ECSB - Unit 0.5 Economic Sciences Basics PDF

Economic Sciences Basics (ECSB) WS 24/25  COURSE UNIT 1: INTRODUCTION TO BUSINESS AND ECONOMY PT: 1 Learning Objectives I. Comprehend the concept of BUSINESS. II. Understand the classification of products and markets III. Explore the charact...

Economic Sciences Basics (ECSB) WS 24/25  COURSE UNIT 1: INTRODUCTION TO BUSINESS AND ECONOMY PT: 1 Learning Objectives I. Comprehend the concept of BUSINESS. II. Understand the classification of products and markets III. Explore the characteristics and various forms of businesses. IV. Acquire a fundamental understanding of basic economic principles. Mariola Muci / ECSB WS24 Definition of Business Cambridge Dictionary Mariola Muci| ECSB SS24 Definition of Business “A business is any activity that seeks to provide goods and services to others while operating at a profit and sometimes for purposes other than profits”. Delivering goods and services (fill the needs and wants) Medium to earn money Done for a basic purpose: For profit Not-for-profit/ to serve public Mariola Muci| ECSB SS24  Good’s Tangible items or products that are manufactured, produced, or acquired for the purpose of meeting the needs and wants of consumers. Examples? Mariola Muci| ECSB SS24 Services Intangible activities or tasks that individuals or businesses provide to others in exchange for compensation. Mariola Muci| ECSB SS24 Types of Businesses Businesses can be classified by three main criteria's: SIZE FUNCTION Legal Form Mariola Muci| ECSB SS24  According to SIZE SMALL AND MEDIUM-SIZED E N T E R P R I S ES ( S M ES ) L A RG E E N T E R P R I S ES Mariola Muci| ECSB SS24 SMALL AND MEDIUM SIZED BUSINESS (SME’S) A large percentage of businesses are of small size (19 out of 20 businesses in the USA) Small and Firms that are; - independently owned and operated Medium-sized - are not dominant on their field Businesses - meet certain size of sales or number of employees. Mariola Muci| ECSB SS24 SMALL AND MEDIUM SIZED BUSINESS (SME’S) https://single-market-economy.ec.europa.eu/smes/sme-definition_en SMALL AND MEDIUM SIZED BUSINESS (SME’S) Mariola Muci| ECSB SS24  SMALL AND MEDIUM SIZED BUSINESS (SME’S) AD VA N TA G E S D I S AD VA N TA G E S Easy to form Weaknesses in competing with large Facing low costs companies Effective in owner-worker relations Limited Growth “Inadequate” Management Mariola Muci| ECSB SS24  LARGE ENTERPRISES Scale: Operate on a massive scale, serving numerous customers, have a wide geographic reach. Diversity: Offer a broad range of products or services to cater to various market segments. Complexity: Have complex organizational structures with multiple departments and specialized teams. Global Presence: Possess presence in international markets Resources: Possess significant financial, human, and technological resources, enabling them to invest in innovation, research, and expansion. Mariola Muci| ECSB SS24  LARGE ENTERPRISES AD VA N TA G E S D I S AD VA N TA G E S Professional management High levels of bureaucracy Financial strength Higher operational costs Diversification of products , services Complex decision making Mariola Muci| ECSB SS24 According To FUNCTION M A N U FA C T U R I N G C O M PA N I E S S E R V I C E C O M PA N I E S M A R K E T I N G A N D R E TA I L ( M E R C H A N D I S I N G ) C O M PA N I E S H Y B R I D C O M PA N I E S Mariola Muci| ECSB SS24  M A N U FA C T U R I N G C O M PA N I E S : Concentrate on producing goods, transforming raw materials into finished products. Mariola Muci| ECSB SS24  S E R V I C E C O M PA N I E S : Provide intangible products. They offer services rather than physical goods. Mariola Muci| ECSB SS24 R E TA I L ( M E R C H A N D I S I N G ) C O M PA N I E S Act as intermediaries between manufacturers and the end customers, purchasing products in bulk and offering them in smaller quantities H Y B R I D C O M PA N I E S “companies that may be classified in more than one type of business”. This type of business blurs the lines between product-based and service-based business models. Mariola Muci| ECSB SS24 According to the Legal Form SOLE PROPRIETORSHIP PA R T N E R S H I P S C O R P O R AT I O N S  According to the Legal Form SOLE PA R T N E R S H I P S C O R P O R AT I O N S P R O P R I E TO R S H I P (One-man owned firm) Form of business ownership in which the company is owned by a single person.  SOLE PROPRIETORSHIP AD VA N TA G E S D I S AD VA N TA G E S Simplicity in procedures & Minimal Unlimited Liability administrative complexity Limited Resources Profit Retention Limited Expertise Tax Benefits Leaving Legacy  LIABILITY CONCEPT Legal responsibility a person or entity has for their actions or inactions. Two types of liabilities: Unlimited vs Limited Unlimited Liability: Owners are personally responsible for all the debts and obligations of the business. If the business cannot pay its debts, creditors can go after the owner’s personal assets, such as homes, vehicles, and savings, to settle the debts. Limited Liability: Individual’s financial responsibility for business debts is limited to the amount of their investment in the company. Personal assets (homes, cars, and savings) are protected and cannot be used to settle business debts. LIABILITY CONCEPT  According to the OWNERSHIP SOLE PA R T N E R S H I P S C O R P O R AT I O N S P R O P R I E TO R S H I P (One-man owned firm) The company is operated by two or more people who are Form of business co-owners by voluntary legal ownership in which the agreement. company is owned and operated by a single person. General Partnership Limited Partnership Types of Partnerships General Partnership Limited Partnership An ordinary partnership which is Composed of one or more general owned and operated by two or partners and one or more limited more people. partners. The general partners manage the Both co-owners are fully business and are fully responsible responsible for business debts in its profits and losses. with all their personal assets. Limited partners share the profits of It is easy to form and dissolve. the business, but are liable for Unlimited Liability. losses limited to the extent of their investment. Mariola Muci| ECSB SS24 Questions to ask when choosing a business partner… Mariola Muci| ECSB SS24  According to the OWNERSHIP SOLE PA R T N E R S H I P S C O R P O R AT I O N S P R O P R I E TO R S H I P (One-man owned firm) Partnership is a form of A Corporation is a legal entity ownership in which the which assets and liabilities It is defined as the form company is operated by two are separated from those of of business ownership in or more people who are co- its owners. which the company is owners by voluntary legal owned and operated by a agreement. Enables investors to share in the single person. ownership (and profits) of the business without working there or General Partnership having other commitments to it Limited Partnership  Corporations Corporations are legal entities separate from their owners, with limited liability and the ability to raise capital through the sale of stocks or shares. ❖ Separate Legal Entity: Corporations are distinct legal entities from their owners. ❖ Perpetual Existence: They can continue to exist even if shareholders change. ❖ Ownership through Stock: Ownership is represented by shares of stock. ❖ Complex Structure: Corporations have formal governance structures with boards of directors and officers. ❖ Shareholders are only liable for the corporation’s debts and obligations up to the amount they have invested in the company. OWNERS ARE SH ARE S OWNERS OF SH ARE S ARE SH AR EHOLE RS Management of Corporations MANAGEMENT Shareholders elect the Board of Directors (BOD) among themselves to represent their interests. BOD selects the top management of the company. BOD and Top managers manage the company together. BOD recruits the CEO and monitors Top management activities. BOD always acts as body.  Management of Corporations D E L E G AT I O N ( R E P R E S E N TAT I O N ) R E L AT I O N S H I P S Owners of the business Shareholders Board of Representative Body elected by the Directors owners Top Managers assigned by BOD Top Managers Middle Managers assigned by Top Middle Managers Managers First-line Managers assigned by Middle First-line Managers Managers