor intensive technique may not be appropriate: in unpleasant, heavy and high risky activities like mining.

    Application activity 6.3
    Justify why the government of Rwanda is encouraging businesses to use capital intensive technology.

    6.2.3. Intermediate Technology and Appropriate Technology.

    Activity 6.4
    Analyze the photo below and answer the questions that follow.

    a. What economic activity is taking place in the picture above?
    b. Which type of technology are they using?
    c. Do you think this type of production method is the most suitable for this activity? Justify your arguments.

    6.2.4. Intermediate Technology
    Intermediate technology is the technology which is between the high intensive technologies and the local indigenous techniques and usually relying on the use of local materials and skills e.g. ox-ploughs.It involves the use of both labor and capital in almost equal proportions. It is neither too advanced nor simple.

    Characteristics /features of intermediate technology

    4. Figure 6 1: Capital intensive technology in a construction company Work places of intermediate techniques are established in villages and towns, not in urban centers.

    5. The workplaces involve more workers, costs are low and minimum inputs particularly in the case of capital.

    6. There are simple methods of production process so that the demand of highly skilled labor is reduced.

    7. The Production process should largely be based upon using local raw materials and local domestic labor.

    8. There must be facility of repair at door step.

    Role of intermediate technology

    •It provides employment opportunities to the available skilled man power and this solves the economic problem of unemployment in a country leading to improved standards of living.

    •There is efficient utilization of local resources which increases productivity in the economy hence promoting economic growth.

    •It leads to rural development since intermediate technology makes it possible to be developed in rural areas hence solving problems that would arise due to rural- urban migration.

    •It reduces income inequalities through job creation, as many people get employed and earn income.

    •It helps to reduce foreign dependence since it can easily be developed within the country.

    •It enables workers gain more new skills as they use this type of technology.

    •It reduces brain drain in the country since most people will be employed hence saving foreign exchange that would be used to import labor.

    •It promotes linkages among sectors which controls wastage of resources.

    •It promotes the development of craftsmanship in the country. This helps to meet the consumers demand of quality, creativity and authenticity.

    •It encourages industrialization especially in the agro-processing industries hence fostering development of a country.

    •It encourages export promotion since resources are efficiently utilized hence increase in exports.

    6.2.5 Appropriate Technology
    Appropriate technology is the type of technology which matches with the existing conditions in the host country. It thus fits in the conditions existing and responds to the needs of the society at that time.

    Characteristics/ features of appropriate technology

    1. It should be able to increase production and productivity in the country for economic growth to be attained.
    2. It should be able to reduce income imbalances through employment potential.
    3. It should produce for an identified market to prevent resources being wasted.
    4. It should be able to produce the right quality and quantities of the products needed by the consumers.
    5. It should minimize foreign exchange requirements.
    6. It should also minimize the use of imported inputs like labor, raw-materials and some capital equipment.
    7. It should match with the social-economic standards of the society.

    Benefits of appropriate technology

    1. It tends to improve the living standards of people in the country through employment opportunities which results in the expansion of agriculture, industries and other services.

    2. It does not require heavy investment expenditure for its success.

    3. It promotes self-reliance since local resources and skills are being used and production is mainly for the local market. Therefore, the dependence factor of a country on another country is being reduced.

    4. It promotes fair income distribution through job creation therefore the income gap is reduced.

    5. It encourages the exploitation of idle resources and local raw material this results into increased investments.

    6. It increases the volume of goods and services produced especially consumer goods. This controls inflation in the country.

    7. It reduces the effect of “brain drain”. many people will be able to work using the technology that matches with the conditions in their country hence reducing man power who are unemployed to search for green pastures.

    8. It helps to eradicate poverty since there are many sectors which generate income.

    9. Foreign exchange is saved when all commodities are produced locally due to the use of appropriate technology.

    10. It encourages specialization which results into large scale production, low prices and fair competition for commodities in the market.

    Application activity 6.4
    1. Using a local business or a production unit in your locality, explain how intermediate technology is applied.
    2. Examine the importance of using this type of technology in that business.
    3. Try to find an example of simple and more complicated technology method of production
    4. a) From each of the following areas of human activity.

    i. If you were to start a business in any of the above human activity area, which technology will you be likely to choose? A simple technology or a more complex technology?

    ii. What could be the reasons guiding your choice?

    iii. Now that you have identified possible businesses from these areas of activities, which technology do you think will be more effective in order to improve the productivity of the specific businesses or to improve your qualities?

    6.3. Factors considered before choosing an appropriate technology.

    Activity 6.5
    Using examples of businesses near your school or your community employing different types of technologies, investigate to find out the factors considered when choosing an appropriate technology in any business organization of your choice.

    From the above discussion, it’s really challenging to decide on the appropriate technology to use but the following factors can be considered before choosing a suitable production method.

    Approaches of choosing an appropriate technology

    Technology is evolving at an incredible pace. The rapidity of changes challenges any business trying to employ the most appropriate technology for their business model and environment. The following three approaches can help in making the right decision:

    i. Balance cost against benefits,
    ii. Look for ease of use,
    iii. Take it for a test drive.

    The factors that should be considered before choosing an appropriate technology include the following:

    Social benefit:The technology should have social benefits to the country, in terms of job creation, as well as not having a lot of social costs like pollution (air, water and noise).

    Health impact on users: The technology should put into consideration the health of the users as well as the population around. Some technology for example machines and mobile phones make vibrations which affect the health of the people leading them to get cancer related problems.

    Ease of use and adaptability: The technology chosen should be simple to use and easy to learn and adopt. It should be able to accommodate the skills of the available labor in a given country.

    Productivity and profitability:The technology chosen should be able to yield profits for the business as well as efficient and effective use of resources to produce much output.

    Cost effectiveness: The technology chosen should be affordable to the company and should be able to yield more returns for the capital invested.

    Institutional needs:The technology should be able to address the needs of the institution or company where it is being used. For example, banks need more capital-intensive technology in form of information communications technology as compared to labor intensive technology.

    Environmental friendly: The technology must comply with the environmental laws thus; it should not degrade the environment. This is very common with industries which use capital intensive technology.

    Application Activity 6.5
    Read the text below and answer the questions that follow.

    The Benefits of an Environmentally Friendly Technology in Production

    Running an environmentally friendly technology in production of goods and services helps you reduce the negative impacts on the environment and conserve the natural resources. Your business can help the environment in many ways.

    For example, you can use products that reduce your reliance on natural resources (e.g. re

    You can also use products that are made from recycled material (e.g. office supplies made from recycled plastic, furniture made from recycled rubber). all this helps to reduce the costs of production. Good practices in business attract many customers which sets you apart from your competitors.Reducing the environmental impact of your business will improve the sustainability of your business. If you are less dependent on natural resources than your competitors and have ways to deal with rising costs due to climate change, your business will have a greater chance of long-term success.

    a. Referring to your community or even from other places in Rwanda, identify any business and describe how its business activities/operations affect the environment due to the technology the business use.
    b. Referring to the passage above, your knowledge and life experience, examine the benefits of using an environmentally friendly technology in business?

    6.4. Technology in Business

    Activity. 6.6
    Carry out a research and identify the various technologies that are being used in businesses be it in your school or other business enterprises.Suggest their importance in terms of communication, management, accounting and transport.

    Technology of the twenty-first century has become completely integrated in the business operations. Whether you are running a small start-up business or a worldwide enterprise, technology is vital in all aspects of business operations. it helps workers to communicate with one another easily which is critical to the success of a business. It is also used to protect confidential financial data which may be subject to security threat and vandalism. Fortunately, several technology tools are being used by companies in the day today running of business. Examples include; use of Emails, mobile phones, internet etc.

    Activity 6.7
    Observe the pictures below and explain the importance’s or uses of each machine, equipment or technology as used in business.


    From the above pictures, you realize that businesses use various kinds of technology, depending on the type of business, and department. The table below shows the types of technology used in business departments.

    Application activity 6.6
    Suggest other types of technology that are used in the business world today.
    a. Mention the benefits of using such technologies.
    b. Explain the challenges of using such technologies in local and small-scale businesses in Rwanda.

    6.5. Information Communications Technology (ICT) in Business

    Activity 6.7
    Read the following passage and answer the questions that follow.


    Beyond the promotion of the ICT sector, Rwanda has an initiative called Smart Kigali, aimed at modernizing the lifestyle of Kigali City dwellers and visitors through use of ICT for better service delivery. The initiative enabled provision of free broadband Wi-Fi Internet access in public places that include commercial buildings, bus Stations, airport, in public transport buses, cabs and improved internet access.

    In socio-economic transformation, the ICT sector has facilitated the development of other sectors as well as provision of services by other agencies. These include, among others the cashless economy, which encourages the public to utilize the multiple payments systems available, including mobile money. In line with improving accountability, efficiency and openness through ICT, Rwanda Online Platform Ltd, a private company was contracted by the government to build and manage a platform to about 100 government services online.

    The platform, dubbed “Irembo,” is now offering online registration for provisional and definitive driving tests, paying for the Community-Based Health Insurance (CBHI) commonly known as “Mutuelles de Sante”,application for a birth certificate and application for a criminal record. (, October 14, 2015)

    a. What is meant by the term ICT?
    b. From the above passage, mention any areas where ICT is used in Rwanda’s business environment today.
    c. Why do you think ICT is growing very fast in Rwanda’s business environment today?
    d. Mention any ICT tools used in a business.
    e. Analyze the role of Information Communication Technology in a business today.
    f. Discuss the various problems associated with Information Communication Technology in the business world today.

    6.5.1. Meaning of ICT

    Information and Communications Technology usually called ICT, is often used as an extended synonym for Information Technology (IT) but is usually a more general term that stresses the role of unified telecommunications and the integration of telecommunications (telephone lines and wireless signals), intelligent building management systems and audio-visual systems in modern information technology.

    ICT consists of all technical means used to handle information and aid communication, including computer and network hardware, communication middle waves as well as necessary software. In other words, ICT consists of IT as well as telephony, broadcast media, Electronic Billing Machines (EBM), all types of audio and video processing and transmission and network based control and monitoring functions.

    6.5.2. Tools of ICT

    Activity 6.9
    Identify the various ways or methods used by businesses to communicate with customers, suppliers, government and other stake holders.

    Tools of ICT include the following.

    •Intranet/Social Intranet.
    •Chat rooms, Private and Group Messaging.
    •Discussion Forums.
    •Ticketing, Issue Tracking and Case Software.
    •Internal Blogs, Video and Audio.
    •Web-Based Communication.
    •Social media.

    Application activity 6.5.
    1. Explain how the above tools are used in today’s businesses?
    2. what are the challenges of using the above tools in today’s business environment?

    6.5.3 ICT and Business Publicity
    Activity 6.10
    Many businesses have adopted the use of ICT to promote sales of their business. Social media has played a significant role in marketing of company products, as well as helping businesses to communicate to potential clients in order to increase sales and be more competitive. It has become part and parcel of business life. Discuss other ways apart from social media, how a business can spread information to the public about its products.

    ICT has played a significant role in business publicity. These are the various methods used by an enterprise for publicity.

    •Telephone systems: Telephones are used to communicate to potential customers about business products as well as innovations and inventions. It makes it cheap and convenient for business to increase its market share.

    •Electronic mail: E-mail is one of the ways businesses use to reach its customers. Messages are sent and received between the business and customers which makes communication very fast and convenient.

    •Websites: A website is a collection of web pages. Web pages may contain text, images or videos. Businesses use websites to provide information to customers.

    •Chatting: Chatting online involves two or more people exchanging short messages across computer network. This can be used for immediate inquiries about prices, quality of the products, color as well as knowing the latest products on the market.

    •Blogs: A blog is a kind of website. It’s used for regular information that someone wants to communicate. When an author posts a blog, visitors to the website who see that blog can comment and share such comments with other people that visit the website. Blogs contain text, pictures and links to other web pages.

    •SMS: (short message service). This is a form of text messaging communication on a fixed phone and mobile phones. Such messages can be stored on the receiver’s phone for future reference. SMS can be sent as a reminder to customers, to announce new products and other purposes. SMS is cheap and easily accessible on mobile phones.

    •Social networking: Social networks such as WhatsApp, twitter, Facebook, Google, Instagram, yammer are useful tools to keep in touch with customers, suppliers and the general public. Businesses create accounts on such networks and use their accounts to communicate with business partners and customers.

    Activity 6.11.
    Read the text below and answer the question that follow.


    It is very difficult to imagine how business could operate during this time without the use of the internet. The development of the internet has significantly altered the day to day operations of a business; including how they communicate with each other and their audience. Information can be easily transmitted to any destination in a matter of seconds.

    The internet has become an essential tool for marketing and advertising. A business can present itself to customers with the use of a website or online advertisements. Many businesses now use the internet as a means of making customers aware of their current promotions. This can be very beneficial to businesses that are targeting a younger audience.

    Creating the right image is very important to any business wishing to be a success. The internet can aid a business in achieving the perfect image. By having an effective website, they can create the perfect web existence. Many businesses now also use social networking as a means of making themselves known to their target audience.

    Communication and interaction with customers is vital to any business. The internet has ensured that this can be easily achieved. Businesses are able to communicate and interact with customers via email or instant messaging. Internet telephony such as Skype is now a popular method of communication and is used frequently by businesses in order to conduct virtual meetings with both customers and other businesses. The use of the internet also makes it easier for businesses to deliver messages to people working within the organization.

    The internet has simplified the way in which businesses collects and records information. They are able to conduct effective research by searching on the web or by using online databases. An electronic record can then be made from the information gathered. Important information such as the state of the stock exchange can also be obtained.

    In addition, businesses that have an international presence are able to use the internet to conduct operations and communicate with people in offices that are based in different locations around the world. Transactions and payments can now also be made online which has simplified and sped up the payment process.

    •Discuss several ways how internet plays a vital role in today’s publicity of the company’s products.

    6.5.4 ICT and Business in Financial Management.

    Activity 6.5.5
    Research work

    Visit a nearby financial department such as a school accountant (Bursar) office, a bank, school canteen, or a shop near school. Observe how this department uses ICT equipment or tools.Explain the importance of using ICT in financial management.

    Information Communication Technology plays a key role in book keeping and financial management of an enterprise. There are specialized accounting programs like quick books, Tally accounting, sage pastel among others, which can handle almost all financial need of an enterprise.

    The role of ICT in financial management of a business includes the following;

    1. Secure information: Important information can be backed up on external servers making information more secure than keeping paper files and documents.

    2. Easy mobility of information: It’s easy to move information from one department to another or outside the business by use of emails and fax machines

    3. Book keeping: Computers can balance the business books much more quickly and accurately than using manual system. This involves use of software like Tally, Sage, quick books, etc.

    4. Security: ICT ensures security through computerized access systems like computer operated safes and money counters.

    5. Filing of documents: Business documents are filed electronically which is cheaper and safer.

    6. Easy retrieval of files: Valuable information can be retrieved faster by searching in the computer system, which makes work easily accessed.

    7. Access to funds: ICT enables easy access to funds through use of ATM cards, such as debit cards, credit cards, and electronic money transfer etc.

    Application Activity 6.6
    1. To what extent is the introduction of ICT in business a priority?
    2. Identify some of the businesses that can be started basing on ICT.

    6.6. Role of ICT in Business.

    Activity 6.12
    a. Identify one business you are familiar with and discuss how it applies information communication technology.
    b. Explain the advantages and disadvantages of using ICT in this kind of business identified in (a) above.

    From the above discussion, you realize that technology has a significant role in every business department.

    6.6. ICT in Business

    Modern business requires modern technology. Any business that expects to thrive today must have at least a basic understanding of the various innovations, programs and devices as well as the knowledge of how to apply these technologies. The many tools and powers that technology made available to the business owner and employees can help the business succeed in its goals after understanding how to use them properly.

    ICT has increasingly been identified as a major contributor to the process of business development and improvement. It drives improved efficiency, effectiveness, better services and products across the entirety of the private and the public sectors.

    6.6.2. Role of information communication technology in business.

    The following are some of the roles of information communication technology in business.

    1. Makes work easier: Technology simplifies work in all aspects. Work becomes so interesting, less stressing, enjoyable and fast.

    2. Quality products: Advanced technology is very accurate and tends to produce better quality products that fetch a lot of money for the enterprise.

    3. Complicated tasks: Technology helps to perform complicated tasks faster and with ease. For example, use of computerized accounting software like quick books, sage and pastel helps in accounting with ease.

    4. Global marketing: Technology helps companies to sell around the world. People are able to buy and sell products online and receive payments electronically. This is possible through the use of E-commerce sites like E-Bay, Amazon, Jumia, etc. and payments can be made using Credit cards and visa electronics cards.

    5. Monitor buying habits: ICT helps firms to monitor the buying habits of their customers and be able to stock the right products in the right quantities at the right time. Speed Governors help to track drivers which supports a positive public image of employees who realize they can’t get away with poor behavior.

    6. Ability to process high volumes of information and at a high speed: Computers can perform a lot of work in the shortest time possible which would require a lot time if done manually. Examples include preparation of control accounts, financial statements and preparing payrolls etc.

    7. Increases customer satisfaction: The use of ICT helps producers to produce goods and services which are of good quality and a variety. This therefore increases the customers demand and satisfaction of the commodities.

    8. Communication: ICT enables businesses to communicate both nationally and internationally with clients and business partners. It also helps to improve communication within a company which helps managers to make good decisions.

    9. Production and distribution of products: Technology plays a key role in the production and distribution of products by use of machines and transport means.

    10. Technology has made it easy: for companies to handle large numbers of employee profiles as well as client profiles.

    11. Technology cuts costs: For example, the costs incurred while transporting and delivery of goods can all be done using computers and the internet.

    12. Advertising: Information Communication technology introduced new methods of advertising particularly through the Internet which helps businesses to be known and sell worldwide hence increasing producer’s income.

    13. ICT improves stock control: The use of barcode scanners and point of sale terminals within shops, enables firms to know immediately what their stock levels are, reducing the need for many manual checks.
    14. Advertising: Information Communication technology introduced new methods of advertising particularly through the Internet which helps businesses to be known and sell worldwide hence increasing producer’s income.

    15. Security: Information stored on computers is considered to be safer. This is because access to information can be restricted by using passwords. Also, in some accounting software which allows multi-users, it is easy to trace which user has performed a given transaction. This reduces the risk of fraud. For example, in banks.

    16. Research tools: ICT helps businesses to carry out research easily about their competitors which helps them to survive. The Internet allows a business to virtually travel into new markets without the cost of an air ticket or the risks of creating a factory abroad. By doing this, businesses grow and acquire new opportunities.

    17. Reduces the worker’s costs: An individual can be used to perform a given task which can be done by many people by using a computer. Therefore, there is reduction of costs in terms of salaries and other fringe benefits that would be incurred.

    Application Activity 6.7.
    Organize a debate; “Information communications technology in business has done more good than harm”

    6.7. Problems/ limitations associated with ICT.

    Activity 6.13
    a. Discuss the problems associated with the use ICT in business.
    b. Give reasons why some people don’t use technology in their businesses.

    Much as ICT has many advantages, it also has many disadvantages in business. These challenges include the following.

    1. ICT needs staff training: With the various updates in technology, it will require the business to incur costs of training, either on-the-job, off-the-job or induction training.

    2. Difficult to implement in some systems: Systems made by different companies may be incompatible and fail to work together, limiting the firm to use the latest technology.

    3. Sometimes the users of technology may not be able to interpret the generated information and as a result, fail to use the information for proper decision making.

    4. Technological unemployment: ICT automates so many processes and as a result, may result in mass unemployment of people.

    5. Through the use of ICT, and the internet, customers search cheaper and better sources of products, which increases competition in businesses leading to some businesses being outcompeted.

    6. Sometimes the users of technology may not be able to interpret the generated information and as a result fail to use information for proper decision making.

    7. ICT heavily depends on regular and sufficient power supply which is still a challenge in developing countries

    8. The internet provides consumers with the ability to rapidly search for alternative goods and prices which is likely to lower a firm’s profit margin.

    9. It does not put into consideration the use of body language which may lead people to miss-interpret messages because of the use of instant messaging, voice calls.

    Application activity 6.8
    Read the text below and answer the questions below.


    Information technology has changed the way businesses do things. Correspondence that once took weeks to get from one organization to another is now delivered instantly with the push of a button. Advances in telecommunication allow associates from all point of the globe to confer in a virtual environment, minimizing the need for business travel. Although the benefits of integrating information technology in business are many, there are also disadvantages to its use.Every business must consider startup costs when implementing any type of information technology system. In addition to the cost of hardware and software, some technology vendors require businesses to purchase user licenses for each employee that will be operating the system. Businesses must examine the cost of training employees in unfamiliar technology. Although basic information technology systems may be user friendly, advanced programs still require formal instruction by an expert consultant. In addition to the startup expenses, information technology systems are expensive to maintain. Systems malfunction, and when they do, businesses must engage skilled technicians to troubleshoot and make the necessary repairs. These expenses present a major disadvantage of information technology in business, particularly to businesses that are entering the technology era for the first time.

    Implementing information technology into business operations can save a great deal of time during the completion of daily tasks. Paperwork is processed immediately, and financial transactions are automatically calculated. Although businesses may view this expediency as a boon, there are untoward effects to such levels of automation. As technology improves, tasks that were formerly performed by human employees are now carried out by computer systems. For example, automated telephone answering systems have replaced live receptionists in many organizations. This leads to the elimination of jobs and, in some cases, alienation of clients. Unemployed specialists and once-loyal employees may have difficulty securing future employment.

    The ability to store information in an electronic database facilitates quicker, more efficient communication. In the past, an individual would sift through stacks of paper records to retrieve data. With properly implemented technology, information can be recovered at the touch of a button. Although information technology systems allow business to be conducted at a faster pace, they are not without their flaws. Information technology systems are vulnerable to security breaches, particularly when they are accessible via the Internet. If appropriate measures are not in place, unauthorized individuals may access confidential data. Information may be altered, permanently destroyed or used for unsavory purposes.

    1. From the text above, mention some of the challenges or problems of using ICT in business.
    2. Mention some of the solutions to these problems of ICT in business.

    6.8. E-Commerce or Online Business

    Activity 6.14
    Using the internet, books or knowledge from the community around you, Discuss the following.
    a. What is meant by e-commerce?
    b. Mention any 3 types of e-businesses in Rwanda today.
    c. Examine the advantages and disadvantages of e-commerce to businesses and to the consumers.

    From the above discussion, we learn the following;
    ICT has opened new commercial activities like e-commerce. E-commerce means Electronic Commerce. In some years back, buying and selling of goods involved movement from one place to another (e.g. to the shop or market) and physically meeting between the seller and the buyer.

    Today, ICT has extended the scope of buying and selling goods within and outside a country. For example, goods can now be sold across continents via the internet. Activities such as advertising, customer care and delivery of goods can be done electronically.

    An e-business is supported by internet services within as well as without organizations, countries and continents. With the use of ICT, such businesses can be done, and it allows businesses to transact without geographical limitations. Ordinarily, this may not have been possible, or it could have been possible but at a very high cost.

    6.8.1. History of e-commerce

    E-Commerce started way back in the 1960s, this is when businesses started using Electronic Data Interchange (EDI) to share business documents with other businesses. In 1990’s, World Wide Web (www) on the internet came into existence. It is used for disseminating and publishing information. It became cheaper to do businesses. Consumers can now purchase variety of items online, examples of e-commerce businesses in Rwanda include; - Jumia, Irembo, mobile money services, electronic banking services and the international e-commence include; Amazon, eBay, etc.

    6.8.2. Advantages and Disadvantages of e-commerce

    Advantages of e-commerce

    •It is easy to start and manage an online business.

    •A business can reduce the costs of handling sales inquiries, providing price quotes, and determining products availability by using electronic commerce. This means that the operational costs are low and better quality services.

    •It helps consumers to buy products anywhere in the world.

    •Electronic payments of tax refunds, public retirement, and welfare support cost less to issue and arrive securely and quickly when transmitted over the internet.

    •Electronic payments can be easier to audit and monitor than payments made by cheque, providing protection against fraud and theft losses.

    •Electronic commerce can also make products and services available in remote areas.

    •Electronic commerce is faster in buying and selling of goods and services. This helps to avoid long queues if their where many buyers.

    •Low operational costs and better quality of services.

    •There is no need of physical company set-ups in terms of buildings.

    •Buying and selling is done 24/7. This means buying and selling can be done twenty-four hours in seven days.

    •It is cheaper. Sellers and buyers reach each other without the physical movement of the buyers to the shop.

    •Virtual goods like music, electronic books can be delivered instantly.

    Disadvantages of e-commerce

    •There is no guarantee of product quality.

    •It requires internet connection and yet not everyone can be connected.

    •Any one, good or bad, can easily start a business. And there are many bad sites which eat up customers’ money.

    •It is costly in terms of delivery and ICT equipment.

    •Mechanical failures can cause unpredictable effects on the total processes.

    •There are many hackers who look for opportunities, and thus an e-commerce site, service, payment gateways, all are always prone to attack.

    •Return-on-investment is difficult to calculate.

    •Many firms have had trouble recruiting and retaining employees with the technological, design, and business process skills needed to create an effective electronic commerce presence.

    •Difficulty of integrating existing databases and transaction-processing software designed for traditional commerce into the software that enables electronic commerce.

    •There is no consideration of loyal customers since there is no physical contact with customers while carrying out business transactions.

    Application activity 6.9
    a. Carry out a research on the procedures of starting an e-commence business.
    b. Design a plan on how to sell products of your business club online.
    c. Give examples of companies in Rwanda that sell their products online.

    6.9. ICT as a source of business opportunities

    Activity 6.15
    Identify various areas where ICT is used and how it has contributed to creation of business opportunities.

    The use of ICT and technology has affected every aspect of business, transforming not only the way that business is conducted but also creating new business opportunities, sectors and jobs. The creation of companies like Google, Yahoo, MTN – AirTel - Rwanda, internet cafes, companies selling, repairing or charging mobile telephones, selling air time, money transfer and e-commerce which did not exist in the country before but are now major players in society, country and World Over is due to ICT.

    Information Communication Technology itself offers numerous business opportunities. The following are some of the businesses that can be started basing on ICT.

    1. Develop and design websites for individuals, organizations and companies.
    2. Selling ICT equipment’s like computers, phones, network cables, tablets, laptops etc.
    3. Repair ICT equipment’s like laptops, computers, and mobile phones.
    4. Starting and managing online shops.
    5. Developing software for different organizations
    6. Starting training programs for people who want to use computers and such technology in their business enterprises.
    7. SMS service providers. Sending SMS on behalf of clients. This is also a business opportunity that is cheap to start.
    8. Operating a call center.
    9. Manage databases for different companies
    10. Providing delivery services to other online retailers.
    11. Develop games
    12. Create companies that train people about information technology
    13. Develop mobile applications
    14. Computer forensic investigator. These detect computer crimes
    15. Multimedia publishing
    16. Computer networking
    17. Graphics designs
    18. Manufacturing or product designs

    Application activity 6.10
    Although ICT has led to technological unemployment in some parts, there could be many benefits to entrepreneurs.
    a. Mention some businesses you know, which came up as a result of ICT which operate in Rwanda.
    b. How have these businesses boosted economic development in Rwanda?

    Skills Lab Activity 6.11.
    1. Describe different ICT tools you will use in your business club or the business you want to start at home.
    2. Explain how you will use the ICT tools identified above in your business activities or business you want to start back at home.

    End of Unit 6 Assessment.

    Justify the statement “Technology is something to be welcomed rather than feared”.

    Case study
    Mugwaneza has a peanut butter making business. Last week she announced the purchase of new equipment’s and modern technology that would make a radical change in the production process. The investment would lead to some employees lose their jobs. Mugwaneza explained to them but there was no doubt, it was in the best interests of the company as a whole.

    Employees were not consulted because it would slow up the process and Mugwaneza felt that it was the best decision to make.

    In the long run, the modern technology and equipment’s will increase the businesses’ competitiveness and also produce quality products and in large quantities. The working practices will obviously be changed, and employees will have to learn new skills of using them. The employees where promised to be trained, although it was not a guarantee to employ all of them if they fail to adapt successfully.

    After the announcement, the employees were so furious and considered taking industrial action. Hearing the rumors of a possibility to strike, Mugwaneza admitted that the issue was not handled very well but would not reconsider the decision.

    1. What factors may have made Mugwaneza decide to invest in modern technology?

    2. Do you think the employees were right in taking industrial action? Give reasons for your arguments.

    3. Analyze the factors that Mugwaneza might have taken into account before acquiring the modern technology.

    4. Mugwaneza admitted that the issue was not well handled. In your opinion, how should she have handled it?

    5. a. Distinguish between capital saving technology and labor-saving technology.
        b. Explain any 5 advantages and 5 disadvantages of using capital intensive technology.

    6. a. What is meant by the term “technology”b. Discuss the pros and cons of labor intensive technology.

    7. Peter produces flowers and sells them both in the local and international markets. He plans to use e-commerce in his business.
    i. Mention any 3 E-shops in Rwanda he can contact for advice.
    ii. Explain the merits and demerits of using e-commerce in a business like that of Peter.

    8. Explain how ICT can be of great importance in financial management.

    9. ‘The key to better performance is better management rather than more technology.’ Critically assess this view.

    10. Examine the challenges of using Information Communication Technology tools in business.