Bus101 PDF - Business & Profit

# Chapter 1 Taking Risks and Making Profits within the Dynamic Business Environment ## Even Though This Company Had Not Been Hacked Itself, in 2017 it Reported That Some Customer Accounts Were Breached When the Customers Secured Their Accounts with the Same Passwords They Used on Other Sites That W...

# Chapter 1 Taking Risks and Making Profits within the Dynamic Business Environment ## Even Though This Company Had Not Been Hacked Itself, in 2017 it Reported That Some Customer Accounts Were Breached When the Customers Secured Their Accounts with the Same Passwords They Used on Other Sites That Were Hacked. Name That Company. (You Will Find The Answer In This Chapter.) ## LO 1-1 Describe the Relationship between Profit and Risk, and Show How Businesses and Nonprofit Organizations Can Raise the Standard of Living for All. ### Business and Wealth Building Success in business is based on constantly adapting to changes in the market. A business is any activity that seeks to provide goods and services to others while operating at a profit. To earn that profit, you provide desired goods, jobs, and services to people or other businesses. Goods are tangible products such as computers, food, clothing, cars, and appliances. Services are intangible products (i.e., products that can't be held in your hand) such as education, health care, insurance, recreation, and travel and tourism. Once you have developed the right goods and services, based on consumer wants and needs, you need to reach those consumers using whatever media they prefer, including TV, social media, online advertising, and more. Although you don't need to have wealth as a primary goal, one result of successfully filling a market need is that you can make money for yourself, sometimes a great deal, by giving customers what they want. Sam Walton of Walmart began by opening one store in Arkansas and, over time, became one of the richest people in the United States. Now his heirs are some of the richest people in the United States.¹ There are over 13.5 million millionaires in the United States.² Maybe you will be one of them someday if you start your own business. An entrepreneur is a person who risks time and money to start and manage a business. ### Revenues, Profits, and Losses Revenue is the total amount of money a business takes in during a given period by selling goods and services. Profit is the amount of money a business earns above and beyond what it spends for salaries and other expenses needed to run the operation. A loss occurs when a business's expenses are more than its revenues. If a business loses money over time, it will likely have to close, putting its employees out of work. Over 175,000 businesses in the United States close each year.³ As noted, the business environment is constantly changing. What seems like a great opportunity one day may become a huge failure when the economy changes. Starting a business may thus come with huge risks. But huge risks often result in huge profits. We'll explore that concept next. ### Matching Risk with Profit Risk is the chance an entrepreneur takes of losing time and money on a business that may not prove profitable. Profit, remember, is the amount of money a business earns above and beyond what it pays out for salaries and other expenses. For example, if you were to start a business selling hot dogs from a cart in the summer, you would have to pay for the cart rental. You would also have to pay for the hot dogs and other materials, and for someone to run the cart while you were away. After you paid your employees and yourself, paid for the food and materials you used, paid the rent on the cart, and paid your taxes, any money left over would be profit. Keep in mind that profit is over and above the money you pay yourself in salary. You could use any profit to rent or buy a second cart and hire other employees. After a few summers, you might have a dozen carts employing dozens of workers. Not all enterprises make the same amount of profit. Usually those who take the most risk may make the most profit. There is high risk, for example, in making a new kind of automobile. It's also risky to open a business in an inner city, because insurance and rent are usually higher than in suburban areas, but reduced competition makes substantial profit possible. Big risk can mean big profits. ### Standard of Living and Quality of Life Entrepreneurs such as Sam Walton (Walmart), Bill Gates (Microsoft), Jeff Bezos (Amazon), and Sara Blakely (Spanx) not only became wealthy themselves; they also provided employment for many other people. Walmart is currently the nation's largest private employer. Businesses and their employees pay taxes that the federal government and local communities use to build hospitals, schools, libraries, playgrounds, roads, and other public facilities. Taxes also help keep the environment clean, support people in need, and provide police and fire protection. Thus, the wealth business generate, and the taxes they pay, help everyone in their communities. A nation's businesses are part of an economic system that contributes to the standard of living and quality of life for everyone in the country (and, potentially, the world). How has the slow economic recovery affected the standard of living and quality of life in your part of the world? The term standard of living refers to the amount of goods and services people can buy with the money they have. For example, the United States has one of the highest standards of living in the world, even though workers in some other countries, such as Germany and Japan, may on average make more money per hour. How can that be? Prices for goods and services in Germany and Japan are higher than in the United States, so a person in those countries can buy less than what a person in the United States can buy with the same amount of money. For example, a bottle of beer may cost $7 in Japan and $4 in the United States. Often, goods cost more in one country than in another because of higher taxes and stricter government regulations. Finding the right level of taxes and regulation is important in making a country or city prosperous. We'll explore those issues in more depth in Chapter 2. At this point, it is enough to understand that the United States enjoys a high standard of living largely because of the wealth created by its businesses. The term *quality of life* refers to the general well-being of a society in terms of its political freedom, natural environment, education, health care, safety, amount of leisure, and rewards that add to the satisfaction and joy that other goods and services provide. Maintaining a high quality of life requires the combined efforts of businesses, nonprofit organizations, and government agencies. Remember, there is more to quality of life than simply making money. ### Responding to the Various Business Stakeholders Stakeholders are all the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address. They include customers, employees, stockholders, suppliers, dealers (retailers), bankers, people in the surrounding community, the media, environmentalists, competitors, unions, critics, and elected government leaders (see Figure 1.1).⁴ A primary challenge for organizations of the 21st century will be to recognize and respond to the needs of their stakeholders. For example, the need for the business to make profits may be balanced against the needs of employees to earn sufficient income or the need to protect the environment. Ignore the media, and they might attack your business with articles that hurt sales. Oppose the local community, and it may stop you from expanding. Staying competitive may call for outsourcing. *Outsourcing* means contracting with other companies (often in other countries) to do some or all of the functions of a firm, like its production or accounting tasks. Outsourcing has had serious consequences in some states where jobs have been lost to overseas competitors. We discuss outsourcing in more detail in Chapter 3. The other side of the outsourcing coin is *insourcing*. Many foreign companies are setting up design and production facilities here in the United States. For example, Korea-based Hyundai operates design and engineering headquarters in Detroit, Michigan, and produces cars in Montgomery, Alabama. Japanese automaker Honda has been producing cars in the United States for years, and opened its 12th U.S. manufacturing plant in 2016. Charter brought back its Spanish-speaking call centers to the United States. Insourcing creates many new U.S. jobs and helps offset those jobs being outsourced. It may be legal and profitable to outsource, but is it best for all the stakeholders? Business leaders must make outsourcing decisions based on all factors. Pleasing stakeholders is not easy and often calls for trade-offs. ### Using Business Principles in Nonprofit Organizations Despite their efforts to satisfy their stakeholders, businesses cannot do everything needed to make a community all it can be. Nonprofit organizations—such as public schools, civic associations, charities like the United Way and the Salvation Army, and groups devoted to social causes—also make a major contribution to the welfare of society. A *nonprofit organization* is an organization whose goals do not include making a personal profit for its owners or organizers. Nonprofit organizations often do strive for financial gains, but they use them to meet their social or educational goals rather than for personal profit. Your interests may lead you to work for a nonprofit organization. That doesn't mean, however, that you shouldn't study business in college. You'll still need to learn business skills such as information management, leadership, marketing, and financial management. The knowledge and skills you acquire in this and other business courses are useful for careers in any organization, including nonprofits. We'll explore entrepreneurship right after the Test Prep. ## LO 1-2 Explain How Entrepreneurship and the Other Factors of Production Contribute to the Creation of Wealth. ### The Importance of Entrepreneurs to The Creation of Wealth There are two ways to succeed in business. One is to rise through the ranks of a large company. The advantage of working for others is that somebody else assumes the company's entrepreneurial risk and provides you with benefits like paid vacation time and health insurance. It's a good option, and many people choose it. The other, riskier, but often more exciting, path is to become an entrepreneur. The national anthem, "The Star Spangled Banner," says that the United States is the "land of the free and the home of the brave." Part of being free is being able to own your own business and reap the profits from it. But freedom to succeed also means freedom to fail, and many small businesses fail each year. It takes a brave person to start one. As an entrepreneur, you don't receive any benefits such as paid vacation time, day care, a company car, or health insurance. You have to provide them for yourself! But what you gain—freedom to make your own decisions, opportunity, and possible wealth—is often worth the effort. Before you take on the challenge, you should study successful entrepreneurs to learn the process. You can talk to them personally and read about them in Chapter 6, as well as in other books, magazines (e.g., *Entrepreneur*, *Fast Company*, and *Inc.*), and at websites (e.g., Small Business Administration at www.sba.gov). ### The Five Factors of Production Have you ever wondered why some countries are relatively wealthy and others poor? Economists have been studying the issue of wealth creation for many years. They began by identifying five factors of production that seemed to contribute to wealth (see Figure 1:2): 1. **Land (or natural resources)**. Land and other natural resources are used to make homes, cars, and other products. 2. **Labor (workers)**. People have always been an important resource in producing goods and services, but many people are now being replaced by technology. 3. **Capital**. This includes machines, tools, buildings, or whatever else is used in the production of goods. It might not include money; money is used to buy factors of production but is not always considered a factor by itself. 4. **Entrepreneurship.** All the resources in the world have little value unless entrepreneurs are willing to take the risk of starting businesses to use those resources. 5. **Knowledge.** Information technology has revolutionized business, making it possible to quickly determine wants and needs and to respond with desired goods and services. Traditionally, business and economics textbooks emphasized only four factors of production: land, labor, capital, and entrepreneurship. But the late management expert and business consultant Peter Drucker said the most important factor of production in our economy is and always will be *knowledge*.⁸ What do we find when we compare the factors of production in rich and poor countries? Some poor countries have plenty of land and natural resources. Russia, for example, has vast areas of land with many resources such as timber and oil, but it is not considered a rich country (yet). Therefore, land isn't the critical element for wealth creation. Most poor countries, such as Mexico, have many laborers, so it's not labor that's the primary source of wealth today. Laborers need to find work to make a contribution; that is, they need entrepreneurs to create jobs for them. Furthermore, capital—machinery and tools—is now fairly easy for firms to find in world markets, so capital isn't the missing ingredient either. Capital is not productive without entrepreneurs to put it to use. What makes rich countries rich today is a combination of entrepreneurship and the effective use of knowledge. Entrepreneurs use what they've learned (knowledge) to grow their businesses and increase wealth. Economic and political freedom also matter. The business environment either encourages or discourages entrepreneurship. That helps explain why some states and cities in the United States grow rich while others remain relatively poor. In the following section, we'll explore what makes up the business environment and how to build an environment that encourages growth and job creation. ## LO 1-3 Analyze the effects of the economic environment and taxes on businesses. ### The Economic and Legal Environment People are willing to start new businesses if they believe the risk of losing their money isn't too great. The economic system and the way government works with or against businesses can have a strong impact on that level of risk. For example, a government can minimize spending and keep taxes and regulations to a minimum—policies that tend to favor business. Much of the debate in recent elections has focused on whether or not to raise taxes, how to lower government spending, and whether to cut regulations. One way for government to actively promote entrepreneurship is to allow private ownership of businesses. In some countries，the government owns most businesses, and there’s little incentive for people to work hard or create profit. Around the world today, however, some governments are selling those businesses to private individuals to create more wealth. One of the best things the governments of developing countries can do is to minimize interference with the free exchange of goods and services. (You can read more about the various economic systems in different countries in Chapter 2.) The government can further lessen the risks of entrepreneurship by passing laws that enable businesspeople to write enforceable contracts. In the United States, the *Uniform Commercial Code*, for example, regulates business agreements such as contracts and warranties so that firms know they can rely on one another. In countries that don’t yet have such laws, the risks of starting a business are that much greater. (You can read more about business laws in Bonus Chapter A.) The government can also establish a currency that's tradable in world markets. That is, the currency lets you buy and sell goods and services anywhere in the world when it is easily exchanged for that of the other countries where you do business. If the Chinese did not want to trade their yuan for the U.S. dollar, for instance, it's hard to imagine how Coca-Cola or Disney would have been able to sell their products and services there. (You can read more about currency in Chapter 20). Finally, the government can help minimize corruption in business and in its own ranks. Where governments are corrupt, it’s difficult to build a factory or open a store without a government permit, which is obtained largely through bribery of public officials. Among businesses themselves, unscrupulous leaders can threaten their competitors and unlawfully minimize competition. Many laws in the United States attempt to minimize corruption. Nonetheless, corrupt and illegal activities at some companies do negatively affect the business community and the economy as a whole. The news media widely report these scandals. Ethics is so important to the success of businesses and the economy as a whole that we feature stories about ethics in most chapters and devote Chapter 4 to the subject. Governments from different countries can work together to create an environment that allows entrepreneurship to thrive. For example, in 2015 the United Nations adopted what it calls Sustainable Development Goals (SDGs) that list specific targets for ending poverty and improving the lives of the disadvantaged in the next 15 years. The ultimate goal is to move toward prosperity by partnering governments, businesses, and nonprofits in order to solve problems at the ground level in developing countries. ## LO 1-4 Describe the effects of technology on businesses. ### The Technological Environment Since prehistoric times, humans have felt the need to create tools that make work easier. Few technological changes have had a more comprehensive and lasting impact on businesses, however, than information technology (IT). IT has completely changed the way people communicate with one another. Advertisers and other businesspeople have created ways of using these tools to reach their suppliers and customers. Even politicians have harnessed the power of the Internet to advance their causes. IT is such a major force in business today that we discuss its impact on businesses throughout the entire text. ### How Technology Benefits Workers and You *Technology* means everything from phones to computers, mobile devices, medical imaging machines, robots, the Internet, social media, and the various software programs and apps that make business processes more effective, efficient, and productive. ¹⁰ *Effectiveness* means producing the desired result. While drones can deliver a wide variety of things everything from your Amazon order to a precisely targeted bomb, they are also used to make businesses more productive and efficient. Drones can scan, map, and gather data—tasks that used to require satellites, planes, and helicopters that only the deepest-pocketed companies could afford. Today even small businesses can pick up a drone for a few hundred dollars. Construction companies can use drones to collect data far more frequently and accurately than they can with manned aircraft and human surveyors. Farmers can survey their fields of crops. Communication companies can inspect lofty cell towers. Property inspectors can inspect buildings. And this can all be done at much lower costs than traditional methods. For example, building inspectors usually charge $200-$300 for a typical home roof inspection that can take six hours. However, if the inspector uses a drone, the cost is \$10 and takes only an hour. And piloting a drone is much less risky than climbing ladders or cell towers. Of course, there are many concerns about the use of drones. Drones have been used to buzz planes, endanger military aircraft, and spy on neighbors’ property with tiny video cameras. To combat these threats, Congress has proposed giving the Federal Aviation Administration (FAA) more authority to regulate the use of drones. The drone industry is concerned that the lawmakers will inhibit the development and use of drones in their effort to rein in the people who misuse them. What do you think the government should do to regulate drones? *Productivity* is the amount of output you generate given the amount of input (e.g., hours worked). The more you can produce in any given period, the more money you are worth to companies. The problem with productivity today is that workers are so productive that fewer are needed. ¹¹ Technology affects people in all industries. For example, a farmer can use his computer to compare data from the previous year’s harvest with drone or satellite photos of his farm that show which crops are flourishing. He can check the latest grain prices and use the website www.newAgTalk.com to converse with other farmers from all over the world. He can also save money on chemicals by bidding for bulk fertilizer on FarmTrade,com, an online agricultural exchange. High-tech equipment tells him how and where to spread fertilizer and seed, tracks yields yard by yard, and allows him to maintain high profit margins. ¹² Of course, more tech often means fewer workers. Is that a good or bad thing for farmers? *E-commerce* is the buying and selling of goods online. There are two major types of e-commerce transactions: *business-to-consumer (B2C)* and *business-to-business (B2B)*. As important as the Internet has been to online retailers in the consumer market, it has become even more important in the B2B market, where businesses sell goods and services to one another, such as IBM selling consulting services to a local bank. E-commerce has become so important that we discuss it in many chapters throughout the text. ## LO 1-5 Demonstrate how businesses can meet and beat competition. ### The Competitive Environment Competition among businesses has never been greater. Some have found a competitive edge by focusing on quality. The goal for many companies is *zero defects*—no mistakes in making the product. However, even achieving a rate of zero detects isn’t enough to stay competitive in world markets. Companies now have to offer both high-quality products and *good value*—that is, outstanding service at competitive prices. ### Competing by Exceeding Customer Expectations Today’s customers want not only good quality at low prices but great service, as well. Every manufacturing and service organization in the world should have a sign over its door telling its workers that the customer is king. Business has become more customer-driven, not management-driven, as often occurred in the past. Successful organizations must now listen more closely to customers to determine their wants and needs, and then adjust the firm’s products, policies, and practices accordingly. We will explore these ideas in more depth in Chapter 13. ### Competing by Restructuring and Empowerment To meet the needs of customers, firms must give their frontline workers—for example, office clerks, front-desk people at hotels, and salespeople—the responsibility, authority, freedom, training, and equipment they need to respond quickly to customer requests. They also must allow workers to make other decisions essential to producing high-quality goods and services. The process is called *empowerment*, and we’ll be talking about it throughout this book. ## LO 1-6 Analyze the social changes affecting businesses. ### The Social Environment *Demography* is the statistical study of the human population with regard to its size, density, and other characteristics such as age, race, gender, and income. In this text, we’re particularly interested in the demographic trends that most affect businesses and career choices. The U.S. population is going through major changes that are dramatically affecting how people live, where they live, what they buy, and how they spend their time. Furthermore, tremendous population shifts are leading to new opportunities for some firms and to declining opportunities for others. For example, there are many more retired workers than in the past, creating new markets for all kinds of goods and services. ### Managing Diversity *Diversity* has come to mean much more than recruiting and keeping minority and female employees. *Diversity efforts now include older adults, people with disabilities, people with different sexual orientations, atheists, religious, extroverts, introverts, married people, and singles. It also means dealing sensitively with workers and cultures around the world. ¹⁷* Legal and illegal immigrants have had a dramatic effect on many regions, and will continue to do so as the government debates immigration reform. Businesses, schools, and hospitals have been especially affected. ¹⁸ Some local governments are making efforts to adapt, including changing signs, brochures, websites, and forms to include other languages. Has your city experienced such changes? What are some of the impacts you’ve noticed? How has the debate about changing immigration policies affected your community? ### The Increase in the Number of Older Citizens People aged 65 to 74 are currently the richest demographic group in the United States. ¹⁹ Therefore they represent a lucrative market for companies involved with food service, transportation, entertainment, education, lodging, and so on. By 2030 the percentage of the population 65 or older will be over 20 percent, by 2050 it will more than double.²⁰ What do these changes mean for you and for businesses in the future? Think of the products and services that middle-aged and elderly people will need—medicine, nursing homes, assisted-living facilities, adult day care, home health care, transportation, recreation, and the like—and you’ll see opportunities for successful businesses of the 21st century. Don’t rule out computer games and online services. Businesses that cater to older consumers will have the opportunity for exceptional growth in the near future. The market is huge. On the other hand, retired people will be draining the economy of wealth. Social Security has become a major issue. The pay-as-you-go system (in which workers today pay the retirement benefits for today’s retirees) operated just fine in 1940, when 42 workers supported each retiree; but by 1960, there were only 5 workers per retiree, and today, as members of the baby-boom generation (born between 1946 and 1964) retire, that number is under 3 and is projected to drop to 2 by 2030.²¹ In addition, the government has been spending the accumulated Social Security money instead of leaving it in a Social Security account. Soon, less money will be coming into Social Security than will be going out. The government will have to do something to make up for the shortfall: raise taxes, reduce Social Security benefits (e.g., raise the retirement age at which people qualify for payments), reduce spending elsewhere (e.g., in other social programs like Medicare or Medicaid), or borrow on the world market. In short, paying Social Security to senior citizens in the future will draw huge amounts of money from the working population. That is why there is so much discussion in the media today about what to do with Social Security. ### The Increase in the Number of Single-Parent Families It is a tremendous task to work full-time and raise a family. Thus, the rapid growth of single-parent households has also had a major effect on businesses. Single parents, including those forced by welfare rules to return to work after a certain benefit period, have encouraged businesses to implement programs such as family leave (giving workers time off to attend to a sick child or elder relative) and flextime (allowing workers to arrive or leave at selected times). You will read about such programs in more detail in Chapter 11. ## LO 1-7 Identify what businesses must do to meet global challenges, including war and terrorism. ### The Global Environment The *global environment* of business is so important that we show it as surrounding all other environmental influences (see again Figure 1.3). Two important changes here are the growth of global competition and the increase of free trade among nations. *World trade*, or globalization, has grown thanks to the development of efficient distribution systems (we’ll talk about these in Chapter 15) and communication advances such as the Internet. Globalization has greatly improved living standards around the world. China and India have become major U.S. competitors. Shop at Walmart and most other U.S. retail stores, and you can’t help but notice the number of “Made in China” stickers you see. Call for computer help, and you are as likely to be talking with someone in India as someone in the United States. As the Reaching Beyond Our Borders box on the next page discusses, China has become a key to success for even Hollywood and the movie business. World trade has its benefits and costs. You’ll read much more about its importance in Chapter 3 and in the other “Reaching Beyond Our Borders” boxes throughout the text. ### War and Terrorism War and terrorism have drained trillions of dollars from the U.S. economy.²² Some companies—like those that make bullets, tanks, and uniforms—have benefited greatly. Others, however, lost workers to the armed forces, and still others (e.g., tourism) have grown more slowly as money was diverted to the war effort. The threat of more wars and terrorism leads the government to spend even more money on spying and the military. Such expenditures are subject to much debate. The increased unrest in the world adds great uncertainty. This uncertainty is considered by some to be the biggest risk in business. It is difficult to plan when there are so many unknown factors such as how changes in military policy will affect the economy.²³ The threat of terrorism also adds greatly to organizational costs, including the cost of insurance. In fact, some firms are finding it difficult to get insurance against terrorist attacks. Security, too, is costly. Airlines, for example, have had to install stronger cockpit doors and add more passenger screening devices. Like all citizens, businesspeople benefit from a peaceful and prosperous world. One way to lessen international tensions is to foster global economic growth among both profit-making and nonprofit organizations. ### How Global Changes Affect You As businesses expand to serve global markets, new jobs will be created in both manufacturing and service industries. Global trade also means global competition. The students who will prosper will be those prepared for the markets of tomorrow. Rapid changes create a need for continuous learning, so be prepared to continue your education throughout your career. You’ll have every reason to be optimistic about job opportunities in the future if you prepare yourself well. ### The Ecological Environment Few issues have captured the attention of the international business community more than *climate change*. *Climate change* is the movement of the temperature of the planet up or down over time. There are some who remain unconvinced of the dangers of global warming. 24 However, most scientists and many of the world’s largest firms—including General Electric, Coca-Cola, Shell, Nestlé, DuPont, Johnson & Johnson, British Airways, and Shanghai Electric—say the evidence for climate change is overwhelming. Saving energy and producing products that cause less harm to the environment, such as solar energy, is called greening. ²⁵ ## LO 1-8 Review how past trends are being repeated in the present and what those trends mean for tomorrow's college graduates. ### The Evolution of U.S. Business Businesses in the United States have become so productive that they need fewer workers than ever before to produce goods. If global competition and improved technology are putting skilled people out of work, should we be concerned about the prospect of high unemployment rates and low incomes? Where will the jobs be when you graduate? These important questions force us all to look briefly at the U.S. economy and its future. ### Progress in the Agricultural and Manufacturing Industries The United States has experienced strong economic development since the 1800s. The agricultural industry led the way, providing food for the United States and much of the world. Cyrus McCormick’s invention of the harvester in 1834, other inventions such as Eli Whitney’s cotton gin, and modern improvements on such equipment did much to make large-scale farming successful. Technology has made modern farming so efficient that the number of farmers has dropped from about 33 percent of the population to less than 1 percent today. However, average farm size is now about 430 acres versus 150 acres in the past. 26 Most farmers who lost their jobs during the 19th and 20th centuries went to work in factories springing up around the country. Manufacturers, like farms, began using new technology, new tools, and machines to become more productive. Eventually the consequence in manufacturing, as in farming, was the elimination of many jobs. Again, the loss to society is minimized if the wealth created by increased productivity and efficiency creates new jobs elsewhere—and that’s exactly what has happened over the past 50 years. Many workers in the industrial sector found jobs in the growing service sector. Most of those who can’t find work today are people who need retraining and education to become qualified for jobs that now exist or will exist in the near future, such as building wind farms or making electric automobiles. We’ll discuss the manufacturing sector and production in more detail in Chapter 9. *Agriculture* is one of the largest and most important industries in the United States. Technology has increased productivity and made farmers more efficient, allowing for larger farms. This trend has helped reduce the increase in price of some foods for consumers, but has also reduced the number of small, family-run farms. Does the new technology also help smaller farms compete? If so, how? ## LO 1-8 Review how past trends are being repeated in the present and what those trends mean for tomorrow's college graduates. ### The Evolution of U.S. Business Businesses in the United States have become so productive that they need fewer workers than ever before to produce goods. If global competition and improved technology are putting skilled people out of work, should we be concerned about the prospect of high unemployment rates and low incomes? Where will the jobs be when you graduate? These important questions force us all to look briefly at the U.S. economy and its future. ### Progress in the Agricultural and Manufacturing Industries The United States has experienced strong economic development since the 1800s. The agricultural industry led the way, providing food for the United States and much of the world. Cyrus McCormick’s invention of the harvester in 1834, other inventions such as Eli Whitney’s cotton gin, and modern improvements on such equipment did much to make large-scale farming successful. Technology has made modern farming so efficient that the number of farmers has dropped from about 33 percent of the population to less than 1 percent today. However, average farm size is now about 430 acres versus 150 acres in the past.²⁶ Most farmers who lost their jobs during the 19th and 20th centuries went to work in factories springing up around the country. Manufacturers, like farms, began using new technology, new tools, and machines to become more productive. Eventually the consequence in manufacturing, as in farming, was the elimination of many jobs. Again, the loss to society is minimized if the wealth created by increased productivity and efficiency creates new jobs elsewhere—and that’s exactly what has happened over the past 50 years. Many workers in the industrial sector found jobs in the growing service sector. Most of those who can’t find work today are people who need retraining and education to become qualified for jobs that now exist or will exist in the near future, such as building wind farms or making electric automobiles. We’ll discuss the manufacturing sector and production in more detail in Chapter 9. ### Agriculture *Agriculture* is one of the largest and most important industries in the United States. Technology has increased productivity and made farmers more efficient, allowing for larger farms. This trend has helped reduce the increase in price of some foods for consumers, but has also reduced the number of small, family-run farms. Does the new technology also help smaller farms compete? If so, how? ### Services Expand the Circular Economy When is the last time you bought a movie on DVD? Today most of us watch movies on Netflix or some other on-demand service. Same with music—why store stacks of CDs when you can use services like Spotify? All sorts of products are becoming services. For example, you store files in the cloud instead of your computer. You can take Ubers or Lyfts instead of owning a car. Businesses can rent office carpets by the month, rent lighting or printing by the page. Technology enables a large variety of products to be offered as services. The *Internet of Things* (IoT, see Bonus Chapter B) put sensors on all sorts of things that allow companies to track usage, measure performance, and develop new business models. For example, GPS enables car companies to provide *mobility services* (such as BMW's ReachNow, General Motors' Maven and Zipcar's car-sharing services). Some ride-sharing services are beginning to use technology called *telematics* to track drivers’ performance. Sensors in the drivers’ cell phones can track when they speed, cut corners, brake suddenly, or send texts while driving. The *product-as-service model* is one way to move away from a "take-make-dispose" economy (i.e., take raw materials, make a product, and dispose of it when you’re finished with it) toward a more circular economy that reduces waste. Companies that retain ownership of their products maintain them and extend their life cycles. Instead of planning for obsolescence so we buy new versions of the products more often, companies that provide products as services have an incentive to make products that last as long as possible and that can be repaired easily and cheaply. Think of all the landfill space that would save. ### Progress in Service Industries In the past, the fastest-growing industries in the United States produced goods like steel, automobiles, and machine tools. Today, the fastest-growing firms provide services in areas such as law, health, telecommunications, entertainment, and finance. Together, services make up nearly 80 percent of the value of the U.S. economy. ²⁷ Since the mid-1980s, the service industry has generated almost all the increases in employment. Although service-sector growth has slowed, it remains the largest area of growth. Chances are very high that you’ll work in a service job at some point in your career. Figure 1.4 lists many service-sector jobs; look it over to see where the careers of the future are likely to be. Retailers like Nordstrom Rack are part of the service sector. Each new retail store can create managerial jobs for college graduates. Another bit of good news is that there are more high-paying jobs in the service sector than in the goods-producing sector. High-paying service-sector jobs abound in health care, accounting, finance, entertainment, telecommunications, architecture, law, software engineering, and more. ²⁸ Projections are that some areas of the service sector will grow rapidly, while others may have much slower growth (see the Adapting to Change box). The strategy for college graduates is to remain flexible, find out where jobs are being created, and move when appropriate. ### Using Technology to Be Responsive to Customers A major theme of this text is that those businesses most responsive to customer wants and needs will succeed. Technology can help businesses respond to customer needs in many ways. For example, businesses use bar codes to identify products you buy and their size, quantity, and color. The scanner at he checkout counter identifies the price but can also put all your purchase information into a *database*, an electronic storage file for information. Databases enable stores to carry only the merchandise their local customers want. But Because companies routinely trade database information, many retailers know what you buy and from whom you buy it