CHAPTER ONEBUSINESS IN CHANGING

WORLD

Prepared by: Thomas Joluis

COURSE OUTLINE

1. The Dynamic of Business and Economics2. Business Ethics and Social Responsibility3. Business in a Borderless World

1. The Dynamic of Business and Economics

A solid understanding of business is necessary for anyone who wants to start their own

company or work in business field.

The Nature of Business

• To create profits by:– Selling products – Cars, food, clothing

– Providing services – Healthcare, insurance

• Products have both tangible and intangible characteristics.

The Goal of Business

• The primary goal of all business is to earn a profit.

• Earning profits contributes to society by providing employment, which in turn provides money that reinvested in the economy.

• But, not all organizations are business. (Red Cross, Special Olympics are nonprofit organizations)

Business vs. NonprofitOrganization

BusinessAn individual or organization that tries to earn a profit by providing products that satisfy people’s needs, ex. Coca-Cola.

Nonprofit OrganizationProvides products, especially services, for some purpose other than profits, ex. Red Cross

To earn a profit, a person or organization needs:

management skills marketing expertise

Stakeholder:customers, employees, investors, government regulators, the community and society. Because these groups have a stake in the success and outcomes of a business.

The economic foundations of business

Economics is the study of how resources are distributed for the production of goods and services within a social system.

3 types of resources:Natural

land, forests, etc. (not made by people)

Humanphysical/mental abilities used by people to produce goods and services

Financialfunds necessary to acquire needed natural and human resources

What Is An Economic System?

• The way a society distributes its resources to produce goods and services.

• Addresses the issue of how to fulfill unlimited demand with limited supply of resources.

Types of Economic Systems

• Communism• Socialism• Capitalism

Comparison of Communism, Socialism, and Capitalism

Communism Socialism Capitalism

Business Ownership

Most businesses are owned and operated by the government.

The government owns and operates major industries; individuals own small businesses.

Individuals own and operate all businesses.

Competition None. The government owns and operates everything.

Restricted in major industries; encouraged in small business.

Encouraged by market forces and government regulations.

Profits Excess income goes to the government.

Profits earned by small businesses may be reinvested in the business; profits from government-owned industries go to the government.

Individuals are free to keep profits and use them as they wish.

Communism Socialism Capitalism

Product availability and price

Consumers have a limited choice of goods and services; prices are usually high.

Consumers have some choice of goods and services; prices are determined by supply and demand.

Consumers have a wide choice of goods and services; prices are determined by supply and demand.

Employment options

Little choice in choosing a career; most people work for government-owned industries or farms.

Some choice of careers; many people work in government jobs.

Unlimited choice of careers.

Economic Systems and Where They Occur

Communism: Socialism:Capitalism:

China Sweden United States

North Korea India Canada

Cuba France Australia

Vietnam Israel Japan

Mixed Economies

Most countries of the world have elements of

more than one economic system.

The Free-Enterprise System• Individuals can own property and pass it on

to their heirs.• People and businesses can earn profits and

use them as they wish.• Individuals and businesses can determine

how their businesses operate.• Individuals can choose their career, where

to live, and what to buy.

Supply and Demand

• Supply:– The number of

products business is willing to sell at different prices at a specific time.

– An upward sloping curve on a graph.

• Demand:– The number of goods

and services that customers are willing to buy at different prices at a specific time.

– A downward sloping curve on a graph.

10 20 30 40 500

10

20

30

40

50

60

Supply 50

Demand 10

Equilibrium price of Plastic Chair

Quantity (unit)

Pric

e (R

M)

2. Business Ethics and Social Responsibility

Comparison of Business Ethics and Social Responsibility

Business Ethics: The principles and standards that define acceptable conduct in

business.

Social A business’s obligation to Responsibility: maximize its positive impact and minimize its negative impact on society.

Ethical Issue

An identifiable problem, situation, or opportunity that requires a person to choose from among several actions that may be evaluated as right or wrong, ethical or unethical.

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FAST FACT:The most common types of observed misconduct are lying, withholding information, and abusive / intimidating behavior.

Business law

• refers to the laws and regulations that govern the conduct of business.

• Many problems and conflicts in business can be avoided by owners, manager and employees know more about business law and the legal system.

• Business ethics, social responsibility, and law together act as a compliance system, requiring the businesses an employee’s act responsibly to society.

The role of ethics in business

Ethical conduct builds trust among individuals and in business relationships, which validate and promotes confidence in business relationships.

Ethical Issue Categories

abusive and intimidating behaviorconflict of interest fairness and honesty communications misuse of company resources business associations.

Abusive and intimidating behavior

• Physical threats• False accusations• Profanity• Insults /Yelling /Harshness• Unreasonableness to ignoring someone

Conflict of interest

Occurs when a person must choose whether to advance their own personal interest

or those of others.

• Bribes – payments, gifts, or special favours intended to influence the outcome of a decision

Fairness and honesty

Are at the heart of business ethics and relate to the general values of decision makers.

• Disobey the law• Discriminating• Harm the customer, employees, clients or

competitors• Disclosure information• Cheating

Communications

False and misleading advertising and deceptive personal-selling tactics anger customers and

may cause a business to fail.

Misuse of company resources

‘steal’ office hour – late arrival, early leaving, long lunch break, inappropriate sick days, excessing socializing, engaging personal activities (online shopping while on the job)

Business associations

• Disclosure information of the company• Plagiarism – the act of taking someone else’s

work and presenting is as your own without mentioning the sources

Three Factors that Influence Business Ethics

IndividualStandardsandValues

IndividualStandardsandValues

Opportunity:Codes andComplianceRequirements

Opportunity:Codes andComplianceRequirements

Managers’andCoworkers’Influence

Managers’andCoworkers’Influence

Ethical/UnethicalChoicesin Business

Ethical/UnethicalChoicesin Business

Codes of Ethics

• Formalized rules and standards that describe what a company expects of its employees.

FAST FACTS: Written ethics standards are more often found in larger companies than smaller ones.

In order to develop code of ethics, there are key thing that must be consider.

• Create a team to assist with the process of developing the code (include management and non-management employees from across departments and functions).

• Solicit input from employees from different departments, functions, and region to compile a list of common questions and answers to include in the code document.

• Make certain that the headings of the code sections can be easily understood by all employees.

• Avoid referencing specific U. S laws and regulations or those of specific countries, particularly for codes that will be distributes to employees in multiple regions.

• Hold employee group meetings on a complete draft version (including graphics and pictures) of the text using language that everyone can understand.

• Inform employees that they will receive a copy of the code during an introduction session.

• Let all employees know that they will receive future ethics training which will, in part, cover the important information contain in the code document.

Whistleblowing

The act of an employee exposing the employer’s wrongdoing to outsiders, such as

the media or government regulatory agencies.

The Nature of Social Responsibility

Four Dimensions:1. Economic – earn profits2. Legal – comply with the law3. Ethical – not just “for profit” only4. Voluntary & Philanthropic – promote

human welfare and goodwill

The Pyramid of Social Responsibility

Ethical Responsibilitiesbeing ethical; doing what is right, just,

and fair; avoiding harm

VoluntaryResponsibilities

being a “good corporate citizen”;

contributing to thecommunity and quality of life

Legal Responsibilitiesobeying the law (society’s codification of right

and wrong)

Economic Responsibilitiesbeing profitable

Corporate citizenship

is the extent to which business meet the legal, ethical, economic and voluntary

responsibilities placed on them by their various stakeholders.

It involves the activities and organizational process adopted by business to meet their social responsibilities.

Social responsibility issues

Relations Issues

Relations with owners

and stockholders

Fair information

Protecting the owner right’s and investment

Employee relationsDiscriminations / equal opportunity

Safety and welfare

Consumer relationsConsumerism

Customer right

Sustainability issuesPollution

Alternative energy

Community relations Charity

Discussion

Discuss in your group. . .

Detect some of the ethical issues that may arise in business. ( 5 marks)

Specify how business can promote ethical behaviour by employees. ( 5 marks)

Detect some of the ethical issues that may arise in business. ( 5 marks)

An ethical issue is an identifiable problem, situation or opportunity requiring a person or organization to choose among several actions that must be evaluated as right or wrong.

Ethical issues can be categorized in the context of their relation with:

1. conflict of interest2. fairness and honesty3. Communications4. business associations.

Specify how business can promote ethical behaviour by employees. ( 5 marks)

Business can promote ethical behaviour by employees by limiting their opportunity to engage in misconduct.

1. Formal codes of ethics, 2. Ethical policies3. Ethics training programs

Reduce the incidence of unethical behaviour by informing employees what is expected of them and providing punishment for those who fail to comply.

3. Business in a Borderless World

International business refers to the buying, selling, and trading of goods and services across national boundaries.

Why nation trade

Nation and business engage in international trade to obtain raw materials and goods that are otherwise unavailable to them or are available elsewhere at a lower price than that at which they themselves can produce.

A nation, or individuals and organizations from a

nation, sell surplus materials and goods to acquire funds to buy the goods, services and idea its people need.

Absolute Advantage

Absolute advantage exists when a country is the only source of an item, the only producer of an item, or the most efficient producer of an item.

Example: DeBeers Consolidated Mines, Ltd. (virtually controls the world’s diamond trade).

Comparative Advantage

Comparative advantage occurs when a country specializes in products that it can supply more efficiently or at a lower cost than it can produce other items.

Example: U.S. agricultural commodities, such as corn and wheat.

Importing & Exporting

Selling to

foreign markets

Buying from foreign markets

Balance of trade

• Balance of trade is the difference in value between its exports and imports.

• If the country have import more products than exports, it has negative balance of trade or also known as trade deficit. However, if the country exports more products than import, it has trade surplus.

Balance of payments

The difference between the flow of money into and out of country.

( balance of trade, foreign investments, foreign aid, loans, military expenditures, and money spent by tourists)

• A country with a trade surplus generally has a favorable balance of payments because it is receiving more money from trade with foreign countries than it is paying out.

• When a country has trade deficit, more money flows out of country than into it. If more money flows out of the country than into it from tourism and others sources, the country may experience declining production and higher unemployment, because there is less money available for spending.

International Barriers

• Economic• Legal/political• Social/cultural• Technological

Economic Barriers

• The level of a country’s economic development– Industrialized nations –

U.S., Japan, Great Britain– Less-developed

countries – Costa Rica• The level of existing

infrastructure• Currency exchange

rates

Political & Legal Barriers

• Laws and regulations• Tariffs and trade restrictions

– Import tariffs, exchange controls, quotas, embargos, anti-dumping regulations

• Political barriers– Political instability, cartels

Social & Cultural Barriers

• The overall culture of a country

• The culture of the marketplace

• The culture of “how business is practiced”

Think globally, but act locally

Technological Barriers

Varying levels of technological development and infrastructure

Group Discussions

Briefly explain four (4) international barriers in trading & provide examples.