Grade 10 Revision notes.docx

Revision notes: Business: a person, partnership, or corporation engaged in commerce, manufacturing, or a service; profit-seeking enterprise or concern. The goal of most businesses is to make a profit. What is profit? Profit is the income left after all costs and expenses are paid. Revenue – Expenses...

Revision notes: Business: a person, partnership, or corporation engaged in commerce, manufacturing, or a service; profit-seeking enterprise or concern. The goal of most businesses is to make a profit. What is profit? Profit is the income left after all costs and expenses are paid. Revenue – Expenses = Profit Entrepreneurs are people who start their own business. Because of competition, many people become entrepreneurs if they believe they can offer a good or a service that is better than someone else’s. Competition leads to innovation (new and improved ways of doing things) and new inventions. This makes older products obsolete. Obsolete – no longer used or produced, out of date E.g. Audio tapes → CDs → MP3s → Smartphone Streaming What is the difference between a need and a want? A need is something necessary for survival such as food and shelter. A want is something that is not necessary for survival but adds pleasure or comfort to life. Economic resources, also known as factors of production, are the means through which goods and services are available to consumers. We can divided economic resources into four types: natural, human, enterprenuer and capital Natural Resources are materials that come from the earth, water and air. Human resources (also known as labour) are the people who create goods and services. Examples include factory workers, construction workers, and farmers. Capital resources are resources that last for a long period of time and are created by people. Examples include factories, office buildings, trucks, and equipment Our society and economy is interdependent. That means we depend on other businesses and other economies for survival, and vice-versa. Every country has their own economic system. Members of an economic system (which would include individuals, businesses and the government) must answer three questions. What goods and services should be produced within the system? For whom should these goods and services be produced? How should these goods and services be produced? Forms of Business Ownership Sole Proprietorship Partnership Co-operatives Corporations Franchises Sole proprietorships are businesses that are owned by just one person. These people are referred to as the proprietor. The key advantage of sole proprietorships is that the owner is able to keep all the profits to himself / herself. The key disadvantage of sole proprietorships is unlimited liability. This means that the owner may lose his or her personal belongings if he or she is unable to pay his or her debt. A partnership, as its name implies, is a business that is operated by two or more partners. Terms of a partnership are usually written in a partnership agreement. These specify what each partner is responsible for. There are two types of partnerships, limited partnerships and general partnerships In a general partnership, all partners have unlimited liability for each other’s debts. In a limited partnership, partners have limited liability. In other words each partner is only responsible for paying back the amount that they invested in the partnership. Corporations are businesses that have distinct legal status. They are generally very large and are the dominant business entity in the world today. They are not owned by one or two people but rather by hundreds if not thousands of shareholders. Corporations can be divided into four types: private, public, crown and municipal A private corporation is owned by only a few people. Its shares (stocks) are not traded in the stock market. A public corporation is a corporation where its shares (stocks) are traded in the stock market. (e.g. Apple) A crown corporation is a corporation that is partially controlled by the government (e.g. the CBC) Towns and cities can also be incorporated. These are municipal corporations. Co-operatives are businesses owned by members or the workers. Co-operatives’ primary interest is to serve the needs of their members, not to make a profit, although they may make profits. They are different from corporations in that every member is allowed to have one vote, whereas in corporations voting power is determined by the number of shares you have. With franchises, one business, the franchiser, licenses the rights to its name, operating procedure, designs and business expertise, to another business, the franchisee. Franchises are considered a hybrid form of ownership because they are a mix of corporate ownership and sole proprietorship A common example is McDonald’s In general we can say there are four types of businesses. Those that sell goods: Retail: generates a profit by selling things. Retail stores usually buy from a producer and sell those products to consumers. Examples include clothing stores and supermarkets. Manufacturing: These businesses generate profit by taking raw materials and turning them into finished products. Examples include car and appliance manufacturers. Service Businesses: These businesses generate profit by doing something for other businesses or customers. Examples include restaurants and theatres. Not-profit Organizations: These are different from other businesses in that their goal is not to make a profit. The most obvious example is charities. Another aspect to consider is how you will get money to start your own business. Debt financing involves borrowing money (e.g., from the bank) to run a business. Equity financing involves using your savings or investor savings to run your business. International Business Structures Under joint ventures, two businesses join together and create a separate business entity. Joint ventures are mutually advantageous for both businesses because they match the skills and expertise of two different businesses. A popular example of a joint venture is Sony-Ericsson. Strategic Alliances are agreements between businesses in which each business commits resources to achieve a common set of objectives. The key difference between strategic alliances and joint ventures is that under strategic alliances, no new business entities are formed. A multinational corporation is any corporation that operates in more than one country. Multinational corporations may operate in many countries in order to save money. For example, it may have production plants where labour is cheap, it may base its headquarters in a country that has good leadership talent. Offshoring is the relocation of a company’s operations to another country. This is usually done to reduce the cost of labour. Two popular destinations for offshoring include India and China. India for call centres and IT work, and China for manufacturing. As China has developed, the cost of labour is rising so many manufacturers are moving to South East Asia Mergers involve two companies joining together to form one company. There are many reasons to merge but a major one is to increase efficiency in the face of other competition Some big companies that have merged in recent years include AOL-Time-Warner and Chrysler-Daimler-Benz Business Ethics: In order to ensure that workers of a business behave ethically, most businesses have a code of ethics. A code of ethics is a document that explains specifically how employees should respond in certain situations. Fraud is the crime of lying and deceiving for personal gain. Embezzlement is a type of accounting fraud in which an accountant or senior executive invents phony accounts for personal gain. In order to prevent embezzlement and accounting fraud, businesses are required to have auditors examine their accounts. Insider trading is when people buy or sell shares after learning about confidential information about companies. The six Corporate Social Responsibility principles that companies try to demonstrate are: Providing a safe and healthy work environment. Adopting fair labour practices Protecting the environment Being truthful in advertising Avoiding price discrimination Donating to charity Discrimination in the workplace based on race, gender, ethnicity, religion, and against disabled people and other minorities is illegal in Canada. Although such discrimination is outlawed, some say there is a glass ceiling that many minorities face in the workplace. The term glass ceiling refers to the invisible barriers minorities face in the workplace. E-waste (electronic waste) is a growing issue in many countries. Many electronics companies do not take responsibility for the recycling of waste of their products. It is instead sent to developing countries where it is taken apart to be recycled. The Fair Trade movement began 50 years ago as an attempt to improve the livelihoods of farmers in less-developed countries. Many international trade organizations accuse corporations of not paying farmers fair wages for their goods. Sometimes, the farmers do not even make enough money to feed themselves. A domestic transaction is the selling of items produced in the same country. For example, a local HK newspaper like the SCMP sold to a Hong Konger. An international transaction is the selling of items produced in other countries. For example, a Hong Konger buying an iPhone, which was assembled in China and designed in the United States. Benefits of International Trade Access to Markets If a business can sell his product worldwide, it can potentially sell its product to almost 7 billion customers! Cheaper Labour Workers in developing countries are willing to work at a much lower wage, thus making products cheaper. Increased Quality of Goods Some countries specialize in certain goods. For example, which countries are known for their… wine? electronics? chocolate? teas? Increased Quantity As international markets increases, producers will produce more for everyone. Access to Resources Businesses can have access to resources that aren’t available in their own country. For example, a Canadian chocolate maker can get access to cocoa beans from countries in west Africa. Costs of International Trade Human Rights and Labour Abuses Some workers in poor countries may be victims of abuse, non-payment of wages and excessive working hours. Environmental Degradation Many businesses prefer to produce their goods in countries where environmental regulations are not as strict. Barriers to International Business Some countries choose to limit the amount of international trade for several reasons. To prohibit the entry of certain goods (e.g., narcotics, goods made from endangered animals) To protect producers who may not be able to compete with cheaper international goods. To protect customers from problematic goods, Tariff Barriers Have you ever noticed how some foreign brands are more expensive than local brands? This is probably due to tariffs. Tariffs aka customs duties, are a form of tax on certain types of imports. An import tax on foreign goods Artificially raises the price of imports to make Canadian products more competitive Ex: French jam carries an 8.5% tariff, so if it normally sells for $1.80 per jar, the landed cost becomes $1.95 The more the gov’t wants to protect an industry, the higher the tariff Non-tariff Barriers Non-tariff barriers are standards for the quality of imported goods that are set so high that foreign competitors cannot enter the market. For example, a country can make foreign businesses apply for expensive licenses, or have such high safety standards that foreign businesses cannot realistically sell their goods in that country. BALANCE OF TRADE A balance of trade is the relationship between a country’s total imports and total exports. If a country pays more for imports than it earns from exports, there is a trade deficit. If a country earns more from exports than it pays for imports, there is a trade surplus. ETIQUETTE IS… ethical and socially acceptable behavior regarding professional practice or action among the members of a profession in their dealings with each other. etiquette isn’t recognized as one uniform set of standards around the globe… For example, a hand gesture in one country may have the exact opposite meaning in another culture! etiquette and cultural differences are important As global business continues to expand, the critical element of a successful business outcome may be the appreciation and respect for cultural differences.