EUFOM IBMS 2023 Basic Principles of Business Administration Part 1 (PDF)

International Business Management & Sustainability Prof. Dr. Linda O‘Riordan Instructions on How to Navigate the Script Welcome to the Course! ü This Script is designed for participation i.e. at a study location or virtu...

International Business Management & Sustainability Prof. Dr. Linda O‘Riordan Instructions on How to Navigate the Script Welcome to the Course! ü This Script is designed for participation i.e. at a study location or virtually! ü The Script is NOT designed for full self-study i.e. distant learning! This means that you need to attend the lectures Ø To obtain full appreciation of the approach and key concepts, and Ø To receive advice on how to learn and best study for the examination ü Each lecture has key learning objectives which are stated at the start ü The lectures end with a set of questions to ensure that you have understood the key concepts. ü The overview of key content is stated in the introduction lecture and forms the basis for the examination questions or scientific essay themes ü In the past, the corona pandemic has required changes to the original uploaded plan. As a result, the amount of lectures undertaken virtually or in lecture rooms at the FOM changed. Going forward, as new information becomes available, the official regulations may change so that alterations may be required both in terms of the lectures and the examination to the information uploaded at this point in time ü It is therefore essential that you please keep yourself updated via the FOM Online Campus! Prof. Dr. Linda O‘Riordan| NOT TO BE DISTRIBUTED TO THIRD PARTIES Graphics from Pixabay 4 Agenda Overview of Entire Course (1/2) Welcome & Introduction! 1 Basic Principles of Business Administration 1.1 Personal & Topic Introductions 1.2 Lecture Approach 1.3 Fundamental Terms & Theoretical Concepts 1.4 Methods of Business Analysis & Synthesis 1.5 Practical Examples in an International Business Context 2 Basic Principles of Entrepreneurship (Part I) 2.1 Business Plan 2.2 Strategic & Operative Management 2.3 Strategic Positioning 2.4 Market (Customer/Competitor) & Industry Analysis (Porter‘s Competitive Advantage & 5 Forces) 2.5 Opportunities & Threats (Risks) 2.6 Financing & Capital Procurement 2.7 Forms of Company Start-Ups 2.8 Structural & Procedural Organisation Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 10 Agenda Overview of Entire Course (2/2) Continued… 2 Basic Principles of Entrepreneurship (Part II) 2.9 Supply Chain Management 2.10 Procurement Processes & Demand Management 2.11 Operative Management: Marketing Mix Policy (Product/Service – Price – Promotion (Communication) – Place (Distribution) 2.12 Basic Principles of Controlling 3 Basic Principles of Sustainability & Business Ethics in a Global Context 2.1 Definitions, Related Concepts, Boundaries & Solutions 2.2 Corporate Social Responsibility 2.3 International Codes of Conduct 2.4 Ethics of Global Trade 2.5 Sustainable Business Models 2.6 Sustainable Forecasts 4 Transfer Practice & Revision Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 11 1 Basic Principles of Business Administration Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 12 Agenda Now: Welcome & Introduction! 1 Basic Principles of Business Administration 1.1 Personal & Topic Introductions 1.2 Lecture Approach 1.3 Fundamental Terms & Theoretical Concepts Entrepreneurship Economics Business Purpose, Role & Function 1.4 Methods of Business Analysis & Synthesis 1.5 Practical Examples in an International Business Context Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 13  Agenda Welcome & Introduction! 1 Basic Principles of Business Administration 1.1 Personal & Topic Introductions Now: 1.2 Lecture Approach 1.3 Fundamental Terms & Theoretical Concepts Entrepreneurship Economics Business Purpose, Role & Function 1.4 Methods of Business Analysis & Synthesis 1.5 Practical Examples in an International Business Context Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 27 Lecture Approach: Course Overview Course Requirements Course Objectives Course Agenda Overview Course Assessment Relevant Reading This approach requires that participants familiarise themselves with the lecture material before coming to the lectures !J! Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 28 Lecture Approach: Course Requirements Length: 72 teaching hours Workload: Approx. 156 hours Participation: Regular Attendance (Mandatory !! J) … Advised!! Assessment: 90 Minute Written Examination = 100% (incl. 10% Practical Task) ECTS-Credits: 7 Total Source: Fom FOM Kurs Modulbeschreibung Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 29 Lecture Approach: Course Objectives On completion of this module participants will: Understand and apply the the Identify, define, explain key basic concepts of general aspects of entrepreneurship business administration including start-ups, phases of company development, as well as the processes of procurement, production & marketing Appreciate and explain Develop awareness for the functional activities how to transition to of an enterprise Source: Author sustainable business including the internal models and understand relationships in an the related sustainable international business developments and context standards. Source: FOM Kurs Modulbeschreibung Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 30  International Business Management & Sustainability Lecture Approach: Course Agenda Overview for 17 Lectures Agenda Overview of Entire Course (1/2) Welcome & Introduction! 1 Basic Principles of Business Administration 1.1 Personal & Topic Introductions 1.2 Lecture Approach 1.3 Fundamental Terms & Theoretical Concepts 1.4 Methods of Business Analysis & Synthesis Agenda 1.5 Practical Examples in an International Business Context Overview of Entire Course (2/2) 2 Basic Principles of Entrepreneurship (Part I) 2.1 Business Plan Continued… 2.2 Strategic & Operative Management 2 Basic Principles of Entrepreneurship (Part II) 2.3 Strategic Positioning 2.9 Supply Chain Management 2.4 Market (Customer/Competitor) & Industry Analysis (Porter‘s Competitive Advantage & 5 Forces) 2.10 Procurement Processes & Demand Management 2.5 Opportunities & Threats (Risks) 2.11 Operative Management: Marketing Mix Policy (Product/Service – Price – Promotion (Communication) – Place (Distribution) 2.6 Financing & Capital Procurement 2.12 Basic Principles of Controlling 2.7 Forms of Company Start-Ups 2.8 Structural & Procedural Organisation 3 Basic Principles of Sustainability & Business Ethics in a Global Context 2.1 Definitions, Related Concepts, Boundaries & Solutions Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 10 2.2 Corporate Social Responsibility 2.3 International Codes of Conduct 2.4 Ethics of Global Trade 2.5 Sustainable Business Models 2.6 Sustainable Forecasts 4 Transfer Practice & Revision Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 11 Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES Graphics from Pixabay 31 Lecture Approach: Course Assessment The course assessment is based on a final WRITTEN EXAMINATION accounting for 90 points = 100% of module grade [Repeat Exam 90 points @ 90 minutes] Written Exam Format Ø Type: 9 Open Questions @ 10 Points Ø The first is the transfer practice question! Ø All questions include a practical task orientation in addition to theory! In the written exam the theory and practice are combined via practical tasks which will be explained in greater detail in the lectures & based on case studies. Praktische Aufgabenstellung: In meinen Prüfungen beinhaltet jede Aufgabe sowohl einen theoretischen als auch einen praktischen Teil. Die praktischen Aufgabenstellungen wurden zuvor in der Vorlesung in Gruppen bearbeitet und damit ist die Anforderung, 10% als Theorie-Praxis-Transfer auszuformen, erfüllt! Source: Fom FOM Kurs Modulbeschreibung Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 32 Relevant Reading: FOM Recommended Suggestions Ahrend, K.-A.: Wöhe, G., Döring, U.: Geschäftsmodell Hentze, J., Thies, B.: Einführung in die Nachhaltigkeit - Stakeholder-Management Allgemeine Betriebs- Ökologische und soziale und Nachhaltigkeits- Wirtschaftslehre, Innovationen als Reporting, 25. Auflage, unternehmerische Chance, Springer Verlag 2014 Vahlen 2013 Springer Verlag 2016 Thommen, J.-P., Randers, J.: Achleitner, A.-K.: 2052. Der neue Bericht an Allgemeine Betriebs- Thielscher, C.: den Club of Rome: Eine wirtschaftslehre: Wirtschaftswissenschaften globale Prognose für die Umfassende Einführung Verstehen: Eine Einführung nächsten 40 Jahre aus management- Oekom-Verlag 2016 in Ökonomisches Denken, orientierter Sicht Springer Gabler 2014 7. Auflage, Gabler Verlag 2012 Source: Fom FOM Kurs Modulbeschreibung Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 33 33 Additional Reading Recomendations: Inform Yourself! Example: Business Management is a modern and “live subject” and much can be learned from real life…! In this regard, BBC or CNN and other quality business programmes cover offer interesting background material In addition to the recommended reading, participants should regularly scan both national and international commercial newspapers as well as relevant books, and magazines, and prepare lectures in advance using relevant internet sources Case Study Material will be sourced from actual real-world material from these references Source: https://www.cinemaforpeace-foundation.org/our-vision [Accessed 02.09.2022] Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 34  Agenda Welcome & Introduction! 1 Basic Principles of Business Administration 1.1 Personal & Topic Introductions 1.2 Lecture Approach Now: 1.3 Fundamental Terms & Theoretical Concepts Entrepreneurship Economics Business Purpose, Role & Function 1.4 Methods of Business Analysis & Synthesis 1.5 Practical Examples in an International Business Context Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 35 Basic Principles of Business Administration: Learning Aims INTRODUCTION: WHAT IS BUSINESS MANAGEMENT? Understand the Basic Role & Relevance of Business ü Key Terms & Definitions ü Describe & Apply the Basic Business Principles ü How Business Developed, How it Works, How and Why it Matters! ü Key Themes Entrepreneurship Economics Business Purpose, Role, & Function Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 36 International Business Management & Sustainability Group Activity: Introduction to Entrepreneursip v Do You Recognise these People? v What do You think they do all day…?(!) v What Other Examples of Entrepreneurs / Leaders / Managers would You Add…? v Reflect on the Operating Environment in which these entrepreneurs Act…! Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES Graphics from Pixabay 37 Fundamental Terms & Theoretical Concepts: Content Overview § Define and Understand these Key Terms: § Business (For & Non-Profit) § Goods & Services § Resource Inputs § Profit Vs Loss [Revenue – Cost] § Break-Even Point § Effectiveness Vs Efficiency § Business Environment § Stakeholders § Entrepreneur § Examples in Action § Non-Profit Organisations § Outsourcing / Offshoring § Describe and Apply the Basic Principle of Entrepreneurship § Transform Resource Inputs into Outputs! Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 38 Red c Fundamental Terms & Definitions: Part I Business (For Profit) Non-Profit Organisation Goods Ø An activity providing goods and Ø An organisation for a purpose Ø Tangible products such as services to others while operating whose goals do not include computers, food, clothing, cars, at a profit making a personal profit for its and appliances owners or organisers Services Capital Factors of production Intangible products (i.e., products Ø Inputs, such as tools, machinery, Ø The resources used to create that can not be held in the hands), equipment, and buildings, used to goods and services (=wealth): such as health care, education, produce goods and services and land, labour, capital, insurance, recreation and tourism get them to the customer entrepreneurship, and knowledge (McDaniel/Gitman 2009) Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 39 Group Activity: Deep Dive on Non Profit Organisations § Non-profit or not-for-profit organisations exist to achieve some other goal than the usual business goal of (personal) profit. § Non-profit organisations account for more than 28% of economic activity in the U.S. § Government is the largest not-for-profit group. Task: ü The Red Cross Demonstrates Typical Features: Can You think of Other ü Independent, neutral organisation Examples of Non-Profit ü Founded in 1863 ü Humanitarian protection for victims of war and other situations of Organisations…? violence ü Based on international law ü Ca. 97 million volunteers worldwide ü Selected missions: Ø Sustainable water supply in Haiti Ø Raising mine awareness in Nepal Ø Prisoner protection at Guantanamo Bay Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 40 Fundamental Terms & Definitions: Part II Revenue Cost Efficiency Ø The total amount of money a Ø Expenses incurred from creating Ø The extent to which the firm is business receives during a given and selling goods and services able to produce maximum period by selling goods and (McDaniel/Gitman, 2009) outputs from the lowest input services = Sales level (e.g., people, raw materials, money, other resources) (Butel et al., 2007) Ø Doing things ‘Right’! Profit Loss Effectiveness The amount of money a business Ø When a business‘s expenses add Ø The extent to which overall earns above and beyond what it up to more than its revenues organisational objectives have spends for salaries and other been met (Butel et al., 2007) expenses (sales - costs) Ø Doing the ‘Right’ thing! Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 41 Fundamental Terms & Definitions: Part III Business environment Stakeholders Ø The surrounding external or Ø All the people and other interest internal factors that either help or groups who stand to gain or lose hinder the development of by the policies and activities of a businesses business Entrepreneur Outsourcing Ø A person who risks time and Ø Assigning various functions, such money to start and manage a as accounting, production, 42 business security, maintenance, legal work, to outside organisations Ø Contrary to insourcing Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 42 Group Activity: Deep Dive Today enterprises often outsource or offshore their sales & manufacturing activities § Outsourcing is the subcontracting or contracting out of activities to organisations which had previously been performed by the firm (Luthans/Doh, 2009: 10) § Offshoring is the process by which companies undertake some activities at offshore locations instead of in their countries of origin (Luthans/Doh, 2009: 10) Task: Can You think of Examples…? Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 43 Fundamental Terms & Definitions: Deep Dive EXAMPLE The Offshoring/Outsourcing Matrix or “Make or Buy-Here or There” Lufthansa operation in Germany Lufthansa operation in Italy Lufthansa use IT-infrastructure Call Center in Turkey from IBM Source: Author Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 44 Fundamental Terms & Definitions: From Idea to Successful Commercialisation Success Business model Business opportunity Business idea Source: Author Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 45 Fundamental Terms & Definitions: The Basic Principle of Entrepreneurship All business organisations are ultimately involved in the transformation of inputs (resources) into outputs Business Input Output Consumption Organisation (Materials, (Goods, Services, Ideas, etc.) Labour, Finance, etc.) Source: Author Worthington / Britton (2006: 5) Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 46 The Basic Principle of Entrepreneurship: Inputs = Factors of Production Fundamental Terms & Definitions: The Basic Principle of Entrepreneurship q Factors of Production = Resources All business organisations are ultimately involved in the q Potential sources of value/wealth transformation of inputs (resources) into outputs Business Input Consumption - Land or natural resources (Materials, Organisation Output (Goods, Services, Ideas, etc.) Labour, Finance, - Labour à workers etc.) - Capital Worthington / Britton (2006: 5) Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 43 ØIncl. machines, tools, buildings ØEverything used for goods production (not money!) - Enterprise ü The willingness to take risk to start Ø Entrepreneurship: a business using resources ü Knowledge à most important factor! § Revolutionising/Disrupting business via q Quick determination of wants and needs q Response with desired goods and services q USP Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 47 The Basic Principle of Entrepreneurship: Inputs = Factors of Production EXAMPLE Fundamental Terms & Definitions: The Basic Principle of Entrepreneurship How Aldi Employs the Factors of Production All business organisations are ultimately involved in the transformation of inputs (resources) into outputs Þ Common Denominators: People, Natural Resources, & Money Þ STAKEHOLDERS! Input (Materials, Business Organisation Output Consumption (Goods, Services, Ideas, etc.) Labour, Finance, Land: Property for supermarkets and warehouses, etc. etc.) Worthington / Britton (2006: 5) Labour: Cashiers, storekeepers, administration staff, Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES Graphics from Pixabay 43 managers etc. Capital: Shelves, lorries, groceries, supermarkets, etc. Entrepreneurship: Foundation as a corner shop by Anna Albrecht in 1913, takeover and expansion by her sons Karl and Theo from 1946 onwards Knowledge: Market research to determine consumer preferences, mass media as a source to discover competitors‘ offers Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 48 Fundamental Terms & Definitions: What is the Underlying Aim of Business Activity? Think Profit Maximisation ?? cr itically …the ab o u t theme this… later le will be. ctures contin !!! ued in Revenue − Cost = Profit Source: Author The money a company Expenses that a The money left earns from providing company incurs from over after all services or selling creating & selling expenses are paid goods to customers goods & services Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 49 How Business has Evolved Think …the critically d will be riving fact ab o u Fifty years ago… addre ors fo t this…. ssed r the in late cha It was only big businesses which traded abroad r lectu nge res!!! Communities were very much more localised, with businesses serving a more stable population Businesses were more likely to know their customers personally and deal with them face to face Today… Since the 1980’s the globalisation trend has led to many advances Businesses of all sizes are now able to trade in the global multi-cultural marketplace Modern business practices and the demands of a faster-moving and frequently relocating population have caused many changes including a decrease in the personal touch offered by many businesses Communications technology, computerisation and automation, along with the internet, mean businesses may conduct their customer service from one country and their manufacturing operations from another… Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 50 How Business is Evolving Towards Network & Relationship Thinking Think c ritica …the theme lly abou will be t this later l c on …. ecture ti nued s!!! in Development of Management Practices Transactional Relationship Transaction Database eManagement Interaction Network Transition Traditional Focus on Arm‘s Transformation towards Long-Term, Length Transactions Inclusive, Collaborative Relationships => Responsible Management Strategies Source: Author Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 51 Summary of Role of Business in Society Them e will in lat be co er lec ntinu tures ed !!! Business Management is a powerful catalyst for creating economic wealth thereby helping society to flourish Against a background of increasing demographic change including population increase and rising stakeholder needs and expectations, going forward, change is required in the ways politicians and business decision-makers invest resources Trends in globalisation and communication via technological progress have caused climate change and sustainability challenges. However they also offer new opportunities to address these issues via a transition to more responsible strategies Businesses develop sustainable management strategies when they consider the impact of their choices not merely on their shareholders but for also for other stakeholder groups Dissatisfied stakeholders can negatively impact the business causing sales to drop, costs to rise and thereby profits to decrease. This is not in the shareholders’ interest! Business managers play a key role in society by offering solutions which create sustainable stakeholder value i.e. benefiting people, the planet, and ultimately their profits! Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 52 Group Activity: Deep Dive on Non Profit Organisations Task: Pick an Entrepreneur & Answer the Following…! ü Who is the originator/founder of the entrepreneurial idea? ü What is the (business) idea ? ü How does the entrepreneur ‚perform‘ the idea (bring it to life)? ü Reflect on the quality of the entrepreneurial spirit the originator brings! ü Who are the stakeholders? ü What exernal factors in the environment influence the success? ü What external and internal challenges / opportunities does the entrepreneur face from the operating environment? Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 53 Key Learning Points Following completion of this lecture, you should be able to: 1. Understand the lecture procedure details and approach 2. Appreciate the inter-disciplinary nature of management and the inherent inter-relationships! 3. What is Entrepreneurship – Give examples of entrepreneurs & the entrepreneurial spirit! 4. Define and explain the key business terms on slide 38 and appreciate the inter-disciplinary nature of their inter-relationships! 5. What is the difference between revenue and profit? Explain the nature and characteristics of costs! 6. Stakeholders: Name different stakeholder groups, which do you consider particularly important and state why? Explain why stakeholder management can be challenging! 7. Illustrate and explain giving examples the basic business activity! 8. Explain the difference between for and not for profit organisations giving examples to support your answer! 9. Appreciate how management and its practice has evolved and developed over time giving examples of key influencing factors and trends! 10. Provide at least three reasons why business is relevant for society. In your answer critically highlight how business may have both a negative as well as the positive impact on its operating environment ! Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 54 Agenda Welcome & Introduction! 1 Basic Principles of Business Administration 1.1 Personal & Topic Introductions 1.2 Lecture Approach 1.3 Fundamental Terms & Theoretical Concepts Entrepreneurship Now: Economics Business Purpose, Role & Function 1.4 Methods of Business Analysis & Synthesis 1.5 Practical Examples in an International Business Context Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 55 Basic Principles of Business Administration: Learning Aims INTRODUCTION: WHAT IS BUSINESS MANAGEMENT? Understand the Basic Role & Relevance of Business ü Key Terms & Definitions ü Describe & Apply the Basic Business Principles ü How Business Developed, How it Works, How and Why it Matters! ü Key Themes Wrap - Up F rom P Entrepreneurship ü S revio umm us Le arise cture Economics ü Ques t he Mai … tions n Poi …? nts! Business Purpose, Role, & Function Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 56 Fundamental Terms & Definitions: Economics If a Key Function of Management is Economic Performance: What is an Economy? And How is Economic Performance Achieved? Economics Supply Demand Macroeconomics Market Price Microeconomics Capitalism Free-Trade Invisible Hand Socialism Free-Market Economy Business Cycle Command Economy Communism Unemployment Rate Mixed Economy Recession Inflation GDP GNP/GNI Depression Deflation CPI PPI PPP Source: Author Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 57 Fundamental Terms & Definitions: Economics I Economics Macroeconomics Microeconomics Ø The study of how wealth Ø The study of national and the Ø The study of the decisions made (anything of value) is created and global economy by individuals and businesses distributed Invisible Hand Business Cycle Unemployment Rate Ø A phrase by Adam Smith to Ø The periodic rises and falls in Ø The percentage of a nation’s describe the ‘process’ turning self- growth that occur in all economies labour force unemployed at any directed gain into social and over time time economic benefits for all Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 58 Fundamental Terms & Definitions: Economic System Types Capitalism Socialism Communism Ø An economic system in which all or Ø An economic system based on the Ø An economic and political system most of the factors of production premise that some or most basic (planned economy) in which the and distribution are privately businesses are owned by the state (government) makes almost owned and operated for profit government so that profits can be all economic decisions and owns which is then belongs to the the evenly distributed among the almost all the major factors of owners of the business people production Command Economy Mixed Economy Free-Market Economy Ø Economic systems in which the Ø Economic systems in which some Ø Economic systems in which the government largely decides what allocation of resources is made by market largely determines what goods and services will be the market and some by the goods and services get produced, produced, who will get them, how government who gets them, and how economy economy will grow grows Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 59 Deep Dive: Political Ideologies Behind Economics Socialism e.g. Denmark & Sweden Social Capitalism e.g. France & Germany An economic system in which the Economies that combine several systems; for basic industries are owned either example, an economy where the government by the government itself or by the owns certain industries, but others are owned private sector under strong by the private sector government control Socialism Mixed Economy Communism e.g. Cuba Capitalism e.g. USA or the UK An economic system characterised by An economic system based on government ownership of virtually all competition in the marketplace and resources, control of all markets, and private ownership of the production economic decision-making by central- factors; also known as a private government planning. enterprise system. Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 60 Deep Dive: How Political Ideologies Determine Economic Systems § Economic Systems Differ in How they Answer the Four basic economic questions about Who Decides: 1. What goods and services will be produced? 2. How will they be produced? 3. For whom will they be produced? 4. Who owns and controls the major factors of production? Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 61 Deep Dive: Examples of Different Economic Systems based on Political Ideology Economic System = Set of structures and processes guiding the allocation of scarce resources and shaping the conduct of business activities in a nation Spectrum of Economic Systems Centrally-planned Free-market N. Korea China Brazil Japan USA Cuba Russia India Germany Canada Vietnam S. Korea France UK Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 62 Group Activity: Deep Dive on How Political Ideologies Affect Business Mixed Capitalism Socialism Communism Economy Think about how the various political Ownership of Business ideologies affect business with respect Motivation of workers to the points in the table!... Control over markets Choices in the market Examples Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 63 Deep Dive: Transition Economies § Many countries are in a state of political transition § Within the last years there is a shift away from totalitarian governments toward more democratic political ideals and free market principles (capitalism). Capitalism Mixed Socialism Communism Economy Forecast for 2020 Continued Continued Stable with No growth and (McDaniel / steady growth probably perhaps Gitman, 2009) growth slight disappearance growth Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 64 Deep Dive: Transition Economies A Transition Economy is an economy which is changing from a centrally planned economy to a free market Transition economies undergo economic liberalisation (letting market forces set prices and lowering trade barriers), ü Move from public to private ownership of resources ü Restructuring and privatisation is used to create a financial sector ü Immediate high inflation is brought under control ü Macroeconomic stabilisation Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 65 Group Activity: Deep Dive on Political & Economic Transitions 1. Reflect on the political & economic transitions in these examples: ü BREXIT! ü China’s move from Communism to Global Captialism! 2. What Transition Issues do you see for the future…? Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 66 Deep Dive: Selected Policies Shaping the Transition Process of Economies Privatisation: The sale and/or legal transfer of government-owned resources to private individuals and/or entities Deregulation: Relaxation or removal of restrictions on the free operation of markets and business practices Property rights: The protection of real (tangible) and intellectual (intangible) property Fiscal and monetary reform: The reliance upon policies to manage the money supply Antitrust legislation: Laws designed to maintain and promote market competition, i.e., to prohibit anticompetitive monopolies Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 67 Fundamental Terms & Definitions: Economics II Gross Domestic Product (GDP) Gross National Product (GNP) Free Trade Ø An aggregate output measure of Ø Includes the role of international Ø The free movement of goods and the total value of all goods and activity in the nation’s output. services among nations without services produced within a given Ø Now called Gross National Income political or economic barriers period by a national economy (GNI) through domestic factors of Ø The total domestic and foreign production output of a country in a given time period Ø Includes GDP plus foreign income minus income earned by non- residents in the domestic economy Recession Depression Inflation Ø Two or more consecutive quarters Ø A severe recession Ø General rise in the price of goods of decline in GDP and services over time Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 68 Deep Dive: Economic Growth Occurs When GDP Increases Gross Domestic Product Gross National Product (GDP) (GNP) „An aggregate output „The total value of all goods measure of the total value and services produced by a of all goods and services national economy within a produced within a given given period, regardless of period by a national where the factors of economy through domestic production are located.” factors of production.“ If GDP increases, the nation experiences economic growth! Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 69 Deep Dive: Further Details on the Economic Indicator GDP Real GDP à GDP growth rate adjusted for inflation and changes in the value of the country’s currency Nominal GDP à Measured in current dollars or with all components valued at current prices GDP per Capita à Reflection of the standard of living: GDP per capita means GDP per person; a better measure of the economic well-being of the average person than GDP itself Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 70 Fundamental Terms & Definitions: Economic Market Mechanisms The Economic Principle of Supply & Demand Demand = Customer Need/Want The quantity of a good or service that Price people are willing to buy at various prices $/€ => The higher the price, the lower the quantity demanded, and vice versa. Quantity (x) Supply = Competitors Offering The quantity of a good or service that businesses will make available at various prices Price $/€ => The higher the price, the greater the amount the manufacturer is willing to supply, and vice versa Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 71 The Relationship Between Market* Mechanisms Determine the Price The Degree of Supply & Demand Determines the Price! Demand Market Price ØThe quantity of products that ØThe price is determined by supply people are willing to buy at and demand different prices at a specific time * Market = Demand/Supply = Customers/Competitors = Buyers/Sellers Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 72 Regulating Market Mechanisms Them e will in lat be co How (…and How Well…!) Does the Market Regulate Itself…? er lec ntinu tures ed !!! Equilibrium Price The price at which the quantity of goods demanded and supplied are equal => Market equilibrium is achieved through a series of quantity & price adjustments that occur automatically… Key Issues: Fair Price ?? = Accessibility/Affordability ?? Price Gouging (Wuchern) ?? Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 73 Fundamental Terms & Definitions: Different Types of Markets Market: A group of individuals or organisations, or both, that need products in a given category and that have the ability, willingness, and authority to purchase such products Business to Consumer Markets (B2C): Purchasers and/or household members who intend to consume or benefit from the purchased products and who do not buy products to make a profit Business to Business (B2B) [Industrial] Markets: Producer, reseller, governmental, and institutional customers that purchase specific kinds of products for use in making other products for resale or for day-to-day operations Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 74 Deep Dive on Market Demand & Supply: Surpluses and Shortages A situation in which quantity supplied exceeds quantity demanded. à Causes losses – A situation in which quantity demanded will be greater than quantity supplied. à Causes lost profits à Invites increased competition Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 75 Deep Dive: Further Details on the Economic Indicator Price Inflation Deflation Disinflation Ø Continuing rise in prices caused by Ø Prices are declining Ø Price increases slowing (inflation an increase in the money supply rate is declining) and demand for goods Ø Measures prices at the wholesale level Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 76 Further Deep Dive: Economic Inflation, Disinflation, Deflation Inflation Disinflation Deflation à General rise in prices of à Price increases à Prices are declining goods and services over time slowing (declining Too many dollars are chasing inflation rate) Too few dollars are limited goods chasing to many goods Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 77 Further Deep Dive: Consumer Price Index (CPI) & Producer Price Index (PPI) I Consumer Price Index Measurement (CPI) Index of prices of a Inflation “market basket” of goods/services purchased by consumers Producer Price Index (PPI) Prices paid by producers for raw materials, partially finished goods, and finished products Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 78 Further Deep Dive: Consumer Price Index (CPI) & Producer Price Index (PPI) II Consumer Price Index (CPI) Producer Price Index (PPI) Ø A monthly index that measures Ø A group of indexes that gauges the the changes in prices of a fixed average fluctuation in selling basket of goods purchased by a prices received by domestic typical consumer in an urban area producers over time [measured at the wholesale or producer level ü The PPI and the CPI are similar in that they both related to price changes ü However they both take a different perspective: § The PPI measures price changes from the perspective of the seller § While the CPI measures price changes from the purchaser's perspective Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 79 Key Learning Points Following completion of this lecture, you should be able to: 1. Define, describe & explain the economic key terms listed on slide 57! 2. Discuss the different types of economies and explain how free markets work! 3. Describe and explain the business cycle by using technical terms to describe the periodic rises and falls in the economy and give examples to support your answer! 4. Appreciate the relevance of various key economic indicators for comparing the economic performance of leading and developing world countries! Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 80 Basic Principles of Business Administration: Learning Aims for Lectures 1 & 2 INTRODUCTION: WHAT IS BUSINESS MANAGEMENT? Understand the Basic Role & Relevance of Business ü Key Terms & Definitions ü Describe & Apply the Basic Business Principles ü How Business Developed, How it Works, How and Why it Matters! Wrap ü Key Themes - Up F rom P Entrepreneurship ü S revio umm us Le arise cture Economics ü Q uesti t he Mai … ons… n Poi ? nts! Business Purpose, Role, & Function Graphics from Pixabay Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 81 Agenda Welcome & Introduction! 1 Basic Principles of Business Administration 1.1 Personal & Topic Introductions 1.2 Lecture Approach 1.3 Fundamental Terms & Theoretical Concepts Entrepreneurship Economics Now: Business Purpose, Role & Function 1.4 Methods of Business Analysis & Synthesis 1.5 Practical Examples in an International Business Context Prof. Dr. Linda O'Riordan | NOT TO BE DISTRIBITED TO THIRD PARTIES 82 Thank You for Your Interest & Attention! Graphics from Pixabay