Becoming the Producer

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Hey there! I am W.E DaCruz, the Digital Diplomat. I’m here to bring you all things digital tech and diplomacy in an effort to help you go from local to global.

Today we pick up from where we left off on the topic differentiating the producers, the distributors and the consumers – Are You a Producer or a Consumer? Read to Find Out!. I stated in that article that in order for you and I to be lenders and not borrowers, and to remain ahead, we must choose to become a Producers. But, Who is a Producer?

 

Today, we will explore the pathway to Becoming The Producer. We will look at what affects the production, and why it is important for a business owners and/or start-up founders to be informed. The sole aim of production is to create supply. For an entrepreneur to make money, he/she is supposed to have a service or a supply that he/she will trade for its monetary value. 

 

In pursuing this, an entrepreneur will always have to face factors that can often limit resources ie. limited time, limited people to work/limited money to pay workers, limited skills, etc. Nevertheless, when deciding to produce, an entrepreneur should make sure that his/her production will answer the following economic problems –  What to produce? How much to produce? How to produce? For whom to produce?

 

Well, let’s jump right in…. 

Factors of production, what are they? 

These are the resources entrepreneurs use to produce goods and/or services. These four factors include:

  1. Land
  2. Capital
  3. Labor 
  4. Entrepreneurship

 

Land 

Land is the natural resource or available physical space that is used to create supply – , a product or service. This can also include non-renewable resources such as oil, gold, and renewables such as timber. Rent is the income earned by owners when they lend out land.

 

Capital

Once an entrepreneur changes a natural resource from its original form, it becomes a capital good. While oil and farmland are natural resources, gasoline and shopping centers are considered as capital goods, respectively. As a short term for Capital goods, Capital, refers to man-made objects such as machinery, tools and equipment. 

 

The income that a business owner gets by lending out capital is called interest.

An entrepreneur might decide to buy a machinery that most people cannot afford to buy, and rent it out, or an expertise (such as guitar skills, chess skills, farming skills, software engineering, app development, interior designing, make-up skills, landscape designing, e.t.c) that can be rented out in exchange for its monetary value.

In economics, money is not considered as capital because money on its own cannot be used to produce anything. While in other discussions about global markets, financial capital recognizes money as a form of capital. In economics, money is merely a representation of value. It is only after one decides to purchase land / hire a laborer / rent a machine that money becomes useful.

 

Labor

People available to do the work assigned from time to time. The value of the workforce depends on the skills, education level, motivation and commitment of the laborers. The reward or income for labor is wages.

 

Entrepreneurship 

An entrepreneur is the individual responsible for coming up with ideas and ways to properly manage the three factors of production. The income earned by entrepreneurs is called profits.

It is an entrepreneur’s sole duty to decide what to produce, how much to produce, how to produce and for whom to produce. Then, to find the right combination of the factors of production to solve the problems.

For every production, a producer/entrepreneur is required to choose the right combination of labor, capital, and land in order to answer the production problem(s). What to produce? How to produce? For whom to produce?

Ownership and availability of these factors of production may differ depending on several factors such as economic system, geographical location, people’s lifestyle etc. An entrepreneur would be wise to understand these factors, and capitalize on them. 

For instance, an estate or a farm close to town will easily sell its produce but it will have to incur high labor costs.  Or, when opening a shop in a remote area, one could benefit from low rental costs, but will also have to be willing to sell at a relatively lower price due to low demand. 

 

The Role of Technology in Production

Though not directly considered as a factor of production, technology plays a very important role in facilitating production. Examples of these technologies include but not limited to: telephone communication, accounting system, inventory control system, computers, software, and networking. 

Technology can be used to streamline organizational and manufacturing processes. In many cases than not, with the help of computer tools and software,  it can be used to estimate demand for a product and help in choosing the best location for business operations. In addition, technology can also help ensure efficiency by automating processes and ensure high quality products, among others.

 

Don’t miss any of our weekly articles by subscribing. In our next topic, we will talk about Becoming The Distributor. We will explore adding value to your products, how to properly package various products ready for distribution, what distribution channel best fits your product, and discuss technology options related to distribution and delivery of your products.


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