DeVry Business - Chapter 1 PDF

# Taking Risks and Making Profits within the Dynamic Business Environment ## Learning Objectives After you have read and studied this chapter, you should be able to: - Describe the relationship between profit and risk, and show how businesses and nonprofit organizations can raise the standard of...

# Taking Risks and Making Profits within the Dynamic Business Environment ## Learning Objectives After you have read and studied this chapter, you should be able to: - Describe the relationship between profit and risk, and show how businesses and nonprofit organizations can raise the standard of living for all. - Explain how entrepreneurship and the other factors of production contribute to the creation of wealth. - Analyze the effects of the economic environment and taxes on businesses. - Describe the effects of technology on businesses. - Demonstrate how businesses can meet and beat competition. - Analyze the social changes affecting businesses. - Identify what businesses must do to meet global challenges, including war and terrorism. - Review how past trends are being repeated in the present and what those trends mean for tomorrow's college graduates. ## Getting to Know ### Tristan Walker, Founder of Walker & Company For entrepreneur Tristan Walker, one of the most frustrating parts of his daily life was finding the right razor for his coarse, curly facial hair. "The need here was really the fact that I could not shave," said Walker. "Why are there no products that really understood the fact that I have curly hair?" Besides failing to find the razor he needed, Walker also couldn't believe that companies would ignore such a large portion of the market. "People of color spend more money on this stuff than anyone else," said Walker. "So I said, 'I'm going to respect those things before anybody else does, and really create a long-term view around celebrating this beautiful community and culture." That long-term view turned into Walker & Company, a lifestyle brand dedicated to providing Black men with top-quality personal care products. When he first launched the company, Walker claimed he wanted to create the "Procter & Gamble for people of color." And after years of solid sales and growth, in 2018 Walker & Company grew large enough to attract the attention of the actual Procter & Gamble. Although the consumer goods conglomerate purchased the brand for millions of dollars, Walker remains in charge so he can continue the company's mission. "We want this company and its purpose to still be around 150 years from now," said Walker. Of course, building a company with such lofty goals isn't easy. In order to realize his vision, Walker needed expertise and connections, and the willingness to do plenty of hard work. While Walker has always been motivated to work hard, he didn't have access to any high-level business connections when he was growing up. "I'm from Jamaica, Queens, New York, born and raised in the projects on welfare," said Walker. "And the necessity of not wanting to live that life really got me where I am today." After excelling at his studies as well as sports, a basketball coach advised Walker to apply to an elite boarding school. Walker took his advice and received a full scholarship to the prestigious Hotchkiss School. This led to his enrollment at Stony Brook University where he earned a degree in economics. Walker's drive and impeccable educational background landed him a job on Wall Street after graduation. However, he quickly grew tired of the hectic pace of the financial industry and decided to look at business graduate schools far out of state. That's when he learned about Silicon Valley, the famed tech hub in California's San Francisco Bay Area. He enrolled in nearby Stanford University to take advantage of the region's abundance of tech-related resources. "I was 24 when I came to Stanford," said Walker. "The other 24-year-olds here were not only making millions of dollars but fundamentally changing the world. Why did I not have any idea this place existed?" After graduating in 2008, Walker joined the newly launched location-based search company Foursquare. Although Walker made only a $1,000 stipend for his first months as head of business development, he played a vital role in expanding the company through partnerships with other brands. When he left Foursquare in 2012, he joined Andreessen-Horowitz as the venture capital firm's "entrepreneur-in-residence." This gave him the resources to develop and launch Walker & Company. The business is centered around a shaving brand called Bevel. Unlike other major shaving brands that use multiple blades for their razors, Bevel sticks to a single-blade system that helps prevent bumps. Walker & Company also sells a line of hair care products called Form, which it initially had trouble promoting due to lack of resources. Now that the company is part of Procter & Gamble, though, it can take advantage of the conglomerate's multibillion-dollar marketing budget. Walker & Company will also have access to P&G's $2 billion research and development budget, allowing it to keep innovating for years to come. The business environment is constantly changing, and along with those changes come opportunities. The purpose of this chapter and this textbook is to introduce you to the dynamic world of business and to some of the people who thrive in it. Businesspeople like Tristan Walker contribute much to the communities they serve, and they also make a good living doing so. That's what business is all about. ## Business and Wealth Building Success in business depends on consistently adapting to changes in the market. A **business** is any activity that seeks to provide goods and services to others while operating at a profit. To earn that profit, you provide desired goods, jobs, and services to people or other businesses. **Goods** are tangible products such as computers, food, clothing, cars, and appliances. **Services** are intangible products (i.e., products that can't be held in your hand) such as education, health care, insurance, recreation, and travel and tourism. Once you have developed the right goods and services, based on consumer wants and needs, you need to reach those consumers using whatever media they prefer, including social media, online advertising, TV, and more. Although you don't need to have wealth as a primary goal, one result of successfully filling a market need is that you can make money for yourself, sometimes a great deal, by giving customers what they want. Sam Walton of Walmart began by opening one store in Arkansas and, over time, became one of the richest people in the United States. Now his heirs are some of the richest people in the United States. There are over 22.1 million millionaires in the United States. Maybe you will be one of them someday if you start your own business. An **entrepreneur** is a person who risks time and money to start and manage a business. When Aaron Krause couldn't find buyers at auto body shops for his polymer foam product, he tossed it in a box labeled "scrap" and forgot about it. A few years later, Krause dug out his old invention to clean some patio furniture and discovered it worked surprisingly well on his lounge chairs as well as his dirty dishes. He redesigned the foam into a smiling face, branded it Scrub Daddy, and took it onto the ABC show Shark Tank. Scrub Daddy is the most successful product to appear on Shark Tank to date. What risks and rewards did Krause face when starting his business? ## Revenues, Profits, and Losses **Revenue** is the total amount of money business takes in during a given period by selling goods and services. **Profit** is the amount of money a business earns above and beyond what it spends for salaries and other expenses needed to run the operation. A **loss** occurs when a business's expenses are more than its revenues. If a business loses money over time, it will likely have to close, putting its employees out of work. Over 175,000 businesses in the United States close each year. When a business's expenses are more than its revenues. As noted, the business environment is constantly changing. What seems like a great opportunity one day may become a huge failure when the economy changes. Starting a business may thus come with huge risks. But huge risks often result in huge profits. We'll explore that concept next. ## Matching Risk with Profit **Risk** is the chance an entrepreneur takes of losing time and money on a business that may not prove profitable. **Profit**, remember, is the amount of money a business earns above and beyond what it pays out for salaries and other expenses. For example, if you were to start a business selling hot dogs from a cart in the summer, you would have to pay for the cart rental. You would also have to pay for the hot dogs and other materials, and for someone to run the cart while you were away. After you paid your employee and yourself, paid for the food and materials you used, paid the rent on the cart, and paid your taxes, any money left over would be profit. Keep in mind that profit is over and above the money you pay yourself in salary. You could use any profit to rent or buy a second cart and hire other employees. After a few summers, you might have a dozen carts employing dozens of workers. Not all enterprises make the same amount of profit. Usually those that take the most risk may make the most profit. There is high risk, for example, in making a new kind of automobile. It's also risky to open a business in an inner city, because insurance and rent are usually higher than in suburban areas, but reduced competition makes substantial profit possible. Big risk can mean big profits. ## Standard of Living and Quality of Life Entrepreneurs such as Sam Walton (Walmart), Bill Gates (Microsoft), Jeff Bezos (Amazon), and Sara Blakely (Spanx) not only became wealthy themselves; they also provided employment for many other people. Walmart is currently the nation's largest private employer, with Amazon coming in second. Businesses and their employees pay taxes that the federal government and local communities use to build hospitals, schools, libraries, playgrounds, roads, and other public facilities. Taxes also help keep the environment clean, support people in need, and provide police and fire protection. Thus, the wealth businesses generate and the taxes they pay help everyone in their communities. A nation's businesses are part of an economic system that contributes to the standard of living and quality of life for everyone in the country (and, potentially, the world). How has the economic recovery and growth over the past 10 years affected the standard of living and quality of life in your part of the world? The term **standard of living** refers to the amount of goods and services people can buy with the money they have. Prices for goods and services in some locations are higher than in others, so people in those places can't buy as much with the same amount of money. Often, goods cost more in one country than in another because of higher taxes and stricter government regulations. Finding the right level of taxes and regulation is important in making a country or city prosperous. We'll explore those issues in more depth in Chapter 2. At this point, it is enough to understand that the United States enjoys a high standard of living largely because of the wealth created by its businesses. The term **quality of life** refers to the general well-being of society in terms of its political freedom, natural environment, education, health care, safety, amount of leisure, and rewards that add to the satisfaction and joy that other goods and services provide. Maintaining a high quality of life requires the combined efforts of businesses, nonprofit organizations, and government agencies. Remember, there is more to quality of life than simply making money. ## Stakeholders **Stakeholders** are all the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address. They include customers, employees, stockholders, suppliers, dealers (retailers), bankers, people in the surrounding community, the media, environmentalists, competitors, unions, critics, and elected government leaders. A primary challenge for organizations of the 21st century will be to recognize and respond to the needs of their stakeholders. For example, the need for the business to make profits may be balanced against the needs of employees to earn sufficient income or the need to protect the environment. Ignore the media, and they might attack your business with articles that hurt sales. Oppose the local community, and it may stop you from expanding. Staying competitive may call for **outsourcing**. **Outsourcing** means contracting with other companies (often in other countries) to do some or all of the functions of a firm, like its production or accounting tasks. Outsourcing has had serious consequences in some states where jobs have been lost to overseas competitors. We discuss outsourcing in more detail in Chapter 3. The other side of the outsourcing coin is **insourcing**. Many foreign companies are setting up design and production facilities here in the United States. For example, Korea-based Hyundai designs cars in California, operates engineering headquarters in Detroit, Michigan, and produces cars in Montgomery, Alabama. Japanese automaker Honda has been producing cars in the United States for over 40 years, and opened its 12th U.S. manufacturing plant in 2016. Some information technology firms have begun to bring jobs back to the United States because it can save time in decision-making processes which leads to saving money. Insourcing creates many new U.S. jobs and helps offset those jobs being outsourced. It may be legal and profitable to outsource, but is it best for all the stakeholders? Business leaders must make outsourcing decisions based on all factors. Pleasing stakeholders is not easy and often calls for trade-offs. The goals of nonprofit organizations are social and educational, not profit-oriented. The American Red Cross, for example, provides assistance to approximately 30 million people annually, from refugees to victims of natural disasters to relief. Why do good management principles apply equally to profit-seeking businesses and nonprofit organizations? ## Using Business Principles in Nonprofit Organizations Despite their efforts to satisfy their stakeholders, businesses cannot do everything needed to make a community all it can be. **Nonprofit organizations** — such as public schools, civic associations, charities like the United Way and the Salvation Army, and groups devoted to social causes — also make a major contribution to the welfare of society. A **nonprofit organization** is an organization whose goals do not include making a personal profit for its ownersor organizers. Nonprofit organizations often do strive for financial gains, but they use them to meet their social or educational goals rather than for personal profit. Your interests may lead you to work for a nonprofit organization. That doesn't mean, however, that you shouldn't study business in college. You'll still need to learn business skills such as information management, leadership, marketing, and financial management. The knowledge and skills you acquire in this and other business courses are useful for careers in any organization, including nonprofits. We'll explore entrepreneurship right after theTest Prep. ## The Importance of Entrepreneurs to the Creation of Wealth There are two ways to succeed in business. One is to rise through the ranks of a large company. The advantage of working for others is that somebody else assumes the company's entrepreneurial risk and provides you with benefits like paid vacation time and health insurance. It's a good option, and many people choose it. The other, riskier, but often more exciting, path is to become an **entrepreneur**. The national anthem, "The Star Spangled Banner," says that the United States is the "land of the free and the home of the brave." Part of being free is being able to own your own business and reap the profits from it. But freedom to succeed also means freedom to fail, and many small businesses fail each year. It takes a brave person to start one. As an entrepreneur, you don't receive any benefits such as paid vacation time, day care, a company car, or health insurance. You have to provide them for yourself! But what you gain — freedom to make your own decisions, opportunity, and possible wealth — is often worth the effort. Before you take on the challenge, you should study successful entrepreneurs to learn the process. You can talk to them personally and read about them in Chapter 6, as well as in other books, magazines (e.g., *Entrepreneur*, *Fast Company*, and *Inc.*), and online (e.g., Small Business Administration at sba.gov). To create wealth for its citizens, a country requires more than natural resources. It needs the efforts of entrepreneurs and the skill and knowledge to produce goods and services. How can government support entrepreneurship and the spread of knowledge? ## The Five Factors of Production Have you ever wondered why some countries are relatively wealthy and others poor? Economists have been studying the issue of wealth creation for many years. They began by identifying five factors of production that seemed to contribute to wealth: 1. **Land** (or natural resources). Land and other natural resources are used to make homes, cars, and other products. 2. **Labor** (workers). People have always been an important resource in producing goods and services, but many people are now being replaced by technology. 3. **Capital**. This includes machines, tools, buildings, or whatever else is used in the production of goods. It might not include money; money is used to buy factors of production but is not always considered a factor by itself. 4. **Entrepreneurship.** All the resources in the world have little value unless entrepreneurs are willing to take the risk of starting businesses to use those resources. 5. **Knowledge.** Information technology has revolutionized business, making it possible to quickly determine wants and needs and to respond with desired goods and services. ## The Business Environment The **business environment** consists of the surrounding factors that either help or hinder the development of businesses. Figure 1.3 shows the five elements in the business environment. 1. The economic and legal environment. 2. The technological environment. 3. The competitive environment. 4. The social environment. 5. The global business environment. Businesses that create wealth and jobs grow and prosper in a healthy environment. Thus, creating the right business environment is the foundation for social benefits of all kinds, including good schools, clean air and water, good health care, and low rates of crime. Businesses normally can't control their environment, but they need to monitor it carefully and do what they can to adapt as it changes. ## The Economic and Legal Environment People are willing to start new businesses if they believe the risk of losing their money isn't too great. The economic system and the way government works with or against businesses can have a strong impact on that level of risk. For example, a government can minimize spending and keep taxes and regulations to a minimum — policies that tend to favor business. Much of the debate in recent elections has focused on whether to raise or cut taxes, how to control government spending, and whether to cut regulations. One way for government to actively promote entrepreneurship is to allow private ownership of businesses. In some countries, the government owns most businesses, and there's little incentive for people to work hard or create profit. Around the world today, however, some governments are selling those businesses to private individuals to create more wealth. One of the best things the governments of developing countries can do is to minimize interference with the free exchange of goods and services. (You can read more about the various economic systems in different countries in Chapter 2.) The government can further lessen the risks of entrepreneurship by passing laws that enable businesspeople to write enforceable contracts. In the United States, the Uniform Commercial Code, for example, regulates business agreements such as contracts and warranties so that firms know they can rely on one another. In countries that don't yet have such laws, the risks of starting a business are that much greater. (You can read more about business laws in Bonus Chapter A.) The government can also establish a currency that's tradable in word markets. That is, the currency lets you buy and sell goods and services anywhere in the world when it is easily exchanged for that of the other countries where you do business. If the Chinese did not want to trade their yuan for the U.S. dollar, for instance, it's hard to imagine how Coca-Cola or Disney would be able to sell their products and services there. (You can read more about currency in Chapters 3 and 20). Finally, the government can help minimize corruption in business and in its own ranks. Where governments are corrupt, it's difficult to build a factory or open a store without a government permit, which is obtained largely through bribery of public officials. Among businesses themselves, unscrupulous leaders can threaten their competitors and unlawfully minimize competition Starting a business is more difficult in some countries than in others. In India, for example, it takes a time-consuming and bureaucratic process to obtain government permission. Nonetheless, new businesses can become a major source of wealth and employment. This sari shop is one small example. What do you think would be the effect of a little more freedom to create business opportunities in this country of over a billion people? Many laws in the United States attempt to minimize corruption. Nonetheless, corrupt and illegal activities at some companies do negatively affect the business community and the economy as a whole. The news media widely report these scandals. Ethics is so important to the success of businesses and the economy as a whole that we feature stories about ethics in most chapters and devote Chapter 4 to the subject. Governments from different countries can work together to create an environment that allows entrepreneurship to thrive. For example, in 2015 the United Nations adopted what it calls Sustainable Development Goals (SDGs) that list specific targets for ending poverty and improving the lives of the disadvantaged in the next 15 years. The ultimate goal is to move toward prosperity by partnering governments, businesses, and nonprofits in order to solve problems at the ground level in developing countries. ## The Technological Environment Since prehistoric times, humans have felt the need to create tools that make work easier. Few technological changes have had a more comprehensive and lasting impact on businesses, however, than information technology (IT). IT has completely changed the way people communicate with one another. Advertisers and other businesspeoplehave created ways of using these tools to reach their suppliers and customers. Even politicians have harnessed the power of the Internet to advance their causes. IT is such a major force in business today that we discuss its impact on businesses throughout the entire text. **Technology** means everything from phones to computers, mobile devices, medical imaging machines, robots, the Internet, social media, and the various software programs and apps that make business processes more effective, efficient, and productive. ## Creating Sustainability through a Circular Economy There's no denying that people around the world create a lot of waste. Each year, more than 52 million tons of food end up in landfills with an additional 10 million tons remaining unharvested on farms. Less than 1 percent of the material used to produce clothing gets recycled into new apparel. The vast majority of plastic doesn't get recycled either, with much of it ending up in garbage dumps or incinerators. Besides squandering resources, the world’s waste also pollutes the environment and contributes to rising greenhouse gas emissions. To combat this problem of global proportions, some entrepreneurs have launched companies that depend on a **circular economy** to succeed. **Circular economy** refers to reusing, redistributing, refurbishing, and recycling products instead of dumping them in landfills in other words, keeping products in the value circle. The aim is to produce no waste as every material is either recycled or reused in some capacity. For example, the Chicago-based firm Bubbly Dynamics refurbishes vacant industrial buildings and transforms them into sustainable business incubators. At one site called The Plant, indoor farms irrigated with rainwater and power generated by solar panels helps more than 20 companies thrive without creating unnecessary waste. The Plant’s largest tenant is a brewery that produces about 20,000 pounds of compost per month, providing plenty of fertilizer for the facility’s farmers. Other circular economy-driven companies include Earth Angel, a Brooklyn start-up that recycles waste generated by film and television productions based in New York. The company donates mattresses and used clothing to humanitarian agencies while redistributing old scenery to independent theaters and filmmakers. Socially minded enterprises like Earth Angel and Bubbly Dynamics hope other companies will follow their lead and adopt similarly sustainable business practices in the near future. Not only would it help the environment, but it could also be good for business. ## Productivity is the amount of output you generate given the amount of input, such as the number of hours you work. The more you can produce in any given period, the more money you are worth to companies. The problem with productivity today is that workers are so productive that fewer are needed. ## Technology affects people in all industries. For example, a farmer can use his computer to compare data from the previous year’s harvest with drone or satellite photos of his farm that show which crops are flourishing. He can check the latest grain prices and use the website newAgTalk.com to converse with other farmers from all over the world. He can also save money on chemicals by bidding for bulk fertilizer on FarmTrade.com, an online agricultural exchange. High-tech equipment tells him how and where to spread fertilizer and seed, tracks yields yard by yard, and allows him to maintain high profit margins. Of course, more tech often means fewer workers. Is that a good or bad thing for farmers? ## The Growth of E-commerce **E-commerce** is the buying and selling of goods online. There are two major types of e-commerce transactions: business-to-consumer (B2C) and business-to-business (B2B). As important as the Internet has been to online retailers in the consumer market, it has become even more important in the B2B market, where businesses sell goods and services to one another, such as IBM selling consulting services to a local bank. E-commerce has become so important that we discuss it in many chapters throughout the text. ## Using Technology to Be Responsive to Customers Businesses most responsive to customer wants and needs will succeed. Technology can help businesses respond to customer needs in many ways. For example, businesses use bar codes to identify products you buy and their size, quantity, and color. The scanner at the checkout counter identifies the price but can also put all your purchase information into a **database**, an electronic storage file for information. Databases enable stores to carry only the merchandise their local customers want. But because companies routinely trade database information, many retailers know what you buy and from whom you buy it. Thus they can send you online ads or catalogs and other direct mail advertising offering the kind of products you might want based on your past purchases. We discuss many of the other ways businesses use technology to be responsive to consumers throughout the text. Unfortunately, the legitimate collection of personal customer information also opens the door to **identity theft**. **Identity theft** is the obtaining of individuals' personal information, such as Social Security and credit card numbers, for illegal purposes. For example, in 2017 Equifax, one of the credit bureaus charged with protecting consumers from identity theft and fraud, was hacked itself. The data breach exposed the personal information of 147 million people. Equifax agreed to spend up to $425 billion to help people affected by the breach. Many people are concerned about how technology might be used to invade the privacy of their phone or e-mail conversations or even to track their movement through facial recognition technology used in stores, casinos, on cruise ships, and in other public places. You can read more about security and privacy issues and how businesses use technology to manage information in Bonus Chapter B. ## The Competitive Environment Competition among businesses has never been greater. Some have found a competitive edge by focusing on quality. The goal for many companies is zero defects — no mistakes in making the product. However, even achieving a rate of zero defects isn't enough to stay competitive in world markets. Companies now have to offer both high-quality products and good value — that is, outstanding service at competitive prices. ## Competing by Exceeding Customer Expectations Today's customers want not only good quality at low prices but great service as well. Every manufacturing and service organization in the world should have a sign over its door telling its workers that the customer is king. Business has become more customer-driven, not management-driven as often occurred in the past. Successful organizations must now listen more closely to customers to determine their wants and needs, and then adjust the firm’s products, policies, and practices accordingly. We will explore these ideas in more depth in Chapter 13. ## Competing by Restructuring and Empowerment To meet the needs of customers, firms must give their frontline workers — for example, office clerks, front-desk people at hotels, and salespeople — the responsibility, authority, freedom, training, and equipment they need to respond quickly to customer requests. They also must allow workers to make other decisions essential to producing high-quality goods and services. The process is called **empowerment**, and we’ll be talking about it throughout this book. As many companies have discovered, it sometimes takes years to restructure an organization so that managers can and will give up some of their authority and employees will assume more responsibility. We’ll discuss such organizational changes in Chapter 8. ## The Social Environment **Demography** is the statistical study of the human population with regard to its size, density, and other characteristics such as age, race, gender, and income. In this text, we're particularly interested in the demographic trends that most affect businesses and career choices. The U.S. population is going through major changes that are dramatically affecting how people live, where they live, what they buy, and how they spend their time. Furthermore, tremendous population shifts are leading to new opportunities for some firms and to declining opportunities for others. For example, there are many more retired workers than in the past, creating new markets for all kinds of goods and services. In 2020 people around the world joined protests against institutionalized racism and police violence. The movement placed a renewed focus on racial bias in many areas of life, including business. What can companies do to create diverse and inclusive workplaces? **Diversity** means much more than recruiting and retaining minority and female employees. Diversity efforts include older adults, people with disabilities, people with different sexual orientations, atheists, religious people, extroverts, introverts, married people, and single people . It also means dealing sensitively with workers and cultures around the world. Managing diversity involves creating a workplace that promotes inclusion and belonging. Inclusion is about having a voice that is heard. Belonging is about feeling part of a community. Legal and illegal immigrants have had a dramatic effect on many regions, and will continue to do so as the government debates immigration reform. Businesses, schools, and hospitals have been especially affected. Some local governments are making efforts to adapt, including changing signs, brochures, websites, and forms to include other languages. Has your city experienced such changes? What are some of the impacts you've noticed? How has the debate about changing immigration policies affected your community? The Increase in the Number of Older Citizens People aged 75 and over are currently the richest demographic group in the United States. Therefore they represent a lucrative market for companies involved with food service, transportation, entertainment, education, lodging, and so on. By 2030 the percentage of the population 65 or older will be over 20 percent; by 2050 it will more than double. What do these changes mean for you and for businesses in the future? Think of the products and services that middle-aged and older people will need — medicine, nursing homes, assisted-living facilities, adult day care, home health care, transportation, recreation, and the like — and you’ll see opportunities for successful businesses of the 21st century. Don’t rule out computer games and online services. Businesses that cater to older consumers will have the opportunity for exceptional growth in the near future. The market is huge. The United States boasts enormous ethnic and racial diversity. Its workforce is also widely diverse in terms of age, which means that managers must adapt to the generational demographics of the workplace. What are some challenges of working with someone much younger or much older than you? On the other hand, retired people will be draining the economy of wealth. Social Security has become a major issue. The pay-as-you-go system (in which workers today pay the retirement benefits for today’s retirees) operated just fine in 1940, when 42 workers supported each retiree; but by 1960, there were only 5 workers per retiree, and today, as members of the Baby-Boom generation (born between 1946 and 1964) retire, that number is 2.8 and is projected to drop to 2.2 by 2036. In addition, the government has been spending some of the accumulated Social Security money instead of leaving it all in the Social Security account. Soon, less money will be coming into Social Security than will be going out. The government will have to do something to make up for the shortfall: raise taxes, reduce Social Security benefits (e.g., raise the retirement age at which people qualify for payments), reduce spending elsewhere (e.g., in other social programs like Medicare or Medicaid), or borrow on the world market. In short, paying Social Security to older citizens in the future will draw huge amounts of money from the working population. That is why there is so much discussion in the media today about what to do to save Social Security. The Increase in the Number of Single-Parent Families It is a tremendous task to work full-time and raise a family. Thus, the growth of single-parent households has also had a major effect on businesses. Whereas only 7 percent of parents were single in 1950, today a third of the children in the United States live with a single parent. Single parents, including those forced by welfare rules to return to work after a certain benefit period, have encouraged businesses to implement programs such as family leave (giving workers time off to attend to a sick child or elder relative) and flextime (allowing workers to arrive or leave at selected times). You will read about such programs in more detail in Chapter 11. More and more working families consist of single parents who must juggle the demands of a job and the responsibilities of raising children. What can managers do to try to retain valued employees who face such challenges? ## The Rise of Gen Z’s Economic Influence Generation Z (those born after the mid-1990s) will soon be the largest group of consumers in the world, accounting for as much as $143 billion in spending power in the United States alone. Designing products and services to meet the broad tastes of this demographic is critical to the success of many companies. In order to reach these consumers, marketers have to use a variety of tools to capture their attention and engage them. The *Connecting through Social Media* box discusses how a few companies are using social media to connect with Gen Zers. The Internet has always existed for Generation Z. As a result, this tech-savvy generation spends a ton of time on social media, especially platforms like Instagram, YouTube, and Tik Tok. Although reaching young people online can be a challenge for companies, the potential rewards for doing so are too significant to ignore given the size of this demographic group. And while social media will play a major role in this group’s future purchasing decisions, they may not use it in the ways that some would expect. For instance, while it might seem logical to assume that Gen Zers do all their shopping online, studies show that they love the experience of brick-and-mortar stores and malls . While they’re out shopping, they are constantly on their smartphones seeking deals on social media. As the social network of choice for many influencers, Facebook-owned Instagram has become an incredibly powerful force in branding. Experts expect it will stay that way since the platform has more than 1 billion active users. In fact, social networks like Instagram and YouTube have grown so big that tech developers have largely stopped trying to create new apps to compete with them. Instead, many of today’s social media start-ups focus on creating tools that can then be used on major platforms. For example, John Barnett worked as a developer at Snapchat and Instagram before founding his own company called Chroma Stories, an app that helps users make visual “stories” on social media. “We’re focused on helping people create for whatever platform they’re on, if it’s Facebook, Instagram, Snap, WhatsApp, Pinterest, Twitter,” said Barnett. Like the members of Generation Z themselves, modern companies will need to be similarly versatile in order to appeal to young consumers. ## The Global Environment The global environment of business is so important that we show it as surrounding all other environmental influences (see again Figure 1.3). Two important issues here are the growth of global competition and the negotiation of trade agreements among nations. World trade, or **globalization**, has grown due to the development of efficient distribution systems (we'll talk about these in Chapter 15) and technological advances such as online communication systems. Globalization has greatly improved living standards around the world. China and India have become major U.S. competitors. Shop at Walmart and most other U.S. retail stores, and you can’t help but notice the number of “Made in China” stickers you see. Call for computer help, and you are as likely to be talking with someone in India as someone in the United States. World trade has its benefits and costs. You’ll read much more about its importance in Chapter 3 and in the Reaching beyond Our Borders boxes throughout the text. This chapter’s Reaching beyond Our Borders box on the next page discusses how Coca-Cola adapted its products to meet the needs of its global markets. ## War and Terrorism War and terrorism have drained trillions of dollars a year from the U.S. economy