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Business Basics
Better Business
Solomon (Contributing Editor)
Poatsy Martin

What is a Business?
Businesses
Entities that offer products to their customers to earn a
profit
Profit
When a companys revenue (money that it earns) is
greater than its expenses (money it has to pay out for
things/services etc)
More often than not, profit is the driving force behind a
businesss growth.

Revenues, Costs and Profit


Revenue
Revenue

The money a company


earns from providing services
or selling goods to customers.

less

Costs
Costs

Expenses that a company


incurs from creating and
selling goods and services.

equals

Profit
Profit

The money left over after


all expenses are paid.

What Kind of Products Are Sold By


Businesses?
Good - a physical product a business sells
E.g. a car, a computer, an iPhone, a book, a house
Service - an intangible product that is bought or sold
(you enjoy the benefits of it but do not actually end up
owning anything)
E.g. haircut, massage
Some are a combination of both a good
and service
E.g. restaurant, photocopying

How Do For-Profit and Not-for-Profit


Organisations Compare?
For-profit businesses
entities that offer products to their customers to earn a
profit
Not-for-profit organisations
businesses that do not pursue profits, but instead seek
to service the community through social, educational, or
political means
E.g. Museums, orphanage, temples, churches, libraries,
public schools

The Factors of Production


1.
2.
3.
4.

Labour
Entrepreneurial talent
Natural resources
Capital
Real capital
Financial capital
5. Technology
6. Intellectual property

The Factors of Production


Labour
human resource that refers to any physical or
intellectual work people contribute to a businesss
production.
Entrepreneurial talent
Entrepreneurs are people who assume the risk of
creating, organizing, and operating a business and
direct all the business resources
Different from labour? Entrepreneurs are willing to
bear risks and have the ability to manage an
enterprise
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The Factors of Production


Capital
Real capital is the physical facilities used to
produce goods or services
E.g. buildings, machinery
Financial capital is money from loans, investors,
fundraising, and personal savings
Natural resources - Raw materials used to produce
goods and services.
E.g. Soil used in agricultural production, trees used for
lumber to build houses
2014 Pearson Education, Inc.

The Factors of Production


Technology
Items and services such as smartphones and software
that make businesses more productive
Intellectual property (IP)
Ownership of ideas and creative works in the form of
patents, copyrights, and trademarks
E.g. IP creates a competitive advantage for drug
companies that own patents on a popular and
effective drug as well as for technology companies
who own patents on hardware and software.
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What are the factors of production


for the following businesses?

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How Does Competition Influence


Business?
A market-based economy stresses on individual
economic freedom and limit on governmental
intervention, hence competition is a fundamental force.
Competition arises when two or more businesses
contend with one another to attract customers and gain
an advantage.
Competition forces companies to
1. Improve their product offerings
2. Lower their prices
3. Aggressively promote their brands
4. Focus on customer satisfaction

How Does Competition Influence


Business?
Competition among a finite number of consumers
usually kicks out less efficient companies and less
desirable products from the marketplace
In a competitive environment, companies can create
customer satisfaction by offering lower prices, a better
product, or superior customer service
E.g. small specialty stores often cant compete on
price, but they have highly trained personnel who can
assist the customer in the selection of a product.

How Can Social Networking and Employee


Empowerment Create Opportunities?
Social networking a set of services focused on
building and supporting social relationships among people
Many companies have learned to harness the power of
social media to raise awareness of their products or build
customer loyalty.
Employee empowerment allows employees to solve
customer concerns without management approval.
E.g. employees at Nordstrom are empowered to accept a
customer return of uncomfortable shoes that had already
been worn in order to build a long-term relationship with
the customer.

How Does the Social Environment


Affect Businesses?
A social environment - An interconnected system of
different demographic factors such as race, ethnicity,
gender, age, income distribution, sexual orientation,
and other characteristics.
Social, economic, and political movements and trends
cause the social environment to change.

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How Does the Social Environment


Affect Businesses?
Baby Boomers:
An aging population
Business opportunities
Providing for retirees
Increasing population diversity
Workforce development
Consumer demographics
The Green Economy include ecological
concerns into business
Environmental concerns
New product opportunities

Globalisation
Globalisation - A movement toward a more
interconnected and interdependent world economy
Economies are merging as technology, goods and
services, labour and capital move back and forth across
international borders
Multinational enterprises are among the leaders of
globalisation
Companies such as Nike, McDonalds, and Coca Cola
have operations around the globe.

Globalisation: Offshoring

Offshoring A method used by companies to achieve


lower manufacturing costs by
relocating their production facilities overseas, or
subcontracting some components of their products to
foreign companies around the world

Benefits and Risks of Globalisation


Benefits of Globalisation to Local Economy
Companies can sell their products around the globe
Offshoring allows lower production costs, and cause
consumer goods to be cheaper
Businesses can have higher profits when they make a
produce less expensively abroad and lower their
expenses.
Risk of Globalisation to Local Economy
Local workers fear losing their jobs to workers abroad
Increased competition from international companies
Fluctuations in the value of the local currencies
Security and patent protection concerns
Unstable political situations in foreign countries

Technological Changes
Challenges of technological changes
Demands on time and capital
Changes to business operations
Benefits of technological changes
Streamline businesses and reduce
business costs
Improve
productivity,
security,
transparency and communications
Telecommuting,
teleconferencing
and others

Technological Changes
Telecommuting and Teleconferencing
Technology is making it possible for employees to
telecommute, or work from a location away from the
office.
Teleconferencing is keeping CEOs and other corporate
representatives from having to travel for meetings. It is
also allowing companies to communicate easily.
If IT is the tool that is changing the function of business,
the Internet is the tool that is changing the scope.
Although IT by itself would be extremely influential for
the business world, the Internet makes it truly
revolutionary.

Technological Changes
E-Commerce
Three forms of e-commerce
Business to consumer (B2C)
Businesses sell products/services to consumers
Business to business (B2B)
Businesses sell products/services to other businesses
Consumer to consumer (C2C)
Consumers sell products or services to other
consumers via a third party (e.g. online platform)
With the growth in e-commerce, businesses have the
responsibility to take measures to protect consumers
online security and privacy.

E-Commerce

Four Types of Businesses:


Local Business and Regional Business
Local business - usually one of
a kind, serves a limited
surrounding area
Regional Business - serve a
wider area, but do not serve a
national or international market
Challenges for local and regional businesses
Poor financial planning and money management
Unfavourable economic conditions
Undercapitalization occurs when business owners
cannot obtain enough funding for their businesses

Four Types of Businesses:


National Businesses
National business - has outlets throughout the
country and provides goods or services to virtually
every citizen, no matter where in the country they live
Special challenges
Budget and finance-related concerns
Must be aware of all state laws in every state
Manage longer, more complex supply chain
Supply chain - the process of movement of products,
information and money between suppliers and consumers

Four Types of Businesses:


Multinational (International) Businesses
Multinational (international) businesses
Businesses that operate production or serve markets in
more than one country.
Challenges for Multinational Businesses
Laws and business practices
E.g. Import and export laws, safety regulations, quality
control, copyrights, and patent rights
Cultural differences
E.g. business hours, workweek schedules, values and
customs, wage expectations, and language barriers
Important economic
Economic differences, interest rates and inflation rates

Taking Business Personally


How do you receive funding?
From work, family, bank or own savings
What are your expenses?
Rent, clothing, food, tuition fees
How does the social environment affect your life?
Learn from different people, embrace diversity, find ways
to adopt a eco-friendly lifestyle
How does globalisation affect your life?
Purchase items designed or manufactured in other
countries; speak foreign language
How do you keep up with new technology?
Use technology to run your life
2014 Pearson Education, Inc.

Taking Business Personally


What sort of e-commerce do you use?
Purchase items online or sell unwanted items online
How do you keep your business secure?
Keep personal information secure by changing online
passwords regularly; make sure your wireless
connections are secure; remove personal information
from social networking sites
What types of financial goals do you have?
Make informed decisions on how to spend and save
money

Chapter Summary
1. What is profit, and what is the difference between a
good and a service?
2. How do for-profit businesses and not-for-profit
organizations compare?
3. What are the factors of production?
4. How do competition, the social environment,
globalization, and technological growth challenge and
provide opportunities to business owners?
5. What are the four types of businesses?
6. How do life skills translate to the business
environment?

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