Introduction to Business Concepts

What is a business?

• Businesses combine human, physical and financial resources
• Main business functions include human resources, finance, marketing, and operations
• Businesses operate in primary, secondary, tertiary and quaternary sectors
• Reasons for starting a business include profit, self-employment, independence, and passion
• Challenges for new businesses include funding, competition, and marketing

Types of organizations

• Distinguish between organizations in the private sector and the public sector
• Private sector: businesses owned by individuals or groups of individuals. They aim to make a profit.
• Public sector: businesses owned by the government. They aim to provide public services.
• Key types of private sector businesses:
  • Sole trader: business owned and run by one person
  • Partnership: business owned and run by two or more people
  • Public company: business owned by shareholders, who can buy and sell shares on a stock exchange
  • Private company: business owned by shareholders who cannot buy or sell their shares on a stock exchange. Often controlled by a family or a small group of investors
  • Cooperative: business owned and run by its members, who share the profits and losses
• Non-governmental organizations (NGOs): non-profit organizations often involved in social causes

Business Objectives

• Mission statements express the purpose of a business.
• Vision statements describe the future aspirations of a business.
• Common business objectives:
  • Growth: increasing the size and scale of the business
  • Profit: making a profit by selling goods or services
  • Protecting shareholder value: ensuring that shareholders receive a good return on their investment
  • Ethical objectives: business objectives that are ethical and socially responsible
• Aims, objectives, strategies, and tactics are interrelated.
  • Aims: broad goals of the business
  • Objectives: specific, measurable, achievable, relevant, and time-bound targets that support the aims
  • Strategies: long-term plans to achieve the objectives
  • Tactics: short-term actions to implement the strategies
• Businesses face a variety of pressures and challenges. These pressures can influence a firm’s objectives and its social responsibility strategies. For instance, a new environmental law may cause a company to reconsider its packaging strategy.

Stakeholders

• Stakeholders are individuals or groups that have an interest in the business.
• Internal stakeholders: employees, managers, owners
• External stakeholders: customers, suppliers, government, local community, creditors (banks, investors, etc)
• Possible areas of conflict between stakeholders:
  • Customers want low prices, while owners want high profits.
  • Employees want high wages, while owners want to reduce costs.
  • Governments want businesses to pay taxes, while owners want to reduce their tax burden.
  • The local community might want a business to reduce pollution, while owners want to minimize their environmental impact.

Growth and Evolution

• Economies of scale: occur when the cost of production per unit decreases as the scale of production increases
• Diseconomies of scale: occur when the cost of production per unit increases as the scale of production increases
• Internal growth: Expanding existing operations. For example, opening a new branch or factory.
• External growth: Merging with or taking over another company, or establishing joint ventures or strategic alliances with other businesses.
• Franchising: a form of external growth where a business grants another company the right to operate under its name and brand
• Joint venture: a form of external growth where two or more businesses come together to create a new business.
• Strategic alliance: a form of external growth where two or more businesses cooperate in a particular project or activity.
• Merger: a form of external growth where two or more businesses combine to become one.
• Takeover: a form of external growth where one business acquires a controlling interest in another business.

Multinational companies

• Multinational company (MNC): a business that operates in more than one country.
• Foreign direct investment (FDI): investment made by a company in another country.
• Factors that attract MNCs to economically less developed countries:
  • Lower labor costs
  • Lower taxes
  • Fewer regulations
  • Access to natural resources
  • Growing markets
• Globalization: the interconnectedness of businesses and economies around the world.

This quiz explores fundamental business concepts, including the definition of a business, its main functions, and the types of organizations. It distinguishes between private and public sector businesses and highlights various ownership structures. Test your understanding of why businesses start and the challenges they face.