CHAPTER 1THE DYNAMIC

BUSINESS ENVIRONMENT

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*Profile

• A 17-year-old high school student• Reopened small town’s only grocery store • Borrowed $22,000 to buy building & fixtures• Worked to save $10,000 to stock the store• Worked 90-100 hours per week• Paid off loan in one year

NICK GRAHAMMAIN STREET MARKET

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What Are Businesses? Activities that provide goods and services

and seek a profit.Goods: tangible products (bicycles, pizzas)Services: intangible products (maid services,

landscaping)

Started by entrepreneurs

Business operate within groups called industries.

What Do Businesses Do?• They try to earn profit (excess of revenues over

expenses)• Revenue: total money a business makes• Expenses: costs associated with a business

• Do all businesses make a profit?

• What can a profit be used for?

• A business that does not operate at a profit is operating at a loss.

Profit and Risk

Risk – The chance that a business’s owners will lose their money and waste their efforts.

Businesses that take on more risk have the ability to make more profit.“The Greater the Risk, the Greater the

Reward.”

Review Questions

What is a business?

What is the goal of a business?

If Sue opens her business, and sells $5000 of goods in the first month, while spending $3000 in rent, salaries, and products to resell to customers, what is her profit?

Review Questions

Dan opens a business and invests $10,000 in cash to start it. Bill opens a business in the same industry and invests $500 cash to start it. Who is taking on more risk?Who is more likely to make more money in

the first year?

What is the difference between revenue and profit?

The Importance of Businesses

Standard of LivingHow much you can buy with a set amount of money, in

your countryU.S. standard much higher than Japan

Quality of LifeGeneral well-being of a country (health, wealth,

governmental freedoms)Very high in Nordic countries

How does the presence of businesses affect these?

The Importance of Business Businesses are the mills that turn factors

of production into wealth.Factors of production

○ Land○ Labor○ Capital (assets like buildings and machinery)○ Entrepreneurship○ Knowledge

Critical in today’s global economy

The Importance of Business Stakeholders

People who will gain or lose, depending on the fate of a business○ Your banker○ Your customers○ Your suppliers○ Your government○ Your competitors○ Your community○ The environment around you

Review Questions

In which of the following countries would you expect the quality of life and standard of living to be highest?India, Kenya, Australia, Sweden, United

StatesWhy?

What is another name for someone who takes the risk in starting a new business?

Review Questions

Name the five factors of production.

Which two factors of production are the most important in today’s business environment?Why?

Classifying Forces in the Business Environment

Economic and Legal Technological Competitive Social Global

All of these forces affect the ability of a business to earn a profit, and sometimes, even to exist at all!

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*The Business Environment

TODAY’S DYNAMIC BUSINESS ENVIRONMENT

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Economic and Legal Forces Economy – a system in which resources are

allocated among individuals and used to produce goods and services.

How does the economy affect business, and vice-versa?

Legal Forces – the effects of lawsThe level of government interference with

business can stifle or ignite business growth.

How Can Government Help Businesses?

1. Keep regulations to a necessary minimum/ minimize spending.

2. Allow private ownership of businesses.

3. Allow for enforcement of contracts.

4. Have a strong, tradable currency.

5. Minimize corruption.

Most Important Point in the Chapter A capitalist society DEPENDS on

honesty, integrity, and high ethical standards.

Mortgage lending collapse happened because lenders failed to do necessary research and because borrowers could not pay.

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*The Economic and Legal Environment

Least Corrupt

1.Denmark2.New Zealand3.Sweden 4.Singapore

Most Corrupt

1.Somalia & Myanmar (tie)2.Iraq3.Haiti4.Afghanistan

Sources: Forbes.com, June 2008 and Transparency International, 2009.

CORRUPTION WORLDWIDELG3

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Technological Forces

Technology = the state of knowledge that helps us deal with our surroundings

Technology helps us increase productivity, and produce more goods with less resources.What is an example of this concept in today’s

business environment?What are some of the technological advances

that are helping businesses today?

Competitive Forces

Competitors are other businesses that provide the same products your business provides.

Competition is good.The presence of competing businesses

drives other businesses to work harder.

Social Environment

Social trends are behaviors and preferences that most people have in any one cultural group.

Social trends affect businesses through their customers and their employees.

The Effects of Social Trends U.S. bottled water sales in past 15 years

increased more than four-fold to $9.8 billion

Today, the trend is switching to NOT drinking bottled water, or refilling bottles with tap water

How will this affect makers of bottled water?

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Source: U.S. Census Bureau, www.census.gov, March 2009.

The Social Environment and Managing Diversity

WHO WILL SUPPORT SOCIAL SECURITY?

NUMBER OF WORKERS PER RETIREE LG6

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*The Social Environment

Source: Newsweek, www.newsweek.com, January 2009.

DEMOGRAPHY OF THE U.S. BY RACE IN 2005 LG6

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*The Social Environment

Source: Newsweek, www.newsweek.com, January 2009.

DEMOGRAPHY OF THE U.S. BY RACE IN 2050

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Global Forces In the late 20th century (1900s), we moved from

competing on a national level to a global level in many industries.

Global forces include those trends in international politics, resource supply, and economics that affect businesses around the world.

What are some global forces that are affecting us right now?

The Transition from a Manufacturing Economy to a Service Economy

The U.S. used to be a very agrarian economy, and produced most of the food for the world.

Throughout the first half of 20th century, the U.S. became a manufacturing society.

Now we are moving to become a service society, and on to an information society.

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*The Evolution of U.S. Business

Agriculture Era

Manufacturing Era

Service Era

Information-Based Era

THE EVOLUTION OF BUSINESSLG8

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Review Questions

What are some things that governments can do to help businesses start and grow?

How does technology help business?

What countries pose the biggest competitive threat to U.S. businesses in the future? Why?