Business. Management 113. Complete

Transcription

1 Business Management 113 Complete 1

2 CHAPTER 1:Business Environment BUSINESS: A DEFINITION BUSINESS: The organised effort of individuals to produce and sell, for a profit, the goods and services that satisfy society s needs. THE ORANISED EFFORTS OF INDIVIDUALS For a business to be organised it must combine four kinds of resources: Human Resources Informational Resources Material Resources Financial Resources HIMF Classifications of businesses: 1. Manufacturing businesses process various materials. Deliver a physical product. 2. Service businesses render services (E.g. FedEx, Outsurance, ABSA). 3. Marketing intermediaries buy products and resell them (E.g. Makro, Game). SATISFYING NEEDS The ultimate objective of every firm must be to satisfy the needs of its customers. People generally do not buy goods and services to just own them; they buy products and services to satisfy particular needs. BUSINESS PROFIT PROFIT: Money that remains after all business expenses have been deducted from sales revenue. Negative profit expenses > sales revenue (LOSS). Profit earned by a business becomes the property of the owners. Purpose of a profit is to reward or a payment for a risk taken. STAKEHOLDERS: All the different people or groups of people who are affected by the policies and decisions made by an organisation. (E.g. Shareholders, consumers, employers, government). Stakeholders may have different interests in the business. The business must aim to address the specific needs of stakeholders. Some stakeholders have more influence over the decisions of a company than others (i.e a larger investor). TYPES OF ECONOMIC SYSTEMS ECONOMICS: Study of how wealth is created and distributed. ECONOMY: The systems through which a society creates and distributes wealth. 2

3 Experts study economics from 2 different perspectives: Microeconomics: Study of decisions made by individuals and businesses. Macroeconomics: Study of the national and global economy. MICROECONOMICS MACROECONOMICS Price of a single product Consumer price index Changes in the price of a product Inflation Production of maize Total output of goods and services Firms decision to export its product Total exports of goods and services Individual decision whether to work or not Total supply of labour in the economy Economic systems differ essentially in two ways: 1. The ownership of the factors of production and 2. How they answer four basic economic questions that direct a nation s economic activity. FACTORS OF PRODUCTION: Resources used to produce goods and services. o o o o Capital Money, facilities, equipment and machines used in the operation of organisations. Entrepreneurship activity that organises land, labour and capital. Willingness to take risks and the knowledge and ability to make use of other factors efficiently. Land and natural resources elements that can be used in the production process. Labour the time and effort that we use to produce goods and services. CELL The way each system answers the four basic economic questions listed here, determines a nation s economy. 1. What goods will be produced? 2. How will they be produced? 3. For whom? ( Target market) 4. Who owns and controls the major factors of production? CAPITALISM An economic system in which individuals own and operate the majority of businesses that provides goods and services. It stems from the theories of the 18 th -century Scottish economist Adam Smith. In his book Wealth of Nations, he argued that a society s interests are best served when the individuals within that society are allowed to pursue their own self-interest. When individuals act to improve their own fortunes, they indirectly promote the good of their community and the people. INVISIBLE HAND: How an individual s own personal gain benefits others and a nation s economy. Laissez-Faire Capitalism ( Let them do as they see fit ) MARKET ECONOMY: Economic system in which businesses and individuals decide what to produce and buy and the market determines prices and quantities sold. (Free-market economy) MIXED ECONOMY: Exhibits elements of both capitalism and socialism. 3

4 Households, made up of individuals, are the consumers of goods and services as well as owners of some of the factors of production. They provide businesses with labour, capital and other resources and earn wages, rent, dividends and interest in return. Businesses exchange money for natural resources, labour, and capital and use these resources to produce goods and services. They then exchange their goods and services for sales revenue. Governments responsibility is to promote and protect public welfare. Their numerous services are important because they would either not be produced by private businesses or would be produced only for those who could afford them. CONSUMER PRODUCTS: Goods and services purchased by individuals for personal consumption. COMMAND ECONOMIES Economic system in which the government decides what will be produced, how it will be produced, who gets what is produced and who owns and controls the factors of production. Answers to the economic questions are determined through centralized government planning. Socialism and communism serve as examples of command economies. Socialism Key industries are owned and controlled by the government. (eg. Transportation) Small-scale private businesses may be permitted and workers may choose their own occupations. Production is based on national goals based on projected needs and the availability of resources. Distribution of goods and services are controlled by the state. Aims: Equitable distribution of income, elimination of poverty, social services to all who need them, elimination of economic waste of capitalistic competition. 4

5 Disadvantages: Increased taxation and loss of incentive and motivation for both individuals and businesses. Eg. France, Sweden and India. Communism All factors of production are owned and controlled by the government. Production is based on centralized state planning to meet the needs of the state and not necessarily the needs of its citizens. State dictates occupational choices and sets prices and wages. Intent is to create Karl Marx s concept of a classless society where all contribute according to their ability and receive benefits according to their needs. Eg. North Korea, Cuba. MEASURING ECONOMIC PERFORMANCE PRODUCTIVITY: Average level of output per worker per hour. Reducing costs and enabling employees to work more efficiently are at the core of all attempts to improve productivity. IMPORTANT ECONOMIC INDICATORS THAT MEASURE A NATION S ECONOMY GROSS DOMESTIC PRODUCT: The total dollar value of all the goods and services produced by all the people within the boundaries of a country during a one year period. Lagging indicator. INFLATION: General rise in the level of prices. (5,7%) DEFLATION: General decrease in the level of prices. STAGFLATION: Very high inflation rate and low interest rates. UNEMPLOYMENT RATE: Percentage of a nation s labour force unemployed at any time. (25,5%) CONSUMER PRICE INDEX (CPI): A monthly index that measures the changes in prices of a fixed basket of goods purchased by a typical consumer in an urban area. PRODUCER PRICE INDEX (PPI): An index that measures prices that producers receive for their finished goods. ECONOMIC MEASURE DESCRIPTION 1. Balance of trade The total value of a nation s exports minus the total value of imports over a specific period of time. 2. Bank credit A Statistic that measures the lending activity of commercial financial institutions. 3. Corporate profits The total amount of profits made by corporations over selected periods of time. 4. Inflation rate An economic statistic that tracks the increase in prices of goods and services over a period of time. This measure is usually calculated on a monthly or annual basis. 5. National income The total income earned by various segments of the population, including employees, self-employed individuals, corporations, and other types of income. 6. New housing starts The total number of new homes started during a specific time period. 7. Prime interest rate The lowest interest rate that banks charge their most credit-worthy customers. 5

6 Peak Recession Depression Trough COMMON MEASURES TO INFLUENCE A NATION S ECONOMIC POSITION Repo rate: The rate that the central bank charge financial institutions. Prime interest rate: The base interest rate that banks charge their customers. THE BUSINESS CYCLE BUSINESS CYCLE: The recurrence of periods of growth and recession in a nation s economic activity. The changes that result from either economic growth or downturn, affect the amount of goods and services that consumers are willing to purchase and therefor the amount of goods and services that are produced. The business cycle consists of four stages: Economy is at its highest point and unemployment is low. Total income is relatively high. Businesses expand to take advantage of consumers' increased buying power. Two or more consecutive 3 month periods of decline in a country s GDP. Total buying power of consumers decreases. A severe recession that lasts longer than a typical recession. Extremely high unemployment rates, low wages, reduced buying power, lack of confidence in the economy, lower stock values and general decrease in business activity. The turning point when a nation's output and employment bottom out and reach their lowest levels. MONETARY POLICIES: Central bank decisions that determine the size of the supply of money in the nation and the level of interest rates. FISCAL POLICIES: Government influence on the amount of savings and expenditures; accomplished by altering the tax structure and by changing the levels of government spending. TYPES OF COMPETITION BUSINESS COMPETITION: A rivalry among businesses for sales to potential customers. PERFECT COMPETITION The market situation in which there are many buyers and sellers of a single product, and no single buyer or seller is powerful enough to affect the price of that product. No restrictions on firms entering the industry. All buyers and sellers have complete information about the prevailing market conditions. 6

7 Overall market is not affected by the actions of any one buyer or seller. All buyers and sellers accept the going price. SUPPLY: The quantity of a product that producers are willing to sell at each of various prices. DEMAND: The quantity of a product that buyers are willing to purchase at each various prices. MARKET PRICE: The price at which the quantity demanded is exactly equal to the quantity supplied. MONOPOLISTIC COMPETITION A market situation where there are many businesses along with a relatively larger number of sellers who differentiate their product from the products of competitors. Products are very similar in nature. Intended to satisfy the same need. Each seller attempts to make its product different by providing unique features. PRODUCT DIFFERENTIATION: The process of developing and promoting differences between one s product and all similar products. OLIGOPOLY Market situation or industry in which there are few sellers. Sellers are quite large and sizable investments are required to enter into the market. Examples: Automobile, airline, car rental, cereal and farm implement industries. Interdependent market actions of one can have a strong effect on competitors. MONOPOLY Market with only one seller and there are barriers to keep other firms from entering the industry. Seller has complete control over price. Firm must consider the demand for its product and set the price at the most profitable level. NATURAL MONOPOLY: An industry that requires a huge investment in capital and within which any duplication of facilities would be wasteful. They are permitted to exist because the public interest is best served by their existence, but they operate under the control of state and federal agencies. LEGAL MONOPOLY (limited monopoly): Government entity issues a franchise, license, copyright, patent or trademark. THE BUSINESS ENVIRONMENT- PESTLE ANALYSIS Ask these questions for each environment Why is this environment important to this particular company/industry? What is currently happening in these environments? (Trends) How do each of these trends affect the business? What can businesses do to overcome the challenges of each environment? How can the business react upon positive trends? 7

8 1. Political Environment What influence do different types of political systems have on business? Need to assess political risk. Role of the government: Allowing private ownership. Favourable laws that are enforced. Establish tradeable currency. Minimize corruption. 2. Economic Environment Looking closely at the big-picture changes in the economy to understand trends and make forecasts for business planning purposes. Interest rates Employment Taxation Economic growth and decline Exchange rates 3. Social Environment How does the business impact society and its consumer market? Trends and lifestyle play a role in social change. Demography: Size, density, age, race, gender, income. Generation groups Diversity: More diverse workforce and customers. 4. Technological Environment Responding to the fast paced change in this sector. Lasting impact of information technology. Internet/e-commerce. Technology: Infrastructure, processes, software. 5. Legal Environment Comprising of National legal systems, Regional legal frameworks and International law, this area has a large impact on business and can have serious implications if laws are not adhered to. Labour legislation Consumer protection act 8

9 Copyright and patent issues Health and safety legislation Environmental laws Human rights laws Competition and trading prices 6. Environmental environment Pollution Wastage of resources Deforestation Ozone deterioration Species extinction.etc. 9