Business Foundations - Part 1 PDF

Part 1 Business in a Changing World Chapter 1 ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. ...

Part 1 Business in a Changing World Chapter 1 ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  Part 1 Business in a Changing World CHAPTER 1 The Dynamics of Business and Economics The nature of business The economic foundation of Business The forces of supply and demand, and the nature of competition CHAPTER 2 Business Ethics and Social Responsibility 2 ©McGraw-Hill Education.  Learning Objectives LO 1-1 Define basic concepts such as business, product, and profit. LO 1-2 Identify the main participants and activities of business and explain why studying business is important. LO 1-3 Define economics and compare the four types of economic systems. LO 1-4 Describe the role of supply, demand, and competition in a free-enterprise system. LO 1-5 Specify why and how the health of the economy is measured. 3 ©McGraw-Hill Education.  The Nature of Business Business: (what, why, how) – Is defined as individuals or organizations who try to earn a profit by providing products that satisfy people’s needs. (The Goal of the business is to make Profit). (The Outcomes of the business efforts are products). Products: – Are goods or services with tangible and intangible characteristics that provide satisfaction and benefits. When you purchase a product, you are buying the benefits and satisfaction you think the product will provide. (i.e. A Subway sandwich, may be purchased to satisfy hunger). 4 ©McGraw-Hill Education.  A Product Can Be… a. Tangible goods o Automobile o Computer o Smartphone o Coat b. Services (occurs when people or machines provide or process something of value to customers) o Dry cleaning o Doctor’s checkup o Movies o Sports event c. Ideas o When Professionals generate ideas for solving problems (i.e. Accountants and Lawyers generate ideas for solving problems) 5 ©McGraw-Hill Education.  The Goal of Business The goal of business is to earn a profit. Profit: is the difference between what it costs to make and sell a product (Making cost) and what a customer pays for it (selling price) Example: $10 selling price –$8 cost to make = $2 profit (Selling price) – (Making cost) = Profit The goal is to produce and sell a product at a price that a consumer will pay that is above your costs of making and selling it. Earning profits contributes to society, HOW? By creating resources that support our social institutions and government. Businesses that create profits: pay taxes, and create jobs are the foundation of our economy. Profits must be earned in a responsible manner (ethical and socially responsible manner) 6 ©McGraw-Hill Education.  Nonprofit Organizations Not all organizations exist to make a profit! Nonprofit Organizations – Provide goods and services – Do not have the purpose of earning profits – Engage in fund raising – Engage in management, marketing and finance to reach goals Examples: Charities, National or Government Hospitals and Schools. 7 ©McGraw-Hill Education.  What is required to Earn a Profit? To earn a profit: 1. A person or organization needs management skills to plan, organize, and control the activities of the business and to find and develop employees so that it can make products that consumers will buy. 2. A business also needs marketing expertise to learn what products consumers need and want and to develop, manufacture, price, promote, and distribute those products. (4 Ps: product, price, promotion, place) 3. A business needs financial resources and skills to fund, maintain, and expand its operations. 4. Other challenges for businesspeople include abiding by laws and government regulations; 5. Acting in an ethical and socially responsible manner; 6. Adapting to economic, technological, political, and social changes. 8 ©McGraw-Hill Education.  Stakeholders Stakeholders: are groups that have a stake (interest) in the success and outcomes of a business Stakeholders include: Customers, Employees, Investors, Government regulators, The community To achieve and maintain profitability, businesses must: Produce quality products, Operate efficiently (with minimum resources), Be socially responsible and ethical in dealing with stakeholders 9 ©McGraw-Hill Education.  Overview of the Business World a. Owners, employees, and customers are the main stakeholders and are located in the center of the figure. b. Then, the Business Functions, such as management, marketing & finance. c. Then, the external environment in which the business operates; including: competition, the economy, information technology, legal and political forces, and social responsibility and ethics. (factors that have an impact on the daily operations of the business) 10 ©McGraw-Hill Education.  Overview of the Business World 11 ©McGraw-Hill Education.  Business Functions: 1. Management Management and employees are in the same segment of the circle. Why? o Because Management is concerned with: ✓ Developing plans, ✓ Coordinating employees’ actions (to achieve the firm’s goals), ✓ Organizing people to work efficiently and motivating them to achieve the business’s goals ✓ Using resources (including people) effectively and efficiently 12 ©McGraw-Hill Education.  Business Functions: 2. Marketing The focus of all marketing activities is satisfying customers’ needs and wants. a. Marketers determine customer needs (using marketing research) b. Marketers Plan and develop products (Using information gathered from marketing research), c. Determine price (how much to charge for their products) d. Determine place (distribution: when and where to make products available) e. Determine promotion to communicate the benefits and advantages of their products to consumers and increase sales. – Promotion includes: advertising, personal selling, sales promotion (coupons, games, sweepstakes, movie tie-ins), and publicity. 13 ©McGraw-Hill Education.  Business Functions: 3. Finance The owner is primarily responsible for obtaining financial resources for the operation of the business. Finance refers to all activities concerned with: ✓ Obtaining money ✓ Using money effectively (to achieve the goals) 14 ©McGraw-Hill Education.  Why Study Business? 1. Studying business can help you Develop skills and acquire knowledge to prepare for your future career success. 2. The field of business offers a variety of challenging and interesting opportunities: ▪ Marketing ▪ Human resources management ▪ Information technology ▪ Finance ▪ Production and operations ▪ Wholesaling and retailing 3. Become a well-informed consumer and member of society. 15 ©McGraw-Hill Education.  Economic Foundations of Business Economics: the study of how Resources are distributed for the production of goods and services within a social system. There are four types of Resources: factors of production 1. Natural resources: land, forest, minerals, water and other things not made by people 2. Human resources: (also called labor): are the physical and mental abilities people use to produce goods and services 3. Financial resources: (also called capital): the funds used to acquire the natural and human resources needed to provide products 4. Intangible resources: such as a good reputation for quality products or being socially responsible 16 ©McGraw-Hill Education.  Economic Systems Economic system: is defined as a description of how a particular society distributes its resources to produce goods and services – All economic systems must address three important issues: 1. What goods and services, and how much of each, will satisfy consumers’ needs? 2. How will goods and services be produced, who will produce them, and with what resources will they be produced? 3. How are the goods and services to be distributed to consumers? 17 ©McGraw-Hill Education.  Economic Systems 1. Communism Communism (All resources to all) Mixed 2. Socialism Economies Socialism 3. Capitalism (Free Enterprise) (Gov. owns basic industries) 4. Mixed Economies Capitalism (Individuals Own majority of Bus.) 18 ©McGraw-Hill Education.  1- Communism It was first described by Karl Marx as a society in which the people, without regard to class, own all the nation’s resources On paper, it appears efficient and equitable, producing less of a gap between rich and poor. In practice, communist economies suffer from: a. Low standards of living b. Critical shortages of consumer goods c. High prices d. Corruption and little freedom Example: China, Russia 19 ©McGraw-Hill Education.  2- Socialism – It refers to an economic system in which the government owns and operates basic industries, but individuals own most businesses Basic industries include: (postal service, telephone, utilities, transportation, health care, banking, and some manufacturing) – Socialist Systems/countries: Are democratic and recognize basic individual freedoms Allow a higher standard of living More stable; but Taxes and unemployment are generally higher – Examples: Sweden, India 20 ©McGraw-Hill Education.  3- Capitalism (Free-Enterprise) It is an economic system in which individuals own and operate the majority of businesses that provide goods and services There are two forms of capitalism: 1. Pure capitalism or free-market system happens when all economic decisions are made without government intervention; also called laissez-faire (let it be) capitalism or free-market systems (i.e. Germany) 2. Modified capitalism: where the government intervenes and regulates business to some extent through laws. (i.e. US) Competition, supply, and demand determine which goods and services are produced, how they are produced, and how they are distributed. Examples: Australia, United States, Canada, and Japan. 21 ©McGraw-Hill Education.  4- Mixed Economies Mixed Economies: are economies made up of elements from more than one economic system. No country practices pure capitalism, socialism, or communism, yet, most nations operate as mixed economies, and favor one system over others China and Russia have used state (modified) capitalism to advance the economy, integrating powers of the state (government) with advantages of capitalism. 22 ©McGraw-Hill Education.  The Forces of Supply and Demand Supply: is the number Demand: is the number of products businesses of products consumers are willing to sell at are willing to buy at different prices at a different prices at a specific time. specific time. 23 ©McGraw-Hill Education.  The Nature of Competition Competition is the rivalry among businesses for consumer’s dollars. o Benefit: it fosters efficiency and low prices by forcing producers to offer the best products at the most reasonable price. There are four types of competitive environments: 1. Pure Competition, 2. Monopolistic Competition, 3. Oligopoly, 4. Monopoly. Check this Vid. 24 ©McGraw-Hill Education.  The Nature of Competition 1. Pure competition – The market structure that exists when there are many small businesses selling one standardized product and no difference in the products (bottled water, fish, cotton, Fruit, Vegetables,,,) 2. Monopolistic competition – The market structure that exists when fewer businesses than in a pure competition environment and the differences among the goods they sell are small (i.e. Clothes, Aspirin, soft drinks, vacuum cleaners: differ slightly in packaging, warranty, name but all satisfy the same consumer needs). 3. Oligopoly – The market structure that exists when there are very few businesses selling a product. – Businesses have control over their products’ price because they supply a large portion of the products sold in the marketplace. – Prices charged by different firms stay close because any increase or decrease will trigger a similar response from another company. (i.e. Oil industry, Netflix, Apple, Cars, Google, Nike) 4. Monopoly – The market structure that exists when there is only one business providing a product in a given market (Utilities companies: electricity, natural gas, water)25 ©McGraw-Hill Education.  Nature of Competition (Examples) Pure competition Monopolistic competition Oligopoly Monopoly  Economic Cycles and Productivity Economies are not stagnant/stable; they expand and contract. Economic expansion occurs when an economy is growing: – People are spending more money; – Their purchases stimulate the production of products; – Which in turn stimulates employment; – This may lead to inflation – a continuing rise in prices Economic contraction is a slowdown of the economy characterized by: – A decline in spending; – During which businesses cut back on production and lay off workers; – This may lead to recession – a decline in production, employment and income 27 ©McGraw-Hill Education.  28 ©McGraw-Hill Education.