Nature of Business and Management
Role of Business
Nature of a Business
Business Definition: An organized effort by individuals to produce and sell products for a profit that satisfy individuals' needs and wants.
Products
Goods: Tangible physical products that can be physically owned.
Services: Intangible activities or processes performed by one entity for another.
Finished Product: A product that is ready for customers to buy and sell.
Production
Definition: Activities undertaken by a business to combine resources to create products that satisfy customers' needs and wants.
Business Considerations for Production:
Management: Coordinating limited resources (e.g., machine, labour) to achieve specific goals.
Production: The actual creation of products.
Marketing: Promoting and selling products.
Controlling Production: Managing quantity and quality.
Planning Finances: Managing monetary resources.
Business's Contribution to Society (Profit, Employment, Incomes, Choice, etc.)
Profit: The return or reward business owners receive for producing products that consumers need and want.
Quality of Life: Businesses offer an array of products that improve the quality of life (QOL).
Wealth: Business activity leads to higher levels of economic activity and growth.
Entrepreneurship: Businesses provide opportunities for individuals to turn their ideas into a livelihood.
Elon Musk Case Study (Entrepreneurship):
Inspires belief in his dreams.
Highly ambitious and thinks uniquely.
Possesses a photographic memory.
Sold Zip2, a company he founded.
Founded Tesla in April 2004 with savings.
Invested his PayPal payout to save Tesla.
NASA offered Musk a contract.
Exhibits high self-confidence.
Tesla went public in 2010, raising from its IPO.
Innovation: Through research and development (R&D), existing products are improved, and new ones are created.
Definition: Creating a new product, service, or process, or significantly improving existing ones.
Examples: ChatGPT, CRISPR Gene editing, Edge computing (for efficiency).
Choice: Consumers have freedom of choice and the opportunity to purchase products at competitive prices.
Incomes: Businesses provide incomes to business owners, shareholders, and employees.
Employment: Businesses provide employment to people in their local communities.
Types of Businesses
Classification of Business
Market Share: A business's share of total industry sales for a particular product.
Micro Business: Employs fewer than people (including the owner).
Small and Medium Enterprise (SME): A firm with fewer than employees and/or less than in turnover.
Transnational Corporation (TNC): A company with many branches in many different countries.
Classification by Size (According to the Australian Bureau of Statistics - ABS)
Small Business
Characteristics: Corner store, local mechanic, hairdressing salon.
Number of Employees: Fewer than employees.
Type of Ownership: Independently owned and operated, usually by one or two people.
Most Common Legal Structure: Sole trader, partnership.
Decision Making: Owner responsible for most decisions; simple and quick implementation.
Sources of Finance: Owner's own savings or a loan; difficulty accessing large loans.
Market Share: Small, usually local area; not dominant in the industry.
Medium Business
Characteristics: Services club, motel/hotel, engineering factory.
Number of Employees: employees.
Type of Ownership: Owned and operated by a few people and/or private shareholders.
Most Common Legal Structure: Partnership, private company.
Decision Making: Owner largely responsible for decisions; more complicated decision-making with slower implementation due to director influence.
Sources of Finance: Owners'/partners' savings or loans, and/or private shareholders; easier accessibility to larger loans.
Market Share: Medium, due to dominance within a geographic region; some market dominance.
Large Business
Characteristics: Woolworths, Qantas, National Australia Bank.
Number of Employees: or more employees.
Type of Ownership: Usually owned by thousands of public shareholders.
Most Common Legal Structure: Public company.
Decision Making: Complex decision-making due to division of responsibilities among directors, senior, and middle management; possibly slow implementation due to management layers.
Sources of Finance: Many sources, including cash reserves, retained profit, sale of shares, and loans from domestic and overseas institutions.
Market Share: Large, especially for multinational corporations that dominate markets in many countries.
Classification by Geographical Spread
Local: Restricted geographical spread; serves only the surrounding area; frequently used by nearby consumers (e.g., hairdressers, corner store).
National: Operates within one country only (e.g., Coles, McGrath estate agencies).
Global (MNC): A large company with branches in many different countries, where assets, cash flow, goods, and finance flow freely between countries (e.g., Coca-Cola, Volkswagen).
Global Expansion Case Study: Smiggle (Aus to Global):
Stores in the UK, Malaysia, Hong Kong, Australia, New Zealand.
Owned by Premier Retail.
Favors the UK due to different school holiday times.
Actively looking to expand into new markets.
Target audience shifted from adults to -year-olds.
Achieves this by regularly releasing new products.
Global Expansion Case Study: Zara (Global to Aus):
Success based on quick editing of premium fashion looks.
Very streamlined and efficient manufacturing process.
Each individual store is linked to fashion designers, allowing real-time decisions.
Zara created affordable