Unit 2: Overview of Business Notes PDF

**Unit 2: Overview of Business** **[Understanding Business as a Financial Leader]** - **Chief Financial Officer (CFO)** - **Responsible for: Financial reporting, control, compliance, PLUS operations, human resources, information technology (e.g. digitization, cybersecurity...

**Unit 2: Overview of Business** **[Understanding Business as a Financial Leader]** - **Chief Financial Officer (CFO)** - **Responsible for: Financial reporting, control, compliance, PLUS operations, human resources, information technology (e.g. digitization, cybersecurity)** - **More emphasis on how well you understand business (help better decision-making to adapt to changing business environment):** - **Understanding the changes and interpreting trends** - **Anticipate future developments** - **Capitalize on new opportunities** - **Expected to help focus on activities that align with the company's strategy to drive value, innovation and growth and promote change** - **Having digital literacy, an entrepreneurial mindset, and social intelligence can help improve communication and problem-solving** **[Introduction to Business]** - **Business: An activity that you intend to carry on for profit** - **History of Business in Canada** - **Challenges: Large land, low & spread out population, lack of infrastructure that connects the country from coast to coast, and settling near the border led to tariffs with the US to protect Canadian businesses** - **Set the tone for continuous involvement of the government** - **Mixed Economy** - **Some allocation of resources by the market and some by various levels of government** - **Crown Corporation** - **Company-owned/operated by the federal or provincial government (e.g. CBC)** - **Privatization** - **Reducing the role of government by the sale of a crown corporation (ex. Air Canada)** - **Reduces government debt, brings in large amounts of money, and increases competition** - **Competition leads to innovation, improving efficiencies and reducing costs for consumers ** - **Small Businesses in Canada** - **Independently owned/operated, not dominant in its field, and typically 1 - 99 employees** - **Important to the Canadian economy** - **98% of employer businesses are small businesses** - **70% of the workforce works for small businesses** **[Forms of Business Ownership]** +-----------------+-----------------+-----------------+-----------------+ | | **Sole | **Partnership** | **Corporation** | | | Proprietorship* | | | | | * | | | +=================+=================+=================+=================+ | **Definition** | **Owned and | **Has a | **Separate | | | operated by one | partnership | legal entity | | | person** | agreement | with an | | | | (which | unlimited | | | | addresses the | number of | | | | nature of the | owners** | | | | business, | | | | | financial | | | | | contributions | | | | | of each | | | | | partner, how | | | | | profits are | | | | | shared, how | | | | | decisions will | | | | | be made, how | | | | | disputes will | | | | | be resolved, | | | | | what happens | | | | | when a partner | | | | | wants to leave, | | | | | how to end the | | | | | partnership) ** | | +-----------------+-----------------+-----------------+-----------------+ | **Advantages** | **- Easy to set | **- Easy to | **- Limited | | | up** | form** | liability** | | | | | | | | **- Lower | **- Shared | **- Business | | | start-up | start-up costs | continuity | | | costs** | (and | (indefinite | | | | resources)** | life) because | | | **- | | ownership is | | | Freedom/control | **- Shared | transferable ** | | | for owners** | management** | | | | | | **- Greater | | | **- Less | **- Less | access to | | | regulatory | regulatory | financing** | | | requirements** | requirements** | | | | | | **- Possible | | | **- Income and | **- Income and | tax | | | expenses are | expenses are | advantages** | | | reported on a | reported on a | | | | personal tax | personal tax | | | | return** | return** | | +-----------------+-----------------+-----------------+-----------------+ | **Disadvantages | **- Unlimited | **- Unlimited | **- Higher | | ** | liability** | liability** | start-up costs | | | | | (to | | | **- Business | **- Conflict | incorporate)** | | | continuity | between | | | | (definite | partners** | **- Greater | | | life)** | | regulatory | | | | **- Business | requirements | | | **- Raising | continuity | (complexity in | | | funds** | (definite | managing | | | | life)** | records)** | +-----------------+-----------------+-----------------+-----------------+ **[Learning from Failure: Why Small Businesses Fail]** - **Not all "exits" of business are failures, they could include retirement or changes in ownership** - **Businesses easier to start tend to have the least growth potential and greater failure rates** - **Due to easy entry: greater competition, larger supply in the marketplace, and lower prices** - **Businesses harder to start are more likely to be successful and generate profit** - **Due to hard entry: lower supply, allows them to charge higher prices** - **Usually where expertise or significant investments are required (ex. Medical practices)** - **Causes of small business failure** - **Plunging in without first testing the waters on a small scale** - **Underpricing/overpricing goods and services** - **Starting w/ too little capital (money), or starting with too much capital and being careless in its use** - **Going into business with little knowledge/experience about the industry or market** - **Borrowing money without planning how and when to pay it back** - **Not allowing for setbacks and unexpected expenses** - **Failing to complete, accurate records** - **Carrying habits of personal extravagance into the business** - **Not understanding business cycles** - **Forget about taxes, insurance, and other costs of doing business** - **Mistaking the freedom of being in business for oneself with liberty** - **Critical Elements of Business Management** - **Planning** - **Researching and having a business plan or strategy** - **Understanding your Customers** - **Considering their background, interests, and behaviours** - **Can inform you how to design your product or service offering and marketing initiatives** - **Managing Your Employees** - **Recruiting, onboarding, talent development, compensation, and performance appraisals** - **Maintaining Good Records** - **Ensuring all business transactions are recorded** - **Helps make informed decisions** - **Financing Your Business** - **Obtaining cash to start and maintain the business, budgeting, and knowing how to obtain more funds** **[Impact of Globalization on Stakeholders]** - **Consumers** - **Benefit when the world is more connected as there are more options available** - **Employees** - **Global connections with customers, clients or partners** - **More options for global sourcing of resources and marketing** - **Business Owners** - **Internet access, technology, and increased connectivity have expanded the reach of businesses** - **Small businesses should consider how to appeal to foreign markets** - **Larger companies may outsource** - **Businesses can also go global just by having an international customer or supplier** **[Why We Trade]** - **Challenging to be Self-Sufficient** - **Every country has different resources, environmental conditions, populations, knowledge, and expertise** - **Importing vs Exporting** - **Importing: Purchase of goods and services from another country** - **More options to satisfy our wants and needs** - **Exporting: Sale of goods and services to another country** - **Countries produce beyond their ability to consume and sell the excess** - **Balance of Trade** - **Relationship between importing and exporting** - **Favourable (trade surplus -- exports \> imports) vs. unfavourable (trade deficit -- imports \> exports)** - **Free Trade** - **Trading without political or economic obstruction in a mutually beneficial manner** - **Challenges** - **Each country wants to maximize revenues and protect workers** - **Some countries have more resources than others leading to greater bargaining power** - **Comparative Advantage** - **Countries export what they produce most effectively and import what they cannot** - **Trade barriers prevent this to protect domestic businesses** - **The theory of comparative advantage is prevented by the government from protecting domestic business and industries which add on costs to imports to inhibit free trade and the flow of goods** - **Free Market Economy** - **The market (supply/demand) determines what goods and services to produce and who gets them without government intervention** - **What Supports Trade? Trade Agreements** - **CETA (Canadian-European Union Comprehensive Economic Trade Agreement): Removed 98% of tariffs, making the EU Canada's second-largest trading partner after the US. What it means for Canada:** - **For consumers: European items are cheaper in the Canadian marketplace** - **For business: dairy producers are concerned, may not be able to compete with/ Europe's significant dairy market** - **NAFTA (North American Free Trade Agreement): free trade between Canada, Mexico, and the US.** - **Allow all 3 countries to reduce trade tariffs with/ each other while maintaining independent trade agreements with/ other countries** - **Promoted fair competition, improved working conditions** - **Resulted in employment losses** - **What Hinders Trade** - **Trade Protectionism: Limits imports of goods/services through government regulations** - **Tariffs: Taxes on imports** - **Import Quota: Limit on the quantity of products that a country imports** - **Embargo: Ban on the import or export of specific products for political/cultural purposes** - **Non-Tariff Barriers: Regulations and restrictive standards that detail how products must be sold. Such as health & safety standards and labelling standards.** **[Entering Global Markets: Canada's Perspectives]** - **Pro: expand customer base, additional profit potential** - **Con: costs and risks** - **Canadian Exports** - **Sell directly to foreign customers vs sell through an intermediary (e.g. foreign distributors)** - **Small businesses react faster to changes in the marketplace to meet the meet needs of consumers, provide more tailored and customized attention** - **Multinational corporations manufacture their products in countries where they also have a physical presence** - **Canadian Imports** - **Directly purchase from foreign suppliers or indirectly through an intermediary (e.g. foreign distributors)** - **Many companies import their materials to produce their goods** - **Imports into Canada are monitored by the Canada Border Service Agency (CBSA) to keep Canadians safe. These goods must meet certain conditions imposed by the federal/provincial government ** **Strategies to Enter Global Markets** --------------- --------------- ----------------- ---------------------------- ------------------- ------------------------ ------------------------------- **Licensing** **Exporting** **Franchising** **Contract Manufacturing** **Joint Venture** **Strategic Alliance** **Foreign Direct Investment** --------------- --------------- ----------------- ---------------------------- ------------------- ------------------------ ------------------------------- **-\> LEAST amount of commitment, control, risk, and profit potential to MOST -\>** - **Licensing: ** - **When a domestic company (licensor) allows a foreign company (licensee) to make its products for a fee (e.g. percentage of profits)** - **Benefits: Ability to generate additional revenue, costs to promote paid by licensee ** - **Problems: Don't get the profits if there is remarkable growth, risk of losing trade secrets, and hard-to-control quality** - **Exporting: ** - **Selling products to another country** - **Coordination is required with shipping, taxes, etc, but huge market potential with a low cost** - **Hard to find global customers without a home base in other countries** - **Franchising: ** - **Someone (franchisor) sells the rights to use the business name and to sell a product/service (to a franchisee)** - **More control can dictate standards and can earn more revenue through franchising fees, start-up fees, and consulting** - **Contract Manufacturing (Outsourcing): ** - **Foreign manufacturers who make your product and attach your brand/trademark** - **Can test new markets, but still need to develop/execute sale and promotional strategies** - **Provide cost savings, but also have to consider quality, public image, access to talent, and employment standards** - **Joint Venture: ** - **Two or more companies form a partnership to take on a major project** - **Benefits: Shared resources and expertise (can understand local market/customs, connections, and laws if with a foreign company)** - **Drawbacks: Too large to efficiently function and exploitation of trade secrets** - **Strategic Alliance: ** - **Two or more companies form a long-term partnership to support each other in building market advantages** - **Does not involve sharing costs, risks, or profits - more of a relationship than a partnership** - **Foreign Direct Investment: ** - **Buying property and operating in a foreign country ** - **Typically becomes a foreign subsidiary, a company located in another country owned by the parent company** - **Challenges: Has to follow legal and regulatory regulations of both the parent and foreign country, assets could be taken over by foreign government if political unrest** - **Canada's FDIs are in the finance and insurance industry** - **Why do local governments encourage foreign investment? Why would critics argue against foreign investment in Canada?** - **Encourage because:** - **Bring jobs to the local community** - **Bring additional revenue to the local community (e.g. use of local service, local taxes, etc.)** - **Bring new knowledge and technology to the local community** - **Critics:** - **FDIs in Canada generate profit that will go to their home country** - **Jobs in these organizations are not always ones of innovation** - **These businesses are profit-driven and don't necessarily make decisions that would be the best for Canada or the local community** **[Future Opportunities and Challenges]** - **Canada can look at tapping into emerging markets which have large populations and a growing middle-class** - **BRICS - Brazil, Russia, India, China, and South Africa** - **You will often find products designed in one country, manufactured in another, and sourced in many others** - **Business is all about building and cultivating relationships with others**