01 understanding the concepts of business enterprise
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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
SEKIANSEKIAN
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