introduction to business bus& 101 olympic college professor: alan m. ward
TRANSCRIPT
Introduction to BusinessBUS& 101
Olympic CollegeProfessor: Alan M. Ward
Chapter 1
Managing within the Dynamic Business Environment:
Taking Risks & Making Profits
Chapter 1 – Learning Goals1. Describe the relationship of firms’ profit to
risk assumption and discuss how firms & nonprofits add to the standard of living & quality of life for all.
2. Explain the importance of entrepreneurship to the wealth of an economy.
3. Examine how the economic environment and taxes affect businesses.
4. Illustrate how the technological environment has affected firms.
Learning Goals – continued
5. Identify various ways which firms can meet & beat competition.
6. Demonstrate how the social environment has changed & tell what the reaction of the business community has been.
7. Analyze what firms must do to meet the global challenge, which includes war & terrorism.
8. Review how trends from the past are being repeated in the present & what such trends will mean for the service sector.
The Seven Decisionsby Andy Andrews
1. The Buck Stops Here.2. Seek Wisdom: Let other help guide you.3. I am a person of action.4. I have a decided heart.5. Today, I will choose to be happy.6. I will greet each day with a forgiving spirit.7. I will persist without exception.
Business & Entrepreneurship:Revenues, Profits & Losses
The Profit Table: A Way to do Marginal Analysis
Example 1_ Example 2_Revenue: $1,000,0000 $2 billion
- Cost $900,000 $2.1 billion=====================================================================
Profit/Loss $100,000 -$100,000
Matching Risk with ProfitTypes of Risks:
Political Interest RateCredit CurrencyInflation SectorLiquidity Legislative Principal CallReinvestment Default
Price Market
http://www.uwf.edu/rconstand/5994content2003/T4-RiskReturn/T4-riskreturnP02.htm
Gauge Your Risk Tolerance
Imagine you are about to purchase your retirement condo on the beach.
You have the selection of any suite in the development from the ground floor to the penthouse.
Which would you select, and why?
Risk tolerance:Is the Reward worth the Risk?
Standard of Living/Quality of Life
Standard of Living: related to the amount of goods & services people can buy with the money they have.
Quality of Life: related to the general well-being of society in terms of political freedom, a clean environment, health care, safety, free time, & every else that leads to satisfaction & joy.
How much you have minus how much you owe? If you had no debt would your quality of life improve?
Responding to Stakeholders
Owners/Stockholders BankersCustomers SuppliersSurrounding Community EmployeesGovernment Leaders DealersEnvironmentalists
U.S. Small Business
Yearly, 1:12 U.S. citizens tries to start a business.(US workforce = about half the US population)
1:6 workers tries to start a business each year.
Half of all businesses close in 5 years.
Why do people want to start their own business?
Why People Start a Business
Chance to make more moneyRun their own enterprise (be the boss/decision-
maker; to do it their way.)Freedom from … or to…Control their time and payLeave a legacyReach a personal/financial goal
How they get started
Business Owners Must:Understand their business/competitionUnderstand their market/potential customers
a good reputation and quality service is valuableUnderstand the cost/commitment of successUnderstand that serving more people earns them
more money & builds their businessEveryone has the same amount of time: 24/7/365Profit is what allows you to stay in business
Business in Nonprofits(and for Profit Business)
Setting Goals & Dividing ResponsibilitiesWorker RelationsPublic Good Will: StakeholdersResource ManagementGrowth of OrganizationDecisions & Policy Formation
Entrepreneurship or a J O B
JOB = Just Over Broke
Working for someone else: They take the risk.Who gets the bigger paycheck?
EntrepreneurshipWorking by yourself (self-employed), or work
with others; the efforts of others help you.Lead others, Train others, or Assist others.
Opportunities For Entrepreneurs
Employee Business Owner
Self-employed Investor
The Cash Flow Quadrant from Robert Kiyasaki
The Importance of Entrepreneursto the Creation of Wealth
Factors of Production: C.E.L.L. + K.I.T.1) Land2) Labor3) Entrepreneurship4) Capital*Knowledge, Innovation, Technology
Global Business Environment
Economic & Legal Environment
Technological Environment
Competitive Environment
Social Environment
Technology
Productive CapacityEffective use of Factors of Production
Efficient use of Factors of ProductionProductivity: per worker hour
Specialization & Division of Labor
Growth of E-commerce
AdvertisingProduct SalesCustomer Service
Electronic DatabasesIssue: Identity theft
SSN & CC#
Competitive Environment
Monopoly: one firm controls supply & price
Oligopoly: few firms compete for market shareprice & decisions of one firm affects others;when 4 largest firms control 40% of the market
Monopolistic Competition: differences in similar products limit substitution: quality, style, etc. Firms have some control over price.
Perfect Competition: many buyer & seller; no one buyer or seller has much affect on price.
Traditional versus World-Class Businesses
Customer SatisfactionCustomer OrientationProfit OrientationReactive EthicsProduct OrientationManagerial Focus
Delighting the CustomerCustomer & Stakeholder
OrientationProfit & Social OrientationProactive EthicsQuality & Service
OrientationCustomer Focus
Social Environment
Baby Boomers 1946-64
Boomer Echo 1971-89
Gerber & Disposable Diapers
Mattel & Hasbro 1950-60s
Schwinn 1960s
Cars & Homes 1970-80s
Investments 1990sRetirement 2011+
As America Ages
• Social Security – a pay as you go system
• In 1940: 42 workers supported each retiree
• In 2018: More going out than coming into
• Social Security; 3:1
• Since 1985, SS Tax revenues have been greater than expenses, but the government has spent it instead of leaving it in an account for Social Security.
3 Avenues to Prepare for Retirement
Save & Invest over the Long TermA. Company Retirement Plan:
401(k); 403(b)B. IRAs: Individual Retirement Account
Roth; TraditionalC. Changes in Social Security: make your
contributions your money not the governments to spend.
Maturing of American Business
Subsistence EconomyCommunity DevelopmentSpecialization & Division of LaborAgricultural & Natural Resource EconomyDevelopment of Industry: The Industrial
RevolutionGrowth of the Services IndustryInformation Industry
Your Future in Business
Getting Work ExperienceGetting Specialized TrainingDeveloping Positive Work Ethics & People SkillsFind something you like doing that pays wellMultiple Streams of IncomeResidual Income or Investment Income
Find out & try it out
The average worker is projected to have 5 to 8 career changes in the next 40 years.
Change is inevitable, be ready for something new.
Find what you like to do that helps others.The more people you help, the more you can earn.
Skill Sets that Are Needed
A. Communication skills in written & oralforms: informing, persuading, technical
B. Math & computer skills for collecting, organizing, analyzing & displaying data
C. Management skills: recruiting, training &team buildingKnowledge is Power, if it is used wisely!
Read pages 23-25
Vocabulary Terms:business business environment database demography e-commerce empowerment entrepreneur factors of production goods identity theftloss nonprofit organization outsourcing productivity profit quality of liferevenue risk services stakeholders standard of living technology
Critical Thinking Questions: Do any 3 of 5.Think beyond the obvious.
• Do you see any conflict between your desire to be as profitable as possible and your desire to pay employees a living wage?
Turn in these during next class.
Chapter 2
How Economics Affects Business:The Creation and Distribution of Wealth
Chapter 2 – Learning Goals
1. Compare & contrast the economics of despair with the economics of growth.
2. Explain what capitalism is & how free markets work.
3. Discuss the major differences between socialism & communism.
4. Explain the trend toward mixed economies.
Learning Goals – continued
5. Discuss the economic system of the U.S., including the significance of key economic indicators, productivity, & the business cycle.
6. Define fiscal policy & monetary policy, & explain how each affects the economy.
How Economic Conditions Affect Businesses
South Korea North Korea$20,000 Avg. income <$1,000
Chinese Taipei China$13,010 Avg. income <$1,000
What are Economic Conditions?
High Unemployment Low Inflation
Taxes International Trade
Government RegulationWorkforce Skills
CapitalMoney & Banking
What is Economics?
Economics studies how society chooses to use resources to produce goods & services & distribute them for consumption among various competing groups & individuals.
Macroeconomics Microeconomicsstudy aggregates individuals & firmswhole economy choices & behavior
Adam Smith
The Economics of Growth – The Wealth of Nations, 1776
Private ownership of land (resources)Keep profits from business or laborIncentives of wealth for providing goods &
services to othersMaking the pie bigger for everyone to prosper
Businesses Benefit the Community
Adam Smith did not believe that business people set out to help others. They worked primarily for their own prosperity & growth.
As people improved their own situation in life (quality of life), their efforts helped grow the
economy. The “invisible hand” of self-directed gain turns into social & economic benefit for all.
Free-Market Capitalism
Resources owned by individuals & firmsnot by governments
Production decisions are made to make profits
No country is purely capitalist; government act as referee, guide, or arbitor
The Basics of Capitalism
The right to own property
The right to own a business & keep the profits
The right to freedom of competition
The right to freedom of choice
Market at Work
Suppliers Decidewhat to producehow to make itwhere to sellwhat price to setwhat services to offer
Consumers Decidewhat to buywhen to buyhow much to buyhow to finance who to buy it from
How price is set
Supply Curve Demand Curve
Price S
DQuantity
Pe
Qe
The Supply Curve Shows
The combinations of options for the quantity supplied (produced) at any set price.
Suppliers will have less incentive to produce in large quantities unless the price per item is higher than the costs of production. As price goes up, quantity supplied goes up, also.
The Supply Curve has a positive slope S
The Demand Curve Shows
The combinations of options for the quantity demanded (purchased) at any set price.
Consumers will have less incentive to buy in large quantities unless the price per item is lower due to budget restraints. As price goes up, quantity demanded goes down.
Market Equilibrium Point
The price at which the quantity demanded equals the quantity supplied.
How do firms find this price and know how much to produce?
Competition within Free Markets
Monopoly: one firm controls supply & price
Oligopoly: few firms compete for market shareprice & decisions of one firm affects others;when 4 largest firms control 40% of the market
Monopolistic Competition: differences in similar products limit substitution: quality, style, etc.
Firms have some control over price.
Perfect Competition: many buyer & seller; no one buyer or seller has much affect on price.
Capitalism
Internal ethics External regulationresponsibility accountabilityhonesty contractual dutyfair return maximize profitreputation wealthsocietal norms legal norms
Free Market
Benefits Disadvantagesquality income inequalityfair price class politicsgood service greed/short termincentive to work capture theory
Benefits & Limitationof Free Markets
Benefits:
Competition between firms; efficiency & customer service
Opportunity for the have not to become the haves
Limitations:
Wealth inequality
Success requires: vision, hard work, smarts, relationship building, time & luck
Sometimes mistreatment of workers, slavery
Command Economy
Socialism
Communism
Socialism
Most basic business owned by governmentsteel mills, oil production, utilities, coal mines, public transportation, etc.
Smaller business may be owned by individuals, but are heavily taxed to pay for social programs. (60% Tax Rate)
The top U.S. Marginal Income Tax Rate of 35%The top Marginal Corporate Tax Rate is 39%
Benefits & Limitation:of Socialism
Benefits:
Free Health Care & Education (through college)
Redistribution of Wealth
Greater income equalityWhy do so many Eurpoean nations have a monarchy? Are power elite groups found in Socialist countries?
Limitations:
Extremely high tax rates
Economic disincentive
The “Brain Drain”Emigration to find more opportunity & freedom
Unsustainable System
Communism
Most resources & firms owned by governmentDecisions of what and how much to produce are
made by the government.This type of economic system is becoming more
rare. Lack of incentives and slow economic growth
Mixed Economies
CapitalismCommunism
Mixed Socialism Economies
Personal Governmental Freedom Control
Economic System of U.S.
Key Economic Indicators:
GDP = Gross Domestic ProductReal GDP; Per Capita Real GDPPurchasing Power ParityUnemployment RateInflation/Deflation: Price Indexes; CPI, PPI, WPI, PCEProductivity
The Business Cycle
The ups & downs of the economyworst = depression = 6+ quarters of decline
in GDPPoor = recession = 2 to 6 quarters of decline
in GDPRecovery = GDP growth < 5% or so
Boom = GDP growth > 5%
Stabilizing the Economy
Fiscal Policy: government actions to stimulate or slow the economy; Tax/SpendBalanced Budget or Surplus Revenue (13:70)Debt Increases or Deficit Spending (57:70)
Monetary Policy: federal reserve actions to stimulate or slow the economy Interest rates: The Discount RateThe Money Supply: increase or decrease
Read pages 52-54
Check Vocabulary Terms:brain drain business cycles capitalism command economies communism CPI deflationdemand depression disinflation economics fiscal policy free-market economies GDPinflation invisible hand macroeconomics market price microeconomics mixed economiesmonetary policy monopolistic competition monopoly national debt oligopoly perfect competition PPI recession resource development socialism supply unemployment rate
Critical Thinking Questions: Do 1 or 2.
Check out BEA & BLS website (see page 56)What does BEA & BLS represent?
Chapter 3 Goals:Competing in Global Markets
Discuss the growing importance of global markets
Explain the importance of importing and exporting, and understand key terms used in global business.
Illustrate the strategies used in reaching global markets and explain the role of multinational corporations in the global market.
Goals continued…
Evaluate the forces that affect trading in the global markets.
Debate the advantages and disadvantages of trade protectionism.
Discuss the changing landscape of the global market and the issue of offshore outsourcing.
World Population by Region
North America 7.9%South America 5.6%Africa 12.7%Europe 12.5%Australia 0.5%Asia 60.8%
12.5%
Economy Types
Subsistence Level EconomyGathering basic needs
HuntingFishingForaging
Self-sufficient farming
Agricultural Economy
Farming dominates economyExcess harvest tradedNext year’s seed keptFood supply allows time for other pursuits
Planning/BuildingLeisure time/Recreation/Travel
Prosperity & Release of excess labor
Industrial Economy
Absorbs former agricultural laborInnovation and invention leads to new productsGrowth & diversity of opportunities/job
Need for labor & raw materialsDevelopment of transportation & communication
Educational system developed
Services Industry
Financial Repair/MaintenanceCommunication TransportationLegal Health/MedicineEntertainment Rental OptionsEducation Options
Importing & Exporting
What are some reason for trading with other countries?
What are some of the disadvantages of importing?
What are some of the disadvantages of exporting?
Absolute & Comparative Advantage
Absolute AdvantageSkills and/or resources of one group give it an advantage.
If the president of a firm could out type all the typists, he would have an absolute advantage in this skill.
Comparative AdvantageA skill or resource could be used to give an advantage, but to do so a more productive activity may be lost.
Should the firm’s president type all company letters?
What Product & Services are a Good Fit?
Canada Europe
South America Africa
Australia Asia
Balance of Trade & Payments
Trade Deficit Trade Surplusimport > exports exports > imports
Balance of PaymentsForeign Investment
$I > $E $E < $IHolding $$$ for international markets
Dumping & Protectionism
Dumping is sending excessive amounts of a product to a market at lower prices in order to drive out competition.
Countries that believe unfair trade practices are being used to capture market share have several ways to retaliate or seek to control the market. Tariffs, WTO, Quotas on imports
Strategies for reaching Global Markets
Licensing Exporting
Franchising Contract Manufacturing
Strategic Alliances Foreign Direct Investment
International Joint Ventures
Forces Affecting Tradingin Global Markets
Sociocultural Forces
Economic & Financial Forces
Legal & Regulatory Forces
Physical & Environmental Forces
Unions, Tariffs & Protectionism
American SteelDominanceForeign CompetitionDumpingProtectionismInnovation &
Revival of the US Steel Industry
WTO = World Trade Organization
1948 – 23 nations: GATT formed reduce trade restrictions
1986 – 124 nations: the Uruguay Roundmodified GATT
1994 – US Congress approved; Avg 38% drop in tariffs
Common Markets
Trading Blocexternal tariffsno internal tariffs
EUSouth American Common Market
or Mercosur
NAFTA
Eliminate trade barriersPromote conditions of fair competitionIncrease investment opportunitiesProtect and enforce intellectual property rightsEstablish framework for further cooperationImprove working conditions
Results of NAFTA
Predicted US Job LossCapital leaving the US
New markets for US goodsCreate opportunites & job in the long term
USA, Canada & Mexico, economic partners
Offshore Outsourcing
Ethics
Rational
Objective
Consequences
What about reverse outsourcing? Do other lose as we gain jobs?
Economic & Business
Economic Cycles3-5 yr 7-9 yrs 13-15 yrlonger cycles
Cycles affect how resources get to businesses.
Productivity
Effective & Efficient use of time, labor &resources = CELL
C = Capital: physical & humanE = EntrepreneurshipL = Land (resources)L = Labor
Quintiles of Income per year
Q1 LOWEST 20% < $22,000Q2 Lower middle 20% $22k-40kQ3 MIDDLE 20% $40k-67kQ4 Upper middle 20% $67k-100kQ5 HIGHEST 20% >$100k
Top 1% >$300,000
Chapter 4
Demonstrating Ethical Behavior &
Social Responsibility
If only…
I knew the consequences of my actions beforeI did them.
Choices are a two for one deal,for each choice (which you can choose) is connected to a consequence(which you cannot choose).
Ethics is more than legality
Behavior that is accepted as right versus wrong.Social Norms: The Ten Commandment
The Golden Rule
The Rule of Law:More narrow than ethics. Laws allow someone to do something that is not illegal, but may be dangerous or not beneficial. Laws written to control whom?
Ethics Begins with Each of Us1. Is it legal? 2. Is it balanced? (fairness)
Setting Corporate Ethical Standards IMSA = Insurance Marketplace Standards AssociationIMSA becomes C E F L I
• The CEFLI standards: Maintain policies and procedures that demonstrate a commitment to honesty, fairness and integrity in all customer contacts involving sales and services for individual life insurance and annuity products.
• Emphasize to all employees and distributors the concepts of ethical market conduct through ongoing communications programs.
• Review our advertising materials regularly to assure that we are honest and clear. • Examine our sales materials continually to see that they are current, accurate and in
accordance with current laws and regulations. • Monitor the sales process carefully, on a regular basis, and obtain and respond to
customer feedback. • Engage in fair competition consistent with state and federal laws, and communicate this
practice to employees and distributors involved in the sales process.
Compliance versus Integrity
Compliance IntegrityConform to outside standards Conform to outside standards &
Chosen Internal StandardsLaws & RegulationsAvoid Criminal misconduct Enable responsible employee
conductLawyers lead compliance Manager lead compliance with aid
from lawyers and others
Methods: Education, reduced Education, leadership, accountability,employee discretion, controls decision processes, controls && penalties penalties
Whistle-blowers
Phone lines to report compliance violations or suspected infractions or customer complaints.
2002 – Sarbanes-Oxley ActCorporate & Criminal Fraud Accountability Act
Supplier, subcontractors, distributors & cusstomers must be told about the ethics program
The ethics code must be enforced
Whistle-blowers must be protected by firm.
Corporate Social Responsibility
American Economist, Milton Friedman said,“The only social responsibility of businesses is to
make money for their shareholders.”Anything more than this moves an economy
toward socialism.CSR – businesses owe their existence to the
society they serve. Benevolence was the highest virtue - Adam Smith
CSR
If corporation take care to benefit their societies in the long run, if the society prospers and employees are retained by ethical firms more easily.
Corporate Philanthropy Corporate Social Initiatives
Corporate Responsibility Corporate Policy
To Customer
Quality product (Lemon Laws)Trial possession (Autos)Return policyRecalls & quick solutionsService (Customer-friendly)
To Investors
Profit and profit-sharingEthical behavior
Firm’s financial report gives investors informationMust be accurate & timely
Insider Trading: IllegalFair Disclosure to all, not just a few, at the same time.
To Employees
Job creationGrowth of firmPeople need to see that
integrity, hard work, goodwill, ingenuity & talent pay offSalaries & benefitsWork environment: Safe, Pleasant, Positive
Being treated fairlyleaders lead rather than manage
Business relations become a dialogue, not a monologuereduces confrontations and animosity between management & workers
To Society & Environment
Create new wealth1/3 of American worker receive salaries from nonprofit organizationsreceive funding from business:
directly or indirectlyCommunity Volunteers & FoundationsHow business is done: Environmental Safe
chemicals, processes, waste managementresource management
Social Auditing
Evaluating the firm as a systemprogress toward implementing socially responsible program & responsiveness to social concerns
Socially conscious investorsEnvironmentalistsUnion officialsCustomers
If companies are not responsive to these stakeholders, then laws or the courts may step in to correct a situation.
International Ethics &Social Responsibility
China – product made by prisoners
USA – Sweatshop & smuggling workers into USA
Nike – Repairing Corporate Imagedeveloping a common inspection system with other firms.