Understanding Understanding the Concepts of the Concepts of BusinessBusiness Enterprise Enterprise

Lecture Notes of Business and Management Lecture Notes of Business and Management Dr. Fahmy Radhi, MBADr. Fahmy Radhi, MBA

The Concept of BusinessThe Concept of Business

The exchange of goods/services with money for The exchange of goods/services with money for mutual benefit/profitmutual benefit/profit

An organization that provides goods and/or An organization that provides goods and/or services to earn profitsservices to earn profits

All profit-seeking activities that are organized All profit-seeking activities that are organized and directed to convert and directed to convert factors of productionfactors of production into into goodsgoods and and servicesservices or combination or combination between goods and services for customers in between goods and services for customers in the marketsthe markets to achieve to achieve the the business business objectivesobjectives

Factors of ProductionFactors of Production

Labor or human resourcesLabor or human resources – the physical and mental – the physical and mental capabilities of people that contribute in economic capabilities of people that contribute in economic productionproduction

Capital Capital – the funds needed to create and operate a – the funds needed to create and operate a business enterprisebusiness enterprise

Land or physical resourcesLand or physical resources – tangible resources used – tangible resources used in the conduct of their businessin the conduct of their business

EntrepreneursEntrepreneurs – people who take opportunities and the – people who take opportunities and the risks in creating and operating businessrisks in creating and operating business

Information resourcesInformation resources – data and information used in – data and information used in decision making and problem solving in operating decision making and problem solving in operating business business

EntrepreneurEntrepreneur

Entrepreneur - Entrepreneur - A person who takes the risks to A person who takes the risks to organize and manage a business innovatively organize and manage a business innovatively and creatively that receives the financial profits and creatively that receives the financial profits and non-monetary rewards for hisand non-monetary rewards for his

The Growth Oriented EntrepreneurThe Growth Oriented Entrepreneur Need for Achievement - A Strong desire to Need for Achievement - A Strong desire to

succeed, to grow up and to accomplish succeed, to grow up and to accomplish challenging taskschallenging tasks

Low need to conform, persistence, High energy Low need to conform, persistence, High energy levellevel

Risk-taking tendencyRisk-taking tendency

Differences between goods and servicesDifferences between goods and services

Goods Services

Tangible and durable outputs Intangible outputs

Output can be inventoried Output can not be inventoried

Low customer contact High customer contact

Long response time Short response time

Regional, National or International markets

Local markets

Large facilities Small facilities

Capital intensive Labor intensive

Quality easily measured Quality not easily measured

Business ObjectivesBusiness Objectives

Business Profit = TR -TCBusiness Profit = TR -TC Economic Profit – business profit that Economic Profit – business profit that

considered opportunity cost as a part of considered opportunity cost as a part of expensesexpenses

SurvivalSurvival GrowthGrowth Social ResponsibilitySocial Responsibility

MarketMarket

Market Market a mechanism for exchange between a mechanism for exchange between buyers (buyers (demanddemand) and sellers () and sellers (supplysupply) of ) of particular goods and servicesparticular goods and services

Market Classifications:Market Classifications: Input Market is market in which firms buy Input Market is market in which firms buy

resources from supplier householdresources from supplier household Output market is market in which firms supply Output market is market in which firms supply

goods and services in response to demand on goods and services in response to demand on the part of householdthe part of household

Circular Flow in A Market EconomyCircular Flow in A Market Economy

Market Price or EquilibriumMarket Price or Equilibrium

Market CompetitionMarket Competition structurestructure

Perfect competition – market characterized by Perfect competition – market characterized by numerous firms producing an identical product in numerous firms producing an identical product in the marketthe market

Monopolistic – market characterized by Monopolistic – market characterized by numerous buyers and one or just few sellers in numerous buyers and one or just few sellers in the marketthe market Monopoly – numerous buyers with only one seller that Monopoly – numerous buyers with only one seller that

can set the price in marketcan set the price in market Oligopoly – numerous buyer with few seller that can Oligopoly – numerous buyer with few seller that can

influence the price in the marketinfluence the price in the market

Characteristics of Market StructureCharacteristics of Market Structure

CharacteristicsPerfect

CompetitionMonopoly Oligopoly

Number of competitors

Many None Few

Ease of entry into industry

Easy Regulated Difficult

Similarly of goods/services

Identical Specific Variety

Level control over price None High

Low-medium

Economic SystemsEconomic Systems

Planned Economy – an economy system in Planned Economy – an economy system in which the government owns, controls and which the government owns, controls and allocates the productive resources. The two allocates the productive resources. The two most its basic forms are communism and most its basic forms are communism and socialismsocialism

Market Economy – an economy system in which Market Economy – an economy system in which individuals own, control and allocate the individuals own, control and allocate the resources through supply and demand in the resources through supply and demand in the markets. Its form is capitalism. markets. Its form is capitalism.

Mixed Market Economy – featuring Mixed Market Economy – featuring characteristics of both planned and market characteristics of both planned and market economieseconomies

The business contribution to The business contribution to economic performance economic performance

Economic growthEconomic growth by increasing two indicators: by increasing two indicators: Aggregate output – total quantity of goods and services Aggregate output – total quantity of goods and services

produced by an produced by an economic systemeconomic system in given period indicated by in given period indicated by GDP and GNPGDP and GNP

Standard of Living – total quantity and quality of goods and Standard of Living – total quantity and quality of goods and services that people can purchase with the currency used by services that people can purchase with the currency used by their economic systemtheir economic system

Economic StabilityEconomic Stability – condition in which the balance – condition in which the balance between the money available in an economy and the between the money available in an economy and the goods produced in the same rate. It’s indicated by:goods produced in the same rate. It’s indicated by: Inflation rate – the rise in the average level of price for all goods Inflation rate – the rise in the average level of price for all goods

and services in a particular timeand services in a particular time Unemployment rate – the level of joblessness among people Unemployment rate – the level of joblessness among people

actively seeking workactively seeking work

Business FormsBusiness Forms

Sole Proprietorship - a business owned and Sole Proprietorship - a business owned and managed by one individual who is responsible managed by one individual who is responsible for all of its debtsfor all of its debts

General Partnership – business with two or more General Partnership – business with two or more owners who share in both the operation of the owners who share in both the operation of the firm and the financial responsibility for its debtsfirm and the financial responsibility for its debts

Corporations - a business that is a legal entity Corporations - a business that is a legal entity separate from its owners who has responsible separate from its owners who has responsible the limits of their investmentthe limits of their investment

Characteristics of Business FormsCharacteristics of Business Forms

Characteristics Proprietorship Partnership Corporation

Start-up and operation

Simplest to establish and form

Relatively easy, but needs written contract

Complicated based on law and procedure

Liability for debts and taxes

Owner has unlimited liability

Partners have unlimited liability

Shareholders are liable only to extent of investment

Termination Easy, after debts are paid

Complicated, depends on contract

Difficult and expensive

Duration of business

Terminates at death of owner

Terminates at death or withdrawal of partner

indefinite

Incorporated Forms of BusinessIncorporated Forms of Business

Cartel - cooperation among some business in Cartel - cooperation among some business in achieving same goals. E.g. Price Cartel, achieving same goals. E.g. Price Cartel, Production Cartel, Area Cartel and Syndicate Production Cartel, Area Cartel and Syndicate Sales CartelSales Cartel

Business Trust - two or more business joint Business Trust - two or more business joint together to accomplish specific business goal. together to accomplish specific business goal.

Holding Company/Concern - a corporation that Holding Company/Concern - a corporation that hold many businesshold many business

Acquisition/Consolidation/Merger: Horizontal Acquisition/Consolidation/Merger: Horizontal Merger, Vertical Merger and Conglomerate Merger, Vertical Merger and Conglomerate MergerMerger

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