Introduction to Business - Week 5 Lecture Notes

What is a Business?

• The organised effort of individuals to provide and produce goods and services to meet the needs of society.

  • Divided into two categories:

    • Profit making (e.g., manufacturers, retailers, transport, and banks).

    • Non-profit making (e.g., schools, hospitals, and charities).

  • Some non-profit organisations combine profit-making and non-profit-making ventures.

Profit Making vs. Non-Profit Making

• Income from profit-related activities can be reinvested in the organisation to grow and develop related activities, such as business expansion or Research & Development (R&D).

• Profit-making businesses operate to generate income to develop, grow, expand, and increase the overall wealth of their owners.

• The course will focus mainly on business in the context of a ‘profit-making’ organisation.

Business in Context

• A theoretical approach to looking at a business involves:

  • A broad view of what a business is and does.

  • Its environment and how it functions.

• Even though we can separate the business into different elements, they are all interrelated and work together.

• Two basic contexts of a business:

  • Strategy

  • Environment

  • Organisation

  • Activities

Elements of Business Context

• Organisation

  • How individuals are organised to carry out the activities of the business.

  • Examples include: Production, Sales, Marketing, Customer Service, Administration, Research and Development (R&D), and Finance.

• Strategy

  • Also known as corporate strategy.

  • Consists of the overall aims and objectives of a business, and the methods it will use to achieve them.

  • Strategy is usually determined by senior management after a careful analysis of the business, its environment, the preferences of management, and stakeholders.

  • Strategic decisions determine the overall direction of the business, considering its capabilities and constraints.

  • Strategy examines the overview of the business, where it is, and where it wants to be.

  • It considers how the business wants to be seen in the marketplace and its environment, and how it will achieve this.

  • The overall strategy of a business is achieved through the collective performance of the various activities and functions within the business.

  • Each part of the business plays a role in implementing the strategy and achieving the business aims.

• Business Activities

  • Businesses are made up of a range of activities which include:

    • Manufacturing goods

    • Distributing products

    • Selling goods to customers

    • Advertising and promoting products

    • Maintaining records of income and expenses

    • Managing the workforce

    • Dealing with customer queries and complaints

    • Developing and creating new products

Another Context of a Business: Inputs, Process, Output

• Inputs

  • Materials

  • Labour

  • Methods

  • Finance

  • Technology

• Process

  • Strategy Formulation

  • Innovation

  • Operations

  • Marketing

  • Human Resource Management

  • Finance

• Output

  • Goods/Services

  • Profit

  • Waste

  • Information

  • Job (dis)satisfaction

  • Economic Growth

Business Environment (PESTLE)

• Businesses do not operate in isolation; they are part of the wider world and can be affected by a number of different factors.

  • Political

  • Economic

  • Social

  • Technological

  • Legal

  • Environmental

Business Function: Factors

• Integrated transport systems

• Improved communication

• Flexible production

• Lower costs of distribution

• Common business language

• Currency markets

• Legal systems

• Market potential

Business Function: Cultural Issues

• Social mobility

• Employment flexibility

• Common business culture

• Customer diversity

• Shared knowledge and skills

• Employee relations strategies

• Growth of social media

The Impact of Institutions

• World Trade Organisation (WTO)

• Leading stock markets

• Central banks

• Regional trading blocs

• The importance of policies in China and the USA

• London’s international importance in finance

• International Monetary Fund (IMF)

• Bond markets

• Rating agencies (Moody’s, Standard & Poor’s, and Fitch)

• Transnational / Multinational corporations (TNC’s & MNC’s)

• Organisation for Economic Co-operation and Development (OECD)

What is Globalisation?

• The World Bank definition:

  • The global circulation of goods, services, and capital, but also information, ideas, and people.

  • It has shaped the 20th century, albeit with large cyclical variations, and has become an increasingly visible force in recent decades.

Industrial Revolutions

• 1st Industrial Revolution: STEAM (1700s)

• 2nd Industrial Revolution: ELECTRICITY (1800s)

• 3rd Industrial Revolution: COMPUTING (1900s)

• 4th Industrial Revolution: CONNECTED (Today)

Globalisation Characteristics

• The world economy is now more interrelated, with global markets, global production, and the distribution of goods and services.

• Increased international trade and more multinational corporations (MNC’s).

• Improved technology and the internet means information can be transferred and accessed across the world very quickly.

• Increased flows of goods, services, money, ideas, and people.

• Increased investment in:

  • joint ventures (JV’s);

  • mergers and acquisitions (M&A’s); and,

  • multinational corporations (MNC’s).

• Increased sharing of innovation means improved R&D.

• More businesses will manufacture in overseas countries.

• Businesses, products, and services are advertised and marketed across the world.

Drivers of Globalisation

• Growth of international trade

• Spread of international governance

• Finance and capital spread

• Technological innovation

• Diffusion of information and communication technology

• Knowledge and information sharing

• Changing world politics

• Changing markets

• Regulations – world economies through the UN, WTO, EU etc.

• Social and cultural convergence

Business Drivers for Globalisation

• Growth of Foreign Direct Investment (FDI)

• Increased multinational corporations (MNC’s) and multinational enterprise

• Improving cost efficiencies

• Innovation

• Saturated home markets