p art 01-t he e nvironment of b usiness c hapter -01 dr. gehan shanmuganathan, (dba) 1
TRANSCRIPT
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PART 01-THE ENVIRONMENT OF BUSINESSCHAPTER-01
Dr. Gehan Shanmuganathan, (DBA)
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SITUATION ANALYSIS
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SITUATION ANALYSIS
Global terrorism
Global economic crisis
Political instability in gulf and other parts of the
world
Increasing unemployment
Increasing number of business failures
Reduced consumer spending
Slow down home building and increased
foreclosures
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SOLUTIONS…
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SOLUTIONS….
American’s belief is that we could recover
through Change and Creativity Free enterprise allows the Americans to
decide what to produce, how to produce, what price to sell, and where to sell through “free enterprise” system.
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CHAPTER-01EXPLORING THE WORLD OF BUSINESS AND ECONOMICS
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CHAPTER FOCUS
What business is How business go that way Our future in business and reasons to study
business Define business What is capitalism and command economies How the nations measure economic
performance Four types of competitive situation Events that shape today’s business systems Current business environment Business challenges
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WHY STUDY BUSINESS ?
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WHY STUDY BUSINESS
Knowledge is life time wealth Help to choose a career Be a successful employee by performing
the role with relevant skills and working in cultural diversity
To improve your management skills To start your own business- work hard,
extra work hours, required knowledge To become a better informed consumer
and an investor
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BUSINESS DEFINITION..
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BUSINESS DEFINITION
Business is the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs (Pride B.,Hughes B., Kapoor J., 2012)
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THE ORGANIZED EFFORT OF INDIVIDUALS
Things to organize –materials, human , financial, and information
Material resources- raw materials, buildings and machinery
Human resources- people who furnish their labor for a wage
Financial resources – money required to pay wages, raw materials, rent and etc
Information resources- methodology used to measure how effectively managers use other resources combined
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BUSINESS TYPES
Production- Fast Moving Consumer Goods (FMCG)- e.g-Coca cola
Service- Verizon, Financial Institutions
Marketing intermediary- e.g Best Buy, Walmart
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SATISFYING NEEDS
Customers need different solutions
Different products for different needs/ wants
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BUSINESS PROFITS
Profits through high turnover and low expenses
Importance of profits for stakeholders
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TYPES OF ECONOMIC SYSTEMS
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TYPES OF ECONOMIC SYSTEMS
Economics is the study of how wealth is created and distributed
“who get what” It is all about making decisions on scarcity
of resources Micro (decisions made by households and
businesses)and macroeconomics (taxes, government spending, interest rates, and similar decisions on nations)
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HOUSEHOLDS
Made up of individuals who are customers As resource owners, members of households
provide businesses with labor, capital, and other resources. In return, businesses pay wages, rent, dividends, and interest which households receive as income
Consumers buy products and services produced by businesses
70% of total products of the nation (US) is consumer products (purchase for personal consumption)
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BUSINESS
Exchange money for natural resources, labor,
and capital to produce goods and services
Exchange their goods and services to sales
revenue
Businesses retain their profits for future
growth, while households save their earnings
for savings
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GOVERNMENT
Constitution is framed government to intervene to private sector businesses to protect and promote public welfare
Local, state, and federal government discharge these responsibility through regulation and provision of service
Services are national defense, police and fire protection, education, roads, construction and highways
To produce these services, government collects a variety of taxes from households such as personal income tax and sales tax. From businesses, corporate income taxes are collected
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FACTORS OF PRODUCTION
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FACTORS OF PRODUCTION
Land and natural resources- land, water, oil, forest
Labor- time and effort used by employees
Capital- money, equipment, facilities, machines
Entrepreneurship- willingness to take the risk of starting and operating the business
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ECONOMIC SYSTEMS
Capitalism
Command economies (Socialism)
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CAPITALISM
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CAPITALISM
Economic system in which individuals own (private sector) and operate majority of businesses that provide goods and services
Society’s interests are best served when the individuals within that society are allowed to pursue their own self-interest (invisible hand- Adam Smith)
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ADAM SMITH’S BASIC ASSUMPTIONS OF CAPITALISM
Creation of wealth is a concern of private
individuals, not government
Private individuals must own resources used
to create wealth
Economic freedom ensure the existence of
competitive markets that allow both buyers
and sellers to enter and exist as they wish
(market economy)
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CAPITALISM IN THE UNITED STATES
Practices a mixed economy
Economic decisions are made through the interaction of households, businesses, and governments
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COMMAND ECONOMIES
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COMMAND ECONOMIES (SOCIALISM)
Government decides what, where, how, how many, and at what price to produce (sell) goods and services through centralized government planning system
Examples are North Korea, and Cuba
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SOCIALISM (COMMAND ECONOMIES) Key industries are owned by government and these
industries are transportation, communication, utilities, banking, and steel
Private ownership of small business is allowed The focus of the socialism is the elimination of poverty
and equal distribution of wealth among the population Countries transitioning from socialism to capitalism
are France, Sweden, and India Disadvantages of socialism is increased taxation, loss
of incentives and motivation for both individuals and business owners (discuss motivation…….)
Today North Korea and Cuba are evident of being socialist countries
However, special talents and skills are given privileges (professionals and athletes)
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ADAM SMITH AND KARL MARX
Adam Smith is the father of capitalism with a view point of free market (Scottish Philosopher 1723-1790)
Karl Marx is the father of socialism with a view point of classless society whose citizens equally own all the economic resources (German Philosopher 1818-1883)
Discuss classlessness
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MEASURING ECONOMIC PERFORMANCE
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MEASURING ECONOMIC PERFORMANCE Productivity- average output per labor per hour (between
1979 and 2006 US growth is 3.9% - 2006 stats) Good and the bad of increased productivity of a nation-
Discuss…….. Gross Domestic Products (GDP) – total dollar value of all
the goods and services produced by all the people in a country with in a year. To make a comparison, the country need to adjust the dollar
value to inflation or deflation Inflation is a general increase in all the prices and a deflation is
general decrease in all the prices Consumer Price Index (CPI)- monthly measure of
changes in prices of fixed basket of goods purchased by a typical consumer in an urban area Goods listed in the CPI are food and beverages, transportation,
housing, clothing, medical care, recreation, education, and communication
Producer Price Index (PPI)- Prices at the whole sale level
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BUSINESS CYCLE AS A MEASUREMENT
The regular fluctuations in businesses
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ECONOMIC DEPRESSION
Longer than a recession
High unemployment rate
Low wages
Reduced purchasing power
Lack of confidence in economy
General decrease in business activities
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WHAT DOES GOVERNMENT DO TO OFFSET THE EFFECTS OF RECESSION?
Monitory policy- federal reserve decisions that
determine the size of the supply of money on the
nation and the level of interest rates (stimulus plan)
Fiscal policy- the government could influence the
amount of savings and expenditure by altering the
tax structure and changing the level of government
spending
Federal deficit- government spending is greater
than its earnings which leads to national debt
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TYPES OF COMPETITION
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TYPES OF COMPETITION Capitalism induces competition for the benefit of the
customer Perfect competition- where there are many
buyers and sellers for one product and they cannot affect the price of that product- market is symmetric, homogenous products, no one could control the market e.g- wheat Demand and supply/ equilibrium market or
price( graphical demonstration) Monopolistic competition- many sellers and
buyers in the market and the sellers differentiate their products/ services to increase their revenue
Oligopoly- few sellers. Eg- automobile, airline Monopoly – one seller. Eg- public utilities
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AMERICAN BUSINESS TODAY
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AMERICAN BUSINESS TODAY
Early business development –barter systems- domestic system- factory systems- specialization
New systems and e-business – regionalization and globalization (service economy)
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CURRENT BUSINESS ENVIRONMENTS
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CURRENT BUSINESS ENVIRONMENTS
Competition/Rivalry Environments
Political Economic Socio-cultural Technological Ethical Environmental (ecological) Legal
Global
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POLITICAL / LEGAL FACTORS Legislative structure Political structure Government stability Political orientation Taxation policies Employment legislation Pressure groups Trade union power Relationship with foreign governments Foreign trade regulations Competitive behaviour legislation
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ECONOMIC FACTORS
Business cycles
Interest rates
Level of confidence
Investment incentives and policies
Unemployment levels
Energy costs
GNP, GDP
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TECHNOLOGICAL FACTORS
Levels of R & D expenditure
Patterns and speed of technological change
Product life cycles
National attitude towards technology
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SOCIAL AND CULTURAL FACTORS
Demographic structures
Lifestyles
Social mobility
Attitudes
Consumerism
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ECOLOGICAL FACTORS
Ecological consciousness
Ecological management
Eco-friendly products
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ETHICAL FACTORS
Business ethics
Ethical ideology
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HOW COULD WE FACE THE CHALLENGES AHEAD?
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BEING CREATIVE AND DIFFERENT..
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QUESTIONS…….
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WEEKLY ASSIGNMENT –01
Describe what capitalism is and explain the
critical factors that affect businesses in a
such economy.