Lesson 1: The Nature of Business PDF

Lesson 1 The nature of business What is a business? Individuals or organizations are trying to profit by providing products that satisfy people’s needs. What is a product? A good or service with tangibl...

Lesson 1 The nature of business What is a business? Individuals or organizations are trying to profit by providing products that satisfy people’s needs. What is a product? A good or service with tangible and intangible characteristics that provide satisfaction and benefits Tangible Goods Loaf of bread Television Automobile Computer Services Dry cleaning Photo processing Check up doctor’s Musical concert The primary goal of business Earn a profit Lesson 1 1  The difference between what it costs to make and sell a product and what a customer pays for it Non-profit organazations Not all organizations are for-profit businesses. Non-profit organazations Provide goods and services but do not have the fundamental purpose of earning profits. Stakeholders Customers, employees, investors, government regulators, the community, and society are stakeholders. Those who have a stake in the success and outcomes of a business are considered stakeholders. The activities of business Management - focus on employees. Motivating employees toward business goals Coordinating employee’s actions Organizing people for efficiency Marketing - focus on satisfying customers Determine what products customers want. Plan and develop products. Determine: Distribution Place Promotion Price Lesson 1 2  Finance - is the primary responsibility of owners. Obtaining money Using money efficiently and effectively Accountants, stockholders, bankers The economic foundations of business Economics Distribution of resources for the production of goods and services within a social system Resources: Natural resources (land, forests, minerals, water) Human resources (labor) Financial resources (capital) Intangible (good reputation, quality products) Economic systems How does a society distribute its resources to produce goods and services? The central issue of economics How do we fulfill an unlimited demand for goods and services with a limited supply of resources? Market economy Command Economy Mixed Economy Supply and Demand The distribution of resources and products is determined by supply and demand. Demand Consumers buy a number of goods and services at a given price at a specific time. Lesson 1 3  Supply The number of products businesses will sell at different prices at a specific time. Economic cycles Inflation A condition characterized by a continuing rise in prizes Recession Decline in production, employment, and income Depression Unemployment is very high; consumer spending is low; business output is sharply reduced. Unemployment % of the population that wants to work but is unable to find jobs Entrepreneurship Entrepreneur: an individual who risks his/her wealth, time, and effort to develop an innovative product or way of doing something Entrepreneurship requires: Risk Innovation Creativity Reward Why do nations trade? International trade allows for the acquisition of raw materials and goods at favorable prices Lesson 1 4  Outsourcing The transferring of manufacturing or other tasks, such as data processing, to countries where labor and supplies are less expensive Balance of trade The difference in the value between what a nation exports and imports The trade deficit is also called a nation’s negative balance of trade Balance of Payments The difference between the flow of money in and out of a country A nation’s balance of trade, foreign investments, foreign aid, loans, tourists dollars and military expenditures comprise its balance of payments Lesson 1 5  Economic barriers to trade Economic development Infrastructure Exchange rates Less-Developed Countries (LCDs) Low per-capital income Less economically advantaged Potentially huge & profitable markets Largely located in Africa, Asia, and Latin America Infrastructure The physical facilities that support economic activities, including railroads highways, ports, airfields, utilities, power plants, schools, hospitals, and commercial distribution systems Legal barriers to trade Quota A restriction on the number of units of a particular product that can be imported into a country Embargo A prohibition on trade for a particular product Dumping The act of a country or business selling products at less than what it costs to produce them Cultural barriers Cultural communication barriers in business can take many different forms. It could be something as simple as a language barrier, or it could be something more complex Lesson 1 6  like differing levels of formality. It is important to remember that not all cultures communicate in the same way. What may be considered polite and professional in one culture could be seen as impolite or even offensive in another. Cultural communication barriers can also arise when there are different expectations about the way meetings and negotiations should be conducted. In some cultures, it is perfectly normal to interrupt someone who is speaking. However, in others, this would be considered very rude. Preconceived notions, stereotypes, and discrimination can also create communication barriers. For example, if a person from one culture assumes that all members of another culture are lazy, they may have trouble communicating effectively with them. Technological barriers Technological barriers in businesses refer to obstacles or challenges related to the adoption, implementation, or effective use of technology within an organization. These can include issues such as outdated infrastructure, lack of technical skills among employees, or difficulties in integrating new systems with existing ones. Trade Agreements, Alliances & Organizations General Agreement on Tariffs and Trade (GATT) Signed by 23 nations in 1917 Forum for tariff negotiations Lesson 1 7  A place for international trade issue discussion and resolution Replaced by the World Trade Organization (WTO) in 1995 World Trade Organization (WTO) International organizations dealing with the rules of trade between nations Officially founded in 1995 Successor to GATT 153 members representing 95% of global trade North American Free Trade Agreement (NAFTA) Agreement that eliminates most tariffs and trade restrictions on agricultural and manufactured products to encourage trade among Canada, the U.S and Mexico European Union (EU) A union of European nations was established in 1958 to promote trade among its members One of the largest single markets today Asia-Pacific Economic Cooperation (APEC) An international trade alliance that promotes open trade and economic and technical cooperation among member nations World bank (International Bank for Reconstruction and Development) The organization established in 1946 by industrialized nations to loan money to underdeveloped and developing countries International Monetary Fund (IMF) Organization established in 1947 to promote trade among member natuons by eliminating trade barriers and fostering financial cooperation Lesson 1 8  Getting involved in International Business Getting involved in International Business Exporting & importing Trading companies Licensing and franchising Contract manufacturing Joint ventures Direct investment Multinational corporations Getting involved in International Trade Countertrade agreements Bartering products for other products instead of for currency Export agents are middlemen who help companies by handling their international transactions Trading company Buys goods in one country and sells them to buyers in another country Handles all activities required to move products from one country to another Exporting & Importing Exporting & Importing refers to the international trade activities where businesses sell goods and services to foreign countries (exporting) or buy goods and services from foreign countries (importing). This is a fundamental way for companies to engage in international business. Licensing Lesson 1 9  A trade arrangement where one company allows another company to use its company name, products, patents, brands, trademarks, raw materials, and production processes in exchange for a fee or royalty Many products are licensed and produced by local companies internationally Coca-Cola licenses its brand and trademarks to various bottles and distributors around the world Franchising A form of licensing where a company (franchiser) agrees to provide a franchisee a name, logo, operational guidelines, products, etc., in return for a financial commitment and the agreement to conduct business in accord with the franchiser’s standard of operation McDoland is the world’s largest franchise in terms of revenues. It includes restaurants in 118 countries Offshoring The relocation of a business process by a company or subsidiary to another country Different form outsourcing The company retains control of the process Not subcontracting to a different company Appealing because of lower wages, high skills, time zone differences Other forms of engaging in International Trade Joint Venture Lesson 1 10  The sharing of the costs of operations of a business between a foreign company and a local partner Direct Investment The ownership of overseas facilities Multinational Corporations The highest level of international business involvement Operates on a worldwide scale without significant ties to a single nation or region International Business Strategies Multinational strategy A plan used by international companies that involves customizing products, promotion, and distribution according to cultural technological, regional, and natural differences Global Strategy A strategy that involves standardizing products (promotion and distribution) for the whole world as if it were a single entity Managing the challenges of global business Navigating international business remains complicated Technology and improved standards of living globally are creating tremendous new marketing opportunities Governments and business organizations exist to help businesses looking to go international Lesson 1 11