Chapter 1-3 Business Concept & Role PDF

CHAPTER 1 includes not just land, but anything that comes BUSINESS: IT’S CONCEPT AND ROLE FOR from the land. Some common land or natural MAN AND NATIONAL ECONOMY resources are water, oil, copper, natural gas,...

CHAPTER 1 includes not just land, but anything that comes BUSINESS: IT’S CONCEPT AND ROLE FOR from the land. Some common land or natural MAN AND NATIONAL ECONOMY resources are water, oil, copper, natural gas, coal, and forests. Concept of Business RENT What Is a BUSINESS? The income that resource owners earn in return A Business is defined as an enterprise or for land resources is called rent. organization engaged in commercial, manufacturing, or professional activities. SECOND FACTOR of production is LABOR. - The term business also refers to - LABOR is the effort that people organized activities of individual or team to contribute to the production of goods and create and distribute goods and services aimed services. If you have ever been paid for a job, to meet the economic needs of consumers with you have contributed labor resources to the an objective of eventually earning profit. production of goods or services. - ENTREPRENEURS WAGES The income earned by labor resources is called usually start with conducting a market research wages and is the largest source of income for wherein they are most people. studying the demands, needs and wants of the community. THIRD FACTOR of production is CAPITAL. Think of capital as the machinery, tools and Relationship of Business and Economy buildings humans use to produce goods and services. Some common examples of capital - Businesses provide goods and services include hammers, forklifts, conveyer belts, that drive economic output. The production of computers, and delivery vans. goods came from the factors offered by the society like (labor, capital, land, and INTEREST entrepreneur). The income earned by owners of capital resources is interest. - While business deals with selling product or services to a consumer, economics deals with FOURTH FACTOR of production is supply and demand of all products in the ENTREPRENEURSHIP. country. They are related since performance of business in general affect economy at large. An ENTREPRENEUR is a person who combines the other factors of Elements of a Business production - land, labor, and capital - to earn a profit. The factors of production are resources that are the building blocks of the economy; they are The most successful entrepreneurs are what people use to produce goods and services. innovators who come up with new ways of Economists divide the factors of production into producing goods and services or creating new four categories: land, labor, capital, and goods and services for marketing. entrepreneurship. Without the entrepreneur mixing land, labor and FIRST FACTOR of production is LAND, capital in new ways, there which refers to all the natural resources would not be many of the developments we see that serves as raw materials for the production around us. of a certain goods. This Entrepreneurs are a vital engine of economic 2. SAFETY NEED growth helping to build some of the largest - the desire for security, stability, or protection firms in the world as well as some of the small against danger; businesses in your neighborhood. 3. SOCIAL NEED Entrepreneurs thrive in economies where they - the need for group belongingness, affection, have the freedom to start businesses and buy love, and friendship; resources freely. The payment to entrepreneurship is profit. 4. EGO OR SELF-ESTEEM NEED - the need for self-recognition or group satisfaction; Why do People Engage in Business? 5. SELF-FULFILLMENT NEED Entrepreneurs in exchange of producing goods - the need for the realization of personal goal or and services looks into two important ambition. aspect Kinds of Business and Forms of Ownership (a) primary is to earn profit (b) help in the enhancement and advancement Kinds of Business of today’s living. Profit could be measured by 1. Industries deducting expenses from the company’s involve the conversion of raw materials into revenues. finished products or goods and the application of labor upon raw materials so that greater Gaining profit in a business entity has a great usefulness becomes possible after the process impact especially for small in the industrial group can be divided into businesses: extractive industries: farming, fishing, and mining. The manufacturing industries use it allows a company to secure financing from a materials and supplies turned out by the bank, attract new investors to extractive industries and change these raw fund its operations and grow its business. materials into various articles of materials for further production of goods and new Aside from profit motive, people engage in products business because of the following reasons: 2. Commerce involves the process of power, profit, service to the community, prestige, buying and selling where the goods are livelihood, social approval, etc. moved from the point of production to the Businessmen want to earn profit, serve" the point of consumption. community, and achieve prestige because of certain stimuli, and these are the motivational Consumption involves purchasing factors. These factors can be clearly explained and the actual investment of capital in the and directly linked with the theory postulated by merchandise handled with the intention of Abraham W. Maslow, an industrial psychologist. reselling at a profit. According to his Hierarchy of Needs theory, there are five needs of 3. Service enterprises are primarily men that are to be satisfied continually in the concerned with the satisfaction of the following order: needs and wants of the consumers. These are subdivided into: 1. PHYSIOLOGICAL OR BIOLOGICAL NEED – the essentials for survival, such as the need (a) public and community service; and for food, clothing, shelter, sex, air, water; (b) professional or trade service, Examples of the first group are transportation Advantages of a Partnership companies, MERALCO, motion picture Partnerships are relatively easy to establish; producers, and newspaper publishers. however time should be invested in Professional and trade services are businesses developing the partnership agreement. which capitalize on personal skill and talent for With more than one owner, the ability to raise rendering service. funds may be increased. The profits from the business flow directly RETAINER'S FEE through to the partners’ personal tax Payment for such personalized service is returns. usually in the form of fees which are sometimes Prospective employees may be attracted to the called retainer's fee. business if given the incentive to become a partner. Forms of Business Ownership The business usually will benefit from partners who have complementary skills. 1. Sole Proprietorship These entities are owned by one person, Disadvantages of a Partnership usually the one who is accountable for the Partners are jointly and individually liable for day-to-day running of business. the actions of the other partners. Sole proprietors own all of the business' assets Profits must be shared with others. and the profits that it generates. Since decisions are shared, disagreements can occur. Advantages: Some employee benefits are not deductible Easiest and least expensive form of ownership from business income on tax returns. The to organize. partnership may have a limited life; it may end Sole proprietors are in complete control, and upon the withdrawal or death within the parameters of the law, may of a partner. make decisions as they see fit. Sole proprietors receive all income generated Types of Partnerships that should be by the business to keep or reinvest. considered: Profits from the business flow-through directly to the owner’s personal tax return. GENERAL PARTNERSHIP The business is easy to dissolve, if desired. Partners divide responsibility for management and liability, as well as the shares of profit Disadvantages: or loss according to their internal agreement. Sole proprietors have unlimited liability and are Equal shares are assumed unless there is a legally responsible for all debts written agreement that states differently. against the business. Their business and personal assets are at risk. LIMITED PARTNERSHIP AND PARTNERSHIP Funds are limited with their personal savings WITH LIMITED LIABILITY or loans “Limited” means that most of the partners have May have a hard time attracting high-calibre limited liability (to the extent of their employees investment) as well as limited input regarding management decisions, which generally 2. PARTNERSHIP encourages investors for short term projects, or By the contract of partnership two or more for investing in capital assets. This form of persons bind themselves to contribute money, ownership is not often used for operating retail property, or industry to a common fund, with the or service businesses. Forming a limited intention of dividing the profits among partnership is more complex and formal than themselves. that of a general partnership. 3. CORPORATION COMMUNISM A corporation is an artificial being created by – stands for the collective ownership by the operation of law having the right of succession government of consumption goods and and the powers, attributes and properties production goods. expressly authorized by law or incident to its existence How to Register your Business? Whether the type of enterprise you want to run Advantages in the Philippines is a sole proprietorship, a Shareholders have limited liability for the partnership, or a corporation, the basic legal corporation’s debts or judgments against requirements of starting a business in the the corporations. Philippines are the following: Generally, shareholders can only be held 1. Register the business with the accountable for their investment in stock corresponding department or agency of the company. (Note however, that officers can be held personally liable for their actions, such Sole proprietorships must be registered with the as the failure to withhold and pay employment Department of Trade and Industry (DTI). taxes.) Partnerships and corporations, on the other hand, must be registered with the Securities Corporations can raise additional funds and Exchange Commission (SEC). The name of through the sale of stock. the business is also included in the registration. A corporation may deduct the cost of benefits it provides to officers and employees. 2. OBTAIN A BUSINESS PERMIT Disadvantages Head to the local government unit of the place The process of incorporation requires more you intend to operate your business in. time and money than other forms of Secure a business or mayor’s permit. Each organization. municipality has its own specific requirements Corporations are monitored by federal, state and procedures for the registration of and some local agencies, and as a businesses, so be sure to check the individual result may have more paperwork to comply with websites of these areas for more information. regulations. Many of the basic requirements include: Incorporating may result in higher overall taxes. Dividends paid to shareholders DTI or SEC registration form are not deductible form business income, thus Barangay clearance this income can be taxed twice. Zoning clearance Sketch of the location KINDS OF ECONOMIC SYSTEM Land title or contract of lease Community tax certificate CAPITALISM Public liability insurance – a system in which the means of production are Occupancy permit owned and operated by private individuals. Sanitary permit SOCIALISM Environmental permit – the ownership of production and capital by the Fire permit government and theregulation by society, as a whole, of the process of production and distribution, and of the giving of essential services. 3. Register with the Bureau of Internal 5. ADDITIONAL REQUIREMENTS: Revenue (BIR) Aside from the requirements mentioned above, there are also other special requirements After obtaining the necessary documents and that businesses need. These requirements permits, register the business with the depend on the nature of the business and their corresponding industry. If you intend to open a BUREAU OF INTERNAL REVENUE (BIR). school or offer training or education Business owners need to get a Taxpayer programs, register with the Department of Identification Number (TIN) from the Education (DepEd). For businesses that sell food products, register with the Bureau of Food REVENUE DISTRICT OFFICE (RDO) and Drugs (BFAD). within the registered location of the business. Socio Economic Contribution of There are two kinds BIR forms you can fill out Entrepreneurship depending on the type of business you’re starting. These forms are: Entrepreneurship creates employment Entrepreneurship improves the quality of life Form 1901 for people who are self-employed, Entrepreneurship contributes to more equitable single proprietors, or professionals distribution of income taxes and therefore eases social unrest. Form 1903 for partnerships and corporations Entrepreneurship utilizes and mobilizes resources for greater national productivity. 4. REGISTERING WITH THE SSS, PHILHEALTH, AND PAG-IBIG FUND If you hire employees, register them with the necessary government programs. The Social Security System (SSS) is a social insurance program that collects the monthly contribution of employees, along with the share of their employer. The SSS gives employees health and retirement benefits from their monthly contributions, along with a variety of small loans. An SSS membership is mandatory for all employees who are 60 years old and below. THE PHILIPPINE HEALTH INSURANCE CORPORATION (PHILHEALTH) is another government agency that requires monthly contributions from the employee and the employer. THE HOME DEVELOPMENT MUTUAL FUND (PAG-IBIG FUND) provides a variety of housing loans to employees. Monthly contributions are deducted from the salary of the employee. CHAPTER 2- BUSINESS ENVIRONMENT factors also include conditions in the SCANNING markets for stocks and bonds, which can affect consumer confidence and Businesses must first develop a deep discretionary income. Some industries, understanding of the company’s present such as construction, are particularly situation. vulnerable to economic downturns but -its external environment—most are positively affected by factors such as notably, the competitive conditions of the low interest rates. Others, such as industry in which the company operates. discount retailing, may benefit when (uncontrollable forces) general economic conditions weaken, as consumers become more price- -its internal environment—particularly conscious. the company’s resources and organizational capabilities. (controllable forces) Sociocultural forces Sociocultural forces include the societal The macro-environment encompasses the values, attitudes, cultural influences, and broad environmental context in which a lifestyles that impact demand for company’s industry is situated. particular goods and services, as well as demographic factors such as the population size, growth rate, and age PESTEL analysis can be used to assess distribution. Sociocultural forces vary by the strategic relevance of the six principal locale and change over time. An example components of the macro-environment: is the trend toward healthier lifestyles, P olitical, which can shift spending toward exercise E conomic, equipment and health clubs and away S ocial, from alcohol and snack foods. Population T echnological, demographics can have large E nvironmental, and implications for industries such as health L egal/ Regulatory forces. care, where costs and service needs vary with demographic factors such as age Political factors and income distribution. These factors include political policies, including the extent to which a Technological factors government intervenes in the economy. Technological factors include the pace of They include such matters as tax policy, technological change and technical fiscal policy, tariffs, the political climate, developments that have the potential for and the strength of institutions such as wide-ranging effects on society, such as the federal banking system. Some genetic engineering and nanotechnology. political policies affect certain types of They include institutions involved in industries more than others. An example creating new knowledge and controlling is energy policy, which affects energy the use of technology, such as R&D producers and heavy users of energy consortia, university-sponsored more than other types of businesses. technology incubators, patent and copyright laws, and government control Economic conditions over the Internet. Technological change Economic conditions include the general can encourage the birth of new economic climate and specific factors industries, such as the delivery drone such as interest rates, exchange rates, industry, and disrupt others, such as the the inflation rate, the unemployment rate, recording industry. the rate of economic growth, trade deficits or surpluses, savings rates, and per-capita domestic product. Economic  Bargaining Power of Suppliers Environmental forces These include ecological and Generally suppliers exercise bargaining environmental forces such as weather, power through higher prices, or reduced climate, climate change, and associated supply. factors like water shortages. These The effect could be quite significant, factors can directly impact industries particularly when the number of suppliers such as insurance, farming, energy in the industry is limited, when the production, and tourism. They may have supplied product is an important input, an indirect but substantial effect on other switching costs and prices of substitutes industries such as transportation and are high, or when the suppliers are utilities. organized and can realistically threaten forward integration. Legal and regulatory factors In case the bargaining power of key These factors include the regulations and suppliers in an industry is very high, the laws with which companies must comply, overall attractiveness of the industry is such as consumer laws, labor laws, viewed as low. antitrust laws, and occupational health and safety regulation. Some factors, Bargaining Power of Buyers such as banking deregulation, are industry-specific. Others, such as It is no surprise that buyers in any minimum wage legislation, affect certain industry always want more for less. types of industries (low-wage, labor- They look for improved product quality, intensive industries) more than others. and additional services at lower prices. Powerful buyers should be viewed as a threat. THE MICHAEL PORTERS FIVE FORCES If buyers are in a weak bargaining FRAMEWORK position, the firm can raise prices, cut costs on quality and services and The character and strength of the increase their profit levels. competitive forces operating in an industry are never the same from one According to Porter, buyers are most industry to another. powerful under the following conditions: The most powerful and widely used tool – There are few buyers for diagnosing the principal competitive – The products are standard or pressures in a market is the five forces undifferentiated framework. – The buyer faces low switching costs. Rivalry among Present Competitors The Threat of New Entrants The greater the competitive intensity in an industry, the less attractive it is to New entrants bring new capacity and current or would-be entrants. often substantial resources to an industry As the intensity of rivalry increases, with a desire to gain market share. generally the profitability starts If entry barriers are low and newcomers decreasing. expect little retaliation, the threat of entry Precipitate price and promotional wars. is high and industry profits will be Rivalry is also high when there are many moderate. small firms in the industry without a The degree of attractiveness of an dominant player industry varies according to its entry and exit barriers. Threat of Substitute Products (none, partial, full), and degree of diversification into other industries (none, Those alternative product types that some, considerable). perform essentially the same function are called the substitutes. The Value of Strategic Group Maps The more attractive is the price/performance ratio of substitute The most important has to do with products, the more likely they affect an identifying which industry members are industry’s profits. close rivals and which are distant rivals. Firms in the same strategic group are the STRATEGIC GROUP ANALYSIS closest rivals; the next closest rivals are in the immediately adjacent groups. Strategic group mapping is a technique for displaying the different market or Competitive Profile Matrix competitive positions that rival firms occupy in the industry. The Competitive Profile Matrix (CPM) A strategic group consists of those is a tool that compares the firm and its rivals and industry members with similar reveals their relative strengths and weaknesses. competitive approaches and positions in the market. The matrix identifies a firm’s key competitors A strategic group is a cluster of industry and compares them using industry’s critical rivals that have similar competitive success factors. approaches and market positions. The analysis also reveals company’s relative Procedure for constructing a strategic strengths and weaknesses against its group map competitors, so a company would know, which areas it should improve and, which areas to Identify the competitive characteristics protect. that delineate strategic approaches used in the industry. Typical variables used in Steps creating strategic group maps are Step 1. Identify the critical success factors price/quality range (high, medium, low), Step 2. Assign the weights and ratings geographic coverage (local, regional, Step 3. Compare the scores and take action national, global), product-line breadth (wide, narrow), degree of service offered Weight (no frills, limited, full), use of distribution Each critical success factor should be assigned channels (retail, wholesale, Internet, a weight ranging from 0.0 (low importance) to multiple), degree of vertical integration 1.0 (high importance). The number indicates (none, partial, full), and degree of how important the factor is in succeeding in the diversification into other industries (none, industry. If there were no weights assigned, all some, considerable). factors would be equally important, which is an Identify the competitive characteristics impossible scenario in the real world. The sum that delineate strategic approaches used of all the weights must equal 1.0. Separate in the industry. Typical variables used in factors should not be given too much emphasis creating strategic group maps are (assigning a weight of 0.3 or more) because the price/quality range (high, medium, low), success in an industry is rarely determined by geographic coverage (local, regional, one or few factors. In our first example, the most national, global), product-line breadth significant factors are ‘strong online presence’ (wide, narrow), degree of service offered (0.15), ‘market share’ (0.14), ‘brand reputation’ (no frills, limited, full), use of distribution (0.13). channels (retail, wholesale, Internet, multiple), degree of vertical integration Rating CHAPTER 3- GENERATING BUSINESS The ratings in CPM refer to how well companies IDEAS are doing in each area. They range from 4 to 1, where 4 means a major strength, 3 – minor YOU AS AN ENTREPRENEUR strength, 2 – minor weakness and 1 – major weakness. Ratings, as well as weights, are Are you excited thinking about owning assigned subjectively to each company, but the and running a business yourself? process can be done easier through While it sounds very tempting, being an benchmarking. Benchmarking reveals how well entrepreneur also means taking on a lot companies are doing compared to each other or of responsibilities and facing a lot of industry’s average. Just remember that firms challenges! can be assigned equal ratings for the same factor. For example, if Company A, Company B First of all, you need to find out if you are and Company C, have the market share of 25%, capable of running your own business. 27% & 28% accordingly, they would all receive Favorable circumstances, in the rating of 4 rather than receiving ratings 2, 3 combination with certain personal & 4. characteristics and skills are necessary elements for your development as a successful entrepreneur. You will also need specific knowledge and experience in the field to be ultimately successful in the business you choose. Do you have what it takes to be an Entrepreneur? The following assessment will help you find out if you have the basic requirements of an entrepreneur. Be honest when you answer the questions. Think about each of the following factors presented as questions. If you answer YES to the questions dealing with any particular factor, consider that factor as one of your strengths. If you answer NO to most of the questions or you are not quite sure about the answers, those factors may be areas that need improvement before you start your business. How to strengthen your entrepreneurial abilities and skills? Learn from people who run their own business, especially those in your chosen business field and type. Attend training courses Find work as an assistant or apprentice in a successful business in the field and type that you are interested in Read articles about businesses in your field and type in newspapers and trade  journals, either on the internet or at with the sustainable use of natural libraries to help you think about the resources and will respect the social and problems these businesses are facing natural environment on which it depends. and their proposed solutions Which need will your business fulfil for the customers? Join a small business association in your area and participate in forums Your business idea should always have Set aside small amounts of money on a customers and their needs in mind. daily or weekly basis to help finance your new business What good or service will your business Develop the skills and attitudes sell? described below by applying them in your Depending on your skills and the needs of the daily activities: customers, you should decide which good or – Increase your motivation and service your business will sell. Also, keep in commitment by making a plan for mind that they must be goodsor services that your future people are willing to pay for and at a price that – When things go wrong, analyze will allow you to make a profit. what happened and improve your A good is an item that people pay for and use. It ability to learn from mistakes may be something you make yourself or it may – Accept the problems, assess the be something you buy to resell. Tools, baked solutions and take risks goods, clothes and retail items are all products. – Become more open to new ideas and other people’s views Who will your business sell to? Any business cannot succeed without What makes a business idea? customers. Therefore, it is essential that you know who your customers will be. Will you sell A business idea is a short and precise to a specific type of customer or to everyone in description of the basic operation of an an area? There must be enough people who are intended business. Before you start a able and willing to pay for your goods and business, you need to have a clear idea services or the business will not survive. of the sort of business you want to run. How is your business going to sell its goods Idea generation is the systematic search or services? for new product ideas obtained How are you going to sell your goods or internally and from customers, services? If you plan to open a shop, you know competitors, distributors and how you will sell your product, but suppliers. manufacturers or service operators can sell their products in many different ways. A Your business idea will tell you: manufacturer, for example, can sell either directly to customers, to retailers or to Which need will your business fulfill for wholesalers. the customers and what kind of customers will you attract? Some businesses sell directly to their What good or service will your business customers: sell? Who will your business sell to? How much will your business depend on and How is your business going to sell its impact the environment? goods or services? Your business can only be sustainable in the How much will your business depend long run, if it works in harmony with the social upon and impact the environment? A and natural environment. How much does your good business idea will be compatible business depend op the environment? Does it rely on the weather, soil or other natural resources? Does it need any specific type of labour from the local community? Does it need the local community to support it? What should you do to make sure that your business nurtures the natural environment and helps the local community? Will your business nurture the natural environment or will it have a detrimental impact? How would you minimize or reverse any negative effect that your business might have? How to identify your own list of business ideas? When generating business ideas, it is best to try to keep your mind open to everything. Your first goal is to think of as many ideas as possible and make a list of all the possible business opportunities. With a list, you will have more choices! You then can scan the list and nail down the idea(s) that sound most feasible to you and that you think will be most profitable. There are many ways to come up with business ideas, such as surveying local businesses or asking existing business owners.