BMG sem 1

Business

The organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society's needs.

what does businesses do

® Businesses provide jobs, goods, and services to society.
® Quality of life is the level of human happiness based on life expectancy, education, health, sanitation, and leisure.
® Businesses, government, and not-for-profit organizations work together to create a healthy lifestyle.

elements of a business

® Human Resource
® Production Management
® Sales and PR/ Marketing
® Investment Management and Finance

Themes of sustainability

® Social responsibility
® Employment equity
® Business ethics
® Consumerism
® Environmental sustainability

Consumerism

the belief that increasing consumption benefits the economy, driving growth in business and economics.

4 Limited resources

Human resources, material resources, informational resources, and financial resources.

cycle of needs

® The ability to satisfy community needs by using the scarce resources to produce products and services.

4 economic issues

Which products/services should be produced and how many?
Who should produce these products/services?
How should these products/services be produced and with which resources?
For whom are you producing the products/services?

Profit

The remains after all business expenses have been deducted from sales revenue.

Economics

The study of how wealth is created and distributed.

Economy

The system through which a society creates and distributes wealth.

3 need-satisfying institutions of the market economy

business organizations
government organizations
non-profit seeking organizations

business organisation

a need satisfying institution that needs to make profit in order to survive. example pick 'n pay

government organisation

need satisfying institutions where the states creates products/services believed to be strategic, economic or political importance example SABC

non-profit organisation

needs satisfying institution whose main reason for existence is not profit motivated example: SPCA

the role of business to society

Business is a way for society to meet its needs and improve its standard of living, with entrepreneurs creating jobs, economic growth, and prosperity

What do businesses purchase after they sell their goods and services?

Factors of production.

Factors of Production

Land, labor, and capital.

What does the government do in exchange for taxes?

They provide public services not provided by businesses.

Ex: Law Enforcement

Competition

Competing on sales for potential customers.

Pure Competition

Large number of small that businesses that sell the same type of products with the same characteristics.

characteristics of a pure competition?

• It is easy to enter leave the market

• All prices are basically the same

Monopoly Competition

A one seller market.

What are some characteristics of a monopoly competition?

• No competition

• Great degree of power

• Power of pricing

• Hard to enter and leave the mark

Ethics

A system of moral principles.

Business Ethics

The application of moral standards to business situations.

Fairness and Honesty

Business people are expected to refrain from knowingly deceiving, misrepresenting, or intimidating others.

Organizational Relationships

Business people should put the welfare of others and the company above their own welfare.

Conflict of Interest

Situation in which an employee must choose between a business's welfare and personal gain.

external influence that encourage ethical behavior?

• Governmental

• Trade Association

internal influence that encourage ethical behavior?

• Code of Ethics

• Employee Training

Whistle-Blowing

Informing the press or government officials about unethical practices within one's organization.

Code of Ethics

A set of guidelines for maintaining ethics in the workplace.

Social Responsibility

The duty to do what is best for the good of society.

Note: Social responsibility costs money, but is also good for business.

Why do people think businesses should engage in social responsibility?

• Business is a part of society. Therefore, they cannot ignore social issues.

• Businesses have the resources to tackle social issues.

• Businesses can create a stable environment for long-term profitability.

• It prevents increased government intervention.

Why don't people think businesses should engage in social responsibility?

• The focus should be on providing a return on investments.

• Business resources should be used to maximize profits, not solve social issues.

• Problems affect society in general, so businesses should not be expected to solve them.

• Social issues are the responsibility of government officials.

Affirmative Action Programs (AAP)

A program that requires companies doing business with the federal government hire minority, female, and handicapped employees.

the emergence of CSR

® Business and society have a mutual obligation to each other.
® Pressure groups are essential for sustainable development.
® The public's expectations of business have changed.
Expectations vary depending on the country

corporate social performance

Businesses' relationships with people, organizations, institutions, communities, societies, and the earth are both deliberate and unintended.

CSR u\=in contemporary business management

® Social drivers
® Governmental drivers
® Market drivers
Ethical drivers

corporate governance

Refers to the way in which a business makes decisions about how to manage its affairs

principles of good governace

® Social responsibility
® Discipline
® Transparency
® Independence
® Accountability
® Responsibility
® Fairness

Environmental Protection Agency (EPA)

A federal agency that enforces laws affecting human and environmental health.

Absolute Advantage

The ability to produce something more efficiently than any other nation.

Comparative Advantage

The ability to produce a good at a lower cost than another nation.

Market Economy

A system in which individuals own and operate the majority of businesses that provide goods and services.

Advantages of Market economy

® Members of a community may own assets and earn profits.
® Free markets affect the allocation of resources.
® Members of the community can choose from a variety of options.
® The state keeps its interference in the system to a minimum.
® The right to own property, land, buildings, equipment, and vehicles.
® The right to earn income from the above-mentioned assets.

Disadvantages of Market Economy

® Regulation causes unsustainable risks that can be taken.
® Creating inequality in society.
® Regular collapse of institution affecting stakeholders.

Socialistic Economy

® Socialism is a compromise between a market and command economy.
® The state owns and controls key industries and resources in socialism.
® Private initiative is responsible for producing materials and services of lesser strategic importance.

Advantages of Socialism

® Strategic and Basic resources should belong to every member of the community.
® Privately owned enterprises have the liberty and access to produce and resources out of own personal capacity.

Disadvantages of Socialism

The provision of basic products and services by the state is a limiting factor in the creation of wealth in a socialist economy.

Command Economy

A system where factors of production are owned and directed by the state.

Advantages of Command Economy

® No individual owns no land, factories or equipment.
® The economic means of production rests with a central government.
® Choice of goods and services is limited to what the state offers
® Desired needs and wants of the community falls partially outside individual control rather the good are available through the ability to obtain.

Disadvantages of Command Economy

® The failure of a command economy was due to the lack of initiative and wealth creation.
® The collapse of the Soviet Union and other Eastern European countries shows that the system did not create wealth.

Sole Proprietorship

A business owned by one person.

advantages of a sole proprietor?

• Easy to start and cancel

• Pride of ownership

• Flexibility

• No special taxes

• Retention of profits

disadvantages of a sole proprietor?

• Unlimited liability

• Lack of capital

• Limited management skills

• Difficulty in recruiting

Partnership

A business owned by two or more people.

General Partnership

Partnership in which partners share equally in both responsibility and liability

Limited Partnership

A partnership that includes at least one general partner who actively manages the company and accepts unlimited liability and one limited partner who gives up the right to actively manage the company in exchange for limited liability.

Articles of Partnership

Legal documents that set forth the basic agreement between partners.

Ex: Duties of each partner, how much each partner will invest, and how the partnership can be dissolved.

advantages of a partnership?

• Easy to start

• Capital is available

• Combined skills and knowledge

• Retention of profits

• No special taxes

disadvantages of a partnership?

• Unlimited liability

• Management disagreement

• Frozen investment

Corporation

A business that is owned by many investors.

Closed Corporation

A corporation whose stock is owned by relatively few people and is not sold to the general public.

advantages of a corporation?

• Limited liability

• Easy to raise capital

• Specialized management

disadvantages of a corporation?

• Government regulation and increased paperwork

• Difficulty and expense in formation

• Double taxation

• Lack of secrecy

What do the board of directors do?

Set corporate goals, develop plans, and are esponsible for firm's overall operation.

structure of a corporation?

1. Stockholders elect board of directors

2. Board of directors appoint officers

3. Officers hire employees.

Limited Liability Company

Taxed like partnership. Avoids double taxation, offers limited liability

Advantages of a company

• Legal persons may be shareholders

• no restrictions on number of shareholders

• Large amount of capital -Separation of ownership and control

Disadvantages of a Company

High degree of legal regulation
High operational cost

Nonprofit Organizations

Institution that functions much like a business, but does not operate for the purpose of generating profits.

Ex: Church, schools, or charities.

Factors to consider when selecting a location

• Sources of raw material

• Availability of labor

• Proximity of and access to the market

• Availability of transport facilities

• Availability and cost of power and water

• Availability of capital

• Attitude and regulations and tariffs of local authorities

• Central government policy

• Social environment

• Existing business environment

Functional Areas of Management

• Management

• Operations - Production supply chain

• Marketing/Sales customer service

• Finance - Accounting, procurement, and HR

• R&D - Development: IT

Business Plan

A description of the goals of a business and how it will operate.

Management

Process of coordinating people and resources to achieve the goals of an organization

Planning

Establishing goals and deciding how to accomplish them.

What are the three levels of management?

Top management, middle management, and first-line management.

Top Management

Small group of executives who control the business and have the final authority and responsibility ex. board of directors

Middle Management

Responsible for certain functional areas of business and accountable for executing policies, plans and strategies determined by top management ex. marketing management

Lower management

Supervisory management, responsible for smaller segments of business ex. product manager

Analytical Skills

Identify problems, generate alternatives and select the best solution.

Interpersonal Skills

Ability to deal effectively with other people.

Technical Skills

A special skill to accomplish a specialized activity.

Communication Skills

Ability to speak, listen and write effectively.

Conceptual Skills

Ability to think in abstract terms.

Role of manager

® Interpersonal role
o Representative figure
o Leader
o Relationship
® Information role
o Monitors
o Analyses
o Spokesperson
® Decision-making role.
o Entrepreneur
o Troubleshooter
o Allocator of resources
o Negotiator

Four main supporting management activities

• gathering and processing information to make decisions

• Decision making

• Communication

• Negotiation