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BU111-Exam-Review-Notes

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BU111 Exam Review Notes
-Economic Factors
-Technological Factors
-Social Factors
-Political Factors
Economic Factors
Elements
-Inflation/ deflation
-Interest Rates
-Employment Rates
-Exchange Rates
-Balance of Trade
-Productivity
-Business Implication: affect costs, sales, financial uncertainty
-WHY? Affect economic growth (measures: aggregate output, GDP, GNP, economic
stability, employment)
Bonds
Characteristics
-Is a contract- a promise by the issuing company or organization to pay the
bondholder a certain amount of money (the principal) on a specified date, plus
interest in return for use of the investor’s money?
-Represents debt for issuing corporation and government
-Borrowing money/ lending money
-Legal, binding agreement (is a loan)
-Fixed rate of return (often paid semi annually)
-Fixed Term: principal repaid at maturity (day that you get paid back, stop earning
interest and then you get principal plus interest back)
-You receive a series of coupon payments (these are interest payments for lending
your money) = annuity
-You receive a principal payment (one lump sum) upon maturity, you get back what
you loaned to the borrower= single payment
-Priority over stockholders
Types
-Secured vs. Unsecured (debentures)
-Secured: specified agreement of bond and maturity date
-Unsecured: unspecified agreement
-Canadian Savings Bonds are known as debentures
-Registered vs. Bearer
-Registered: one where the borrower knows who the bondholder is
(registered with the company)
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-Bearer: whoever holds the bond gets to cash it in, no name completely
anonymous
-Bonds that require bondholder to clip coupons from certificates and send
them to the issuer to receive interest payments
Features
-Callable: can be paid of before its maturity date
-Lose out on interest
- Unattractive to consumers
-Flexibility to recall bands and reissue new bonds at the lower rate
-Attractive feature for companies
-Serial: Less risky which interests more investors and customers
-Can spread out maturity dates at different times, which spread out the
burden of the company (1,5,10 years, etc.)
-Convertible: Allow you to convert from a bond to a preferred stock
-If you see company growing, have the ability to switch to a stock, which will
allow you to gain more
Determinate’s of Bond Value
What impacts the Coupon Rate at Bond Issue?
-Prevailing interest rates: interest rates in the general economy
-Risk vs. Return Tradeoff: high risk= higher return, makes the risk worth while
-Credit rating of issuer
What Impacts Bond Price When Traded
-Coupon rate+ prevailing interesting rates of interest
-Interest rates change
-Changes in credit rating
-Better coupon rate- more interest (vice a versa)
-Company specific factors
-Economic/ Market Risk
-Environment factors
-Inflation
-Environment factors
Concept of Yield
-Percentage return on any investment
-Help us to compare investments
2
Yield 
What you made
Interest + Capital Gain

 x%
What you paid
What you paid
For a bond:

Interest = coupon rate x face value
Capital gain = face value – purchase
price
-For exam, always use a face value of $1000 for bonds
-
Approximate Yield to Maturity
-Percentage return on any investment
-This formula to be used only when figuring out the approximate yield value

annual bond interest  annual capital gain
price paid for bond
face value - price paid
time to maturity
price paid
coupon rate x face value 


-Only thing that can change is price paid
-When expected yield goes up, price goes down
-When excepted yield goes down, price goes up
Bond Pricing
-Three scenarios to consider
1. You pay less than face value (<$1000) for the bond then “Priced as a discount”
2. You pay more than the face value (>$1000) for the bond “Priced at a premium”
3. You pay face value (=$1000) for the bond “Priced at a bar”
Stocks
Characteristics
-Represent equity/ capital for issuing company
-Voting rights
-No fixed terms
-No maturity date of stock
-Variable Return
-No promise of returns
-Discretionary Payment (Dividends)
-Owners entitled to a share of profits
-Board of directors can decide to distribute profits to shareholders
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-Risk
-Can also reinvent made back into business
-Higher risk then bonds and high losses possible
Common Stocks vs. Preferred Stocks
Common Stock
Voting rights
Yes
Dividends
Not necessarily
Bankruptcy
Price Volatility
Paid after preferred
Most volatile
Marketability
More shares, larger
market
Pre-emptive rightpurchase more share at a
set price
Other Features
Preferred Stock
No- unless number of
dividends unpaid- in
‘arrears’
Yes- fixed %
-After interest paid on
debt but before common
dividend
Paid after debt holders
Less volatile (dividends)sensitive to interest rates
Thinner market
Redemption-Company can
but back
Convertibility- to common
Cumulative
Participation Feature
-Companies issue more common shares then preferred shares
-Preferred stock affected more by interest rates
What Impacts Price of Stock
-Demand and supply of stock due to negative or positive perception/facts
-Primary Factors
-Earnings: above or below expectations, rumors
-General Market Conditions- Bull vs. Bear Markets, economy, interest,
(especially preferred)
-Speculation: bought of sold on belief price will soon move
-Price of a security is a collective expression of all opinions of those who are buying
and selling
-Undervalued Issue: offers higher return that stocks of similar risk
-Stock whose price is below what it should be
Market Conditions
-Bull Market: market is increasing and rising (going long)
-Beat Market: market is decreasing and falling (short selling)
Other Investment Vehicles
Blue Chip Stocks
-High quality, low risk, companies that have been around for a while, low return
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Small Cap Stocks
-Cap= capitalization
-Growing company and not worth a lot currently
-More volatile it is when in the growth stage
-Riskier but higher returns
Penny Stocks
-Stock is trading at a price bellow a dollar
-Expensive stock that is now worth nothing
-Stock that isn’t worth that much
Canadian Savings Bonds- CSBs
-Government bonds
Guaranteed Investment Certificates- GICs
-If you have money you want to save for the long term (1 year +)
-Not going to touch money and want to earned interest on money invested
-Very low risk
Treasury Bills- T Bills
-Government bonds
-90 day maturity
-By below face value
-Difference between what you pay and when it mature is all interest
Mutual Funds
-Portfolio of different stocks complies into one
-Diversified
-Professional investment management
-Draw back: have to pay investment manager/ mutual fund manager
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Stocks vs. Bonds Investors Perspective
Stock vs. Bonds- Company’s Perspective
-Dividends are more expensive then interest payments for a company
-Disadvantages with bonds is you eventually have to pay them back and you have to
pay interest
Margin Buying
Leverage
-Engaging in a transaction whose value is greater than the actual dollar amount you
have available
-Creates potential to make a larger return or loss than indicated by the investment
you have made, make a larger return
-Examples:
-Short selling: deposit 50% of value of transaction
-Buying on margin: invest part of value of transaction (margin requirement, broke
lends the rest)
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Margin Buying Rules
-Must quality for margin account
-Must sign ‘hypothecation’ agreement (Margin Account Agreement Form)- pledging
of securities as collateral for loan
-Must pay interest on loan
-There investors % of equity (margin) in the margined stock must always be > then
the minimum margin requirement
-Going Long: expecting the stock to go up in value (buy low, sell high)
Margin Buying Summary
-What is the maximum profit you can make?
-Infinite in theory
-Stock can keep rising and rising
-What is the maximum loss?
-Price paid for stock
-Risks/ Costs
-Interest expense
-Margin calls
-What happens with money paid on margin call?
-Broker uses the money to reduce your loan
Interest Calculation
=Margin x interest rate x 12 months (or divide amount of months held by 12 if not
held for a year)
Short Selling
-Buy low, sell high is the going long
-Sell high, buy low is for short selling
Rules:
-Deposit must be 150% of CMV at start
-Maintenance margin must be met = 125-140%
-Agreement may be terminated by either part at any time- forced to cover/buy in
-Dividends declared are the responsibility of the seller
Short Selling Summary
-What is the maximum profit you can make?
-Price of short
-What is the maximum loss?
-Anything goes; price can rise infinitely
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-Risks
-Unlimited losses
-Forced to cover short as disadvantageous price
-Dividends may be declared that you must cover
-Short calls
-What happens with money paid on a margin call?
-Broker adds the money to your account= increases deposit
Time Value of Money
-Is $1 one year from today worth the same $1 today?
-No it’s worth less because of:
-Risk
-Real Interest
-Inflation
-Concept important to leases, mortgages, bonds, retirement’s contributions, stocks,
valuation, project selection
Annuities
-Annuity: multiple but equal payments made over equal periods of time
-Ordinary Annuity: payment does not start today
-Assume its ordinary annuity unless stated otherwise
-Annuity Due: payment starts today
Perpetuity
-Annuity that does on forever
-Example; dividends on a preferred share
Payment & Compounding Periods
-Payment and interest periods must be the same
-N= years x ‘p’ number of payments per year
-Adjust compounding rate to match payment frequency (this is now your new r)
Interest and Payment Periods Same but More than Once a Year
-N= years x ‘p’ number of payments per year
-Divide r by p number of payments per year
Interest and Payment Periods Don’t Match
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Summary
Technological Factors
Elements
-Internet: affects buying, selling and communication
-Information technologies affect information access and inter firm cycle times
-Not limited to computers and information
-Business Implication: affects what we produce/ what it can do, affects how we
procure and how we sell
-WHY? Demands constant learning and scanning, creates significant change and
challenge
What is Technology?
-Advancements in equipment and its uses
-Often substitutes for/ magnifies human efforts
-Includes human knowledge, work methods, equipment, business process
systems
-Includes information technology
-The various devices for creating, storing, exchanging and using information
-Consumers use it daily
-Companies use it to gather and share information and execute activities
Where does it come from?
-Comes from human ingenuity
-Formal and informal research and development
-Basic R&D- knowledge without focus
-Applied R&D-specific problem in mind
-Technology Transfer: out of lab and into the world
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Technology Shifts
Electricity
-Allowed to use to work longer and increase productivity
-Allowed to contrast new things
Trains and Ships
-Enhance trade
-Move things from one country to another
-Access to new resources
-Give more value to our resources
-Populate new parts of the world
-Changes habitation and where people live
Assembly Line
-Mass production possible
-Urbanization
-Change the face of what the world looked like
Internal Combustion
-Autos, mass transit
-Airplanes
Mass Media
-Change sharing of information
-Obtaining, sharing and using information
-Movies, radio, television
-Extended later into telecommunications and then the Internet
-Telecommunications
-Computer
-Internet
Smart Products/ Internet Things
-Currently in this phase
-Not only information-based products
-Products that can make decisions for us
-Internet of things takes smart products to the next level where the products can
think and act for themselves
Opportunities of Technology
Products- innovation, uniqueness value
-Innovation: many things to put intro products to make them more powerful
-Uniqueness: produce products in a highly efficient matter
-Value: making products that consumers find value to
Management and Organizational Process
-Instant access to information
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-Used to achieve financial performance
-Allow us to meet customer needs
-Employees are in powered and can do their jobs better and can understand
where they fit in the organization
-Better service through coordination
-Serve customers better with the efforts that are happening at other stores
-Leaner Organization
-Don’t need as many humans to do the same job
-Smaller organization form human resources perspective
-Smaller the team the more agile and more quickly can respond to changes in
the environment
-Costs less
-Better able to meet customer’s needs
-Improved operations efficiency
-Way you operate your system, which connects people and jobs
-Computer Assistant Design (CAD): used to design and develop new
products, design everything on the computer
-Enterprise Resource Planning (ERP)- organization use this software which
acts as a master system that keeps track of companies shopping list, activity
list, and what it needs (also used to create efficiency)
-Greater Independence of Company & workplace
-Achieving financial performance, building quality goods and services
-Creating a barrier of where you work and where your company is
-Gaining employee commitment as can do work at home and go into officer at
other hours
-Make productive use of their time even when at home
-Achieving financial performance: paying employees and they maximize their
time
Competitiveness
-Technology creates barriers to entry
-Cooperation with other firms
-Allow you to cooperate with the best companies instead of just the closest
companies
-Allow you to be more innovative
-Build better quality products and services
-Reduce cycle times
-How long it takes to complete a business process
-Build better quality products and services
-Make employees more engaged and feel more valued
Communication and Collaboration
-Within firm and with customers
-Being able to talk to each other as employees and your customers
-If talk to customers better, customer more happy
-Within firms is where relationships happen, innovation happens
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Customization
-Technology has allowed us to mass-produce and still customize and meet
customer’s needs
-Still able to build quality products and services
-Not possible in the year 2000
-Has come about in the law few years
-Able to customize and build thing sin mass customize
-Point where you can customize on max for relatively good price
Threats of Technology
Imitation
-Information costly to develop but cheap to share
-Examples: movies, t.v shows, music
New Technologies in Unfamiliar Areas
-Disruptive technologies challenge the value of organizational capability and
resources
Unpredictable Evolution
-Vhs vs. Betamax
-Blue Ray vs. DVDs
-Technology Standards: important whenever one product has to cooperate with
another product to work (have to be compatible)
Need for Constant Learning and Scanning
-Takes constant effort and learning
Information Overload
Greater Independence of Company & Workplace
Technology and Marketing
Important Technology Concepts
Complementary Goods
-Needed for value
-Creates vicious cycle
-Important because they create additional value for your good
-Hard for a company to product all the complementary goods but rely on other
businesses to make them
-Example: Apple relies on other companies to make phone cases and headphones
for IPhones
Technology Standards
-Requires compatibility of complementary goods
-Find or make compatible complementary good
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Installed Base
-# Of users
Lock In
-Size in investment
-Not only dollars but can be time and learning in addition to money
-Larger= greater resistance to switch
-Lock in through relationships
-When you’re invested it gives the company higher bargaining power
Switching Costs
-Costs of moving
-Entry barrier: makes lock in worse
Solution
-Compatibility, alliances/ incentives with complementary goods, suppliers, build
base
-Lower switching costs, offer leap in performance
Network Effect
-Value depends on users
Small installed
base
Less appealing
standard/
product
Fewer
complementary
goods
Sustaining Technology
-Presents improvements to existing products in expected ways
-Sustaining Technologies: in a way that’s predictable
-Whole purpose is to achieve higher margins as they chase customers
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-At some point product becomes so good and exceeds customer expectations
-Provides mainstream, high margin customers with enhancements in product
functionality
-Existing firms normally win
Disruptive Technology
-Developing somewhere else and then when they get good jump into a new market
-When first come along not very good, lower performance but doesn’t cost a lot
-Not very food performance wise
-Example: Digital imaging
-Improve at a faster rate then sustaining technology
-Enter the mainstream market
-Does the same job, either at a low price or same price but does the job way better
Tactics for Small Companies to Succeed
-Enter with a totally different product in a market that large firms wont be
interested in
-Not their mainstream- not interested or motivated
-Not what they are good at or can easily adjust to
-Margins are too small or market too small
-Once you are strong, move up in the market
Why do Large Firms Sometimes Fail
-Organization structure and capabilities slow response time/ ability and influence
choices
-Do the best job in the one where meets all the factors of the diamond e
-Organizational processes weed out ideas that do not address current customer
needs
-Managers focus on satisfying mainstream customers
-Ignore new technologies that don’t initially meet needs of mainstream
customer
-Move ‘up market’ to higher margin opportunities
-Avoid small, uncertain, unfamiliar markets
-Niche markets, small and financially unattractive
-Growth potential uncertain
-Lower profit margins
-Greater risk of being criticized if you fail managerial risk aversion
Tactics for Large Companies to Avoid Failure
-Design products based on task they are intended to serve rather then the customer
who buy them
-Monitor outside of your own industry and mainstream customer
-Partner with young firms- strategic alliances
-Establish ventures units that are independent of parent organization
-Understanding the job, more likely to see when there are things that are changing
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Social Factors
Elements
-Customs
-Attitudes
-Very different attitudes depending where you live
-Values
-Demographic characteristics
-study of human characteristics and population
-Business Implication: affects how we live, work, consume and produce
-WHY? Affect customer preferences and worker attitudes and behaviors, standards
of business conduct, and corporate social responsibility
Ethics
Ethics: individual standards/ beliefs regarding what is right and wrong or good and
bad
-Vary based on person
-What each of you believe affects your business or managerial ethics
-Carry those personal beliefs and values with you into the business
Business or Managerial Ethics: standards of behavior that guide individual
managers in their work
-Ethical or unethical behaviors by a manager or employee of an organization
-Personal ethics affect the decision you make in the organization and your business
ethics
Corporate Social Responsibility (CSR)
-CSR is ethics at the corporation level
-Example: is the company going to make charitable donations, get involved in
charity events, volunteer, etc.
How to Influence Managerial Ethical Preferences
hiring criteria
managerial
role modeling
mission
statement/
code of conduct
ethics booklets
& training
Goals/evaluati
on criteria &
rewards
employee
protection
mechanisms
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Hiring Criteria
-Employee’s views will be a big part in the decisions you make
-Easier to hirer someone who is right for the job rather than constantly changing
employees over
-Employees that have values and ethical standards that are consistent with the
companies
-Criteria that includes ethical standards
Managerial Role Modeling
-Teach by example approach
-New employees to be able to see what a good ethical decision looks like
-What we believe in as a good CSR choice and standard
-New employees understand based on learning from other employees
Mission Statement/ Code of Conduct
-Communicates in writing the expectations that we have of our employees and our
decision makers
-What we value as an organization
-Want example to be consistent with the words
Ethics Booklets & Training
-Helpful to train employees how to behave under certain conditions (ethical
situations)
-Teach how to make good decisions
Goals/ Evaluation Criteria & Rewards
-Make sure this ethical standard are reflected in how you evaluate them
-Gives you a chance to adjust if not meeting those standards
-Spend your time on things that give you the greatest reward
Employee Protection Mechanism
-Whistle Blowing
-Company is doing something unethical and employees within the company report
the wrongdoing
-Employees should be protected if they report something in the company and not be
at risk of getting fired and losing their job
Stakeholders
Who are they?
-Groups, individuals, and other organizations that are significantly affected by the
organizations activities
-They provide business with the capacity to operate and rightfully expect something
in return
-Stakeholder’s importance depends on situation and the issue
-Affect willingness and opportunity to act
16
-Challenge: stakeholders may have varying and conflicting expectations of an
organization
-How you balance them depends on your managerial ethics and approach to CSR
Importance of Stakeholders
-Stakeholder importance is determined by:
-Its ability and willingness to act
-Its relative power/ dependence or interdependence
-Stakeholders can be:
-Threatening: willing and able to create uncertainty
-Cooperative: willing and able to support
How to Strategically Manage Stakeholders
-Identify key organizational stakeholders
-Diagnose them along two critical dimensions of potential for threat and potential
for cooperation- categorize them
-Formulate appropriate strategies both to enhance or change current relationships
with those key stakeholders and to improve the organizations overall situation
-Effectively implement these strategies
Strategic Stakeholder Categories
Potential Cooperation
Potential for Threat
Stakeholder Management Strategies
Marginal Stakeholders: monitoring- satisfying needs and/ or demands of
stakeholders; no need to involve or collaborate with them
Non-Supportive Stakeholders
-Reduce interdependence
-Use media to promote/ defend your actions
-Encourage supportive stakeholder to voice their support
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Supportive or Mixed Blessing Stakeholders
-Collaborate or involve
Stakeholder Type
Customers & Suppliers
Competitors
Government
Activist Groups
Unions
Suggested Techniques for Collaborating/ Involving
Involve in product design
Joint R&D, Joint Market Development
Invite involvement in setting safety/ technical
standards
Appoint to Board of Directors
Appoint to Board of Directors, seek input, consult
Invite involvement in Joint Committees, appoint to
board of directors, profit sharing
Warning:
-Stakeholders watch out for other stakeholders
-Stakeholders can move form supportive to non-supportive on behalf of/ in defense
of other stakeholders
Corporate Social Responsibility (CSR)
What is it?
-Definitions:
-The idea that a business should balance its commitments to individuals and groups
that are directly affected by the organizations activities
-Organizational Stakeholders:
-Groups, individuals, and organizations that are directly affected by the
practices of an organization and that therefore have a stake in its
performances
-What the organization does to and for the stakeholders
-How business defines ethical conduct at the organizational level
-How business balances its commitments to stakeholders
Why focus on CSR?
Make environment more manageable
-Avoid adverse actions/ increases support by stakeholders
-Uncertainty is created when stakeholders are unhappy with the company
-Promotes favorable legislation
-If you take initiative and do something good might become the standard that
forces everyone else to follow you
-Example: Johnson& Johnson mission to produce safe products for
consumers and the ones that initiated tamper proof seal after people died
from buying Tylenol bottles that have been tampered with
-Became a distinctive competitive advantage for J&J and everyone else in
the industry had to follow?
18
-IF government mandated, would have had a competitive advantage that
is enforced by the law
-Especially in todays digital media environment, allows you to complain
about everything and anything, so if you make a choice society doesn’t
approve of everyone will hear about it
-Very easy to mobilize a negative feeling towards your company
Affects ability to meet critical success factors
-Improves profitability
-Distinctive competitive advantage= increase in profitability
-Improves trust and loyalty of customer and employees
-If customer believe you are selling a safer, better, more reliable product that
will serve them better they will be loyal to you
-Few people want to work for an organization that are damaging to
customers (unsafe working conditions, dishonest)
-Promotes higher levels of operating efficiency
-If produce good quality good, treat employees well, then not worrying about
constantly replacing employees (not worrying about disposable employees
or products)
-Fewer products coming back that need repairs
-Encourages continuous improvement and innovation
-To be better with employees and customers requires innovation and
improvements
-Can be a source of distinctive competitive advantage
Five Areas of CSR
1. Responsibility Towards the Natural Environment
Areas: air, water, and land pollution
Why are we focusing on it?
a) Paradigm Shift in management thinking
-Managers trained to think beyond bottom line
b) Quantification of impact
-Dollar value towards environment now given a reason to pay attention
c) Change in societal attitudes
-Society has changed and societies view on pollution and global warming has
changed
-Societies attitudes have changed
a) Paradigm Shift in Management Thinking
1987: Bruntland defines sustainable development: “meets the needs of the
present without comprising the ability of future generations to meet their own
needs”
-What you are leaving for the future and your children
1994: J. Elkingotn extended concept of ‘sustainable development’ to ‘Triple
Bottom Line’
-Before this time only focusing on bottom line: profit
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-Equity, environment and economy
-People, plant and profit
-Successful business and society doesn't just look at today but looks at
tomorrow as well
-Shift thinking from just thinking about bottom line to thinking about the human
entities
b) Quantification of Economic Impact
-2012: “Clime Vulnerability Monitor: A guide to the Cold Calculus of a Hot Planet”
states that climate change is costing $1.2 trillion (U.S) per year and reducing
global GDP by 1.6 per cent
c) Social Attitude Shift
-Dominant paradigm was take, make, and waste
-Everything was disposable (cellphones, electronics, cars, etc.)
-Compared with 20 years ago, twice as many Americans recycle (58%), buy green
products (29%), and commute in an environmentally friendly manner (185)
-Business may be the primary cause of the problem but it will also likely be the
solution
Action: increase “corporate Greening” NOT green washing
-Corporate greening involves trying to make all aspects of the product more
environmentally friendly
-Green washing: when you don’t really become more environmentally friendly but
you pretend you do
-Marketing ploy rather then legitimate improvement
-Example: cleaning products
2. Responsibility Towards Society
Areas: poverty, health, education
-Improving wealth, health, and education
-Wealth: consumers have more money to spend
-Health: a healthier employee
-Education: better employees, better educated is a more productive employee
-A healthier employee leads to creativity and innovation of products
-Human Development Index (HDI)
-Analyzing Economic Growth- does everyone benefit?
-Looking beyond aggregate figures and considering income inequality
-Growth is not always good
Why are we focusing on it?
-Diffuse the issues of social decay, political chaos, terrorism and further
environmental degradation
-Affect human capabilities (ability to be innovative and creative)
-Societal attitude shift (what we believe today, cant just pretend things aren’t
occurring in other parts of the world)
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Action: Innovative business models and leveraging business kills can contribute to
social development
-Social Entrepreneurship (Example: SOS)
-Companies encourage employees to go volunteer during their paid time
-Do this because gives back to the community and benefits their local
community
-Bigger business and community partnership
3. Responsibility Towards Customers
Areas: pricing, advertising, rights
-How we price our products, what we say in our advertisement, which we advertise
to and how we advertise to people
-Consumer rights
Why we Focus on it?
-Purchase goods and services thereby providing business with revenue
-Avoid adverse actions
-Avoid increased regulation
Action:
-Consumerism, Respect
-Right to safe products (not okay to produce and sell products that you know
are not safe)
-Right to be informed (side effects, hazards, contents)
-Right to be heard
-Right to choose
-Right to courtesy
-Right to education
-Fair pricing
-Ethics in advertising
-Truth, no counterfeits brands
-Giving the trust about your product and what it does
4. Responsibility Towards Employees
Areas: hiring, promotion, compensation, training
-Give access to training so they can do their job well and have future prospects
-Compensation: make sure employees are getting paid the right amount for the
work they do
Why we focus on it?
-Provide business with talent, skills and labour
-If don’t focus on it automatically lose employee commitment
Action
-Responsible for hiring and promotion
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-Not being bias of discriminatory in hiring
-Safe working conditions
-Employees work better when in safe conditions and are more productive
-If not safe, expose yourself to lawsuit
-Opportunities for advancement
-gives opportunities to be promoted
-Protection of whistleblowers
-Employee protection mechanisms
-Sends the message what is important based on ethical standards
-Sends message to employee that their observations and contributions
matter
5. Responsibility Towards Investors
Areas: financial management, reporting
-Report honestly with financial performance of the company
Agency Problem
-Shareholders allocate decision-making authority to managers via Board of
Directors because they are not qualified to manage company and/ or don’t have
time or incentive
-But can lead to conflict of interest and shirking
-Managers (and board) may be tempted to act in their own best interest
rather then the shareholders
Why we focus on it?
-Investors provide businesses with capital
-New regulations due to repeated irresponsibility
-More independence, new practices, new disclosure rules
-Different social attitude- Canadian Coalition for Good Governance
-Legal action against directors and managers
Action
-Focus on long term return on investment (ROI)
-Responsible management reporting and transparency
-No inside trading
Four Approaches to CSR
1. Obstructionist Stance
-A company that does as little as possible to solve social or environmental problems
-Do as little as possible
-May breach what is legal
-Do the bare minimum
-Don’t offer employees more than the minimum
-Don’t make charitable donations
-Offer bare minimum for what is safe for employees to work in
-Bare minimum of what is legally required to sell to a customer
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2. Defensive Stance
-An organization that does only what is legally required and nothing more
-Legally required only
-Only do what is legally required of you to do
3. Accommodative Stance
-A company that meets all of its legal and ethical requirements and in some cases
even goes beyond what is required
-Goes further in some areas
-Might make donations
-Might pay employees a little more then minimum wage
-Might give customer a little more than what they ask for
-But only do these things if you are asked and have to be asked to do something
-Doing more than is legally required
4. Proactive Stance
-An organization that actively seeks opportunities to be socially responsible
-Looks for opportunities
-Do more than minimum requirement, goes above and beyond
-Don’t wait to be asked
Demographics
-Study of human populations
Why Is It Important to Business?
-Powerfully predictor of human behavior/ trends
-Certainty and simplicity of age data
-Change in relative proportions and participation rates of age groups have
significant impact on business environment
Understanding Demographics
-Key factors in predicting behavior
-Size of cohort= # of people in each age group
-Activity participation rate
-Factors affecting size of cohorts
-Fertility rate: average number of children/women
-Birth rate: total number of births/ size of population
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Cohorts
Canadian Demographic Trends: Aging Boomers, fewer youth
-Aging baby boomers most influential demographic force shaping marketplace but
declining
-Shrinking youth group in comparison
-Population no longer reflects traditional pyramid
-Implications:
-Increased paid and unpaid elder care
-Increased number of vulnerable seniors
Large and Influential Echo
-Echo generation= children of boomers= relatively large group
-More disposable income because parents provide essentials
-Increasingly influence family purchases
-Implications
-Market impact of echo
Changing Households
-One-person households growing faster then one family households
-Highest among seniors
-Implications:
-Lose economies of scale in living, shopping; aging seniors living alone+
smaller young cohort= will have smaller support network
-Lone Parent families Increase; two earner families face time constrains
-Implication:
-Increased demand for time saves
Changing Ethnic Composition
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-Immigration increasing over past decade
-Immigrants are younger and more likely to live in city than average Canadian
-Interacting with marketplace difficulty
-Implication:
-Increased demand for multilingual consumer support/ services/ goods
Geographic Distribution
-Increasing urban concentration- four areas: Golden Horseshoe, Montreal, B.C.
Lower mainland+ Vancouver, Calgary- Edmonton
-Donut Effect
-Rural living predominates in Atlantic Canada, Saskatchewan, and territories
-Next exodus of youth form rural areas
-Implication:
-Affects median age in rural area and access to goods and services
Political Factors
Elements:
-Laws and regulations
-Taxes
-Trade agreement or conditions
-Political system
-Political stability
Business Implication: affects uncertainty, risk, and constraints/ costs faced by firms
WHY? Protection of consumers, support for and protection and regulation of
domestic businesses, opportunity creation in foreign markets
How Governments Influences Business
-Customer- buys products & services
-Competitor- compete through Crown Corporations (hybrid entities between a
government body and a private enterprise) such as Canada Post
-Regulator/ Law Marker
-Regulate many aspects of business activity through administrative boards,
tribunes and commissions
-Regulates business activity; influences technology standards
-Purpose:
-Promotes competition – Competition Act, small business support
-Promotes innovation – intellectual property rights
-Protects consumers – i.e. Hazardous Products Act
-Achieve social goals – i.e. universal health care, education
-Protect the environment – Canada Water Act, Fisheries Act
-Taxation Agent
-Collected by all three levels of government
-Types business and personal
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-Approaches- progressive, regressive, restrictive
-Progressive: levied at a higher rate on higher income taxpayers and a lower
rate on lower income taxpayers
-Regressive: are levied at the same rate regardless of a person income
-Restrictive: are levied partially for the revenue they provide but also
because legislative bodies believe that the products in question should be controlled
-Provider of incentives & financial assistance
-Subsidies, tax breaks, support services for small and large businesses,
research funding
-Bailouts
-Government steps in and saves a company fro going bankrupt
-Government does this ass it saves jobs
-Provider of essential services
-Highways, armed forces, police & fire dept., hospitals, education
Intellectual Property
What: legal rights that result from intellectual activity in the industrial, scientific,
literary and artistic fields
-Grants exclusive rights to creator
-Most common types are patents, copyright, and trademarks
-Why? Creates incentives to innovate and be unique by allowing you to benefit form
your innovation/ creation
Types
Trademarks
-A word(s), a design, or a combination of these used to identify the goods or services
of one person or organization
-Protection for 15 years; renewable
-Legislation= trade mark act
-Can be a symbol/ shape/ and or words
-Why? Establishes and protects reputation and brands, can be one of your most
valuable assets and facilitates licensing of your trademark
Copyright
-Any original literary, dramatic, musical or artistic work
-Subject to copyright from the moment it is create (no registration needed)
-Owner is creator of the work
-Created while at work= owned by employer
-Duration- life of owner + 50 years
-Becomes public domain after
-Caution: doesn’t cover ideas, only for form in which they are expressed in (music,
play, art)
-Why? Receive credit and royalties for your work
Patent
-Government grants that give investors exclusive rights to their inventions
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-Must be new (first in the world), useful (functional and operative) and show
ingenuity (ex. is not obvious to someone skilled in that area)
-Can be a product, composition, apparatus, process, or improvement of any of these
-Protection- 20 years
Why? Provides protection for owner, can license/ receive royalties, provides
valuable information and inspiration for further research and innovation
-Details disclosed to the public after 18 months
Business Influence over Government
Lobbyists
-Hired to represent company’s/ groups interest with the government officials
-Lobbying act: must register and follow rules
-Trade associations: small businesses/ individuals join and lobby as an industry
lobby group
Collaboration with government/ decision input
-CRTC consults with industry members
Advertising
-Corporations influence voters
Forms of Business Ownership
-Traditional Ownership:
-Sole Proprietorship
-Partnership
-Corporation
-Public vs. Private Corporations
-Other Forms: Co-operatives
-An organization that is formed to benefit its owners in the form of reduced
prices and/or distribution of surpluses at year-end
-Forms of ownership will likely change over life of business
Sole Proprietorship
-Owned and operated by one person who is responsible for all of its debts?
-Business and owner= one legal entity
-Important to understand in the eyes of the law the business and the owner are
considered one legal entity, no distinction
-Government supports and gives lots of free advice to new businesses
-If business is experiencing losses and gets sued they can come after personal assets
since no distinction between personal and business
-Difficult to evaluate and determine the value of the business
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Partnership
-Two or more owners
-Business with two of more owners who share in the operation of the firm and in
financial responsibility for the firms debts
-Business & Owners= one legal entity
-Government gives lots of support and advice
-Now you have two people to get opinions and bring money
-Slightly easier to borrow money
-Hard to transfer partnership, difficult to calculate and hard to find a new partner
Types of Partnership:
General Partnership:
-Al partners have joint and several liabilities for the obligations of the business
-Joint Liability: Together share liability
-Several liabilities: one may be liable for all
Limited Partnership
-Limited partners liability= investment
-A type of partnership with at least one general partner (who has unlimited liability)
and one or more limited partners. The limited partners cannot participate in the
day-to-day management of the business or they risk the loss of their limited liability
status
-Cannot lose more money then what you invested
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-Do not have unlimited liabilities
-Limited partners cannot be active in management
-At leas one general partner
Corporations
-A business considered by the law to be a legal entity separate from its owners with
many of the legal rights and privileges of a person; a form of business organization
in which the liability of the owners is limited to their investment in the firm
-Separate entity from owners (shareholders)
-Types:
-Public, Starts with IPO
-Private
-Crown
-Interests represent by Board of Directors
-Inside directors
-Outside directors
Private Corporation
-Shares not publicly traded, <50 shareholders, owners & business= separate entities
-A business whose stock is held by a small group of individuals and is not usually
available for sale to the general public
-In theory have limited liability since it is limited to anything you put into the
business
-If you put personal assets into the business then you can lose those
Public Corporation
-A business whose stock is widely held and available for sale to the general public
-Several owners, share publicly available, business& owners= separate entities
Advantages:
-Can not come after you for private assets, limited liability
29
-Never lose anything more than your investment
-Just because owners change does not change the business, does not matter who
the owners are
-Incredibly easy to transfer ownership
-Go to the stock exchange and sell your stocks
-Easy to raise money since you have stocks, bonds and have access to the public
since you are already big
-If you are a big company is easier to get bigger
-Unlimited share holders
Disadvantages
-Profits get taxed once
-Most costly form of ownership
-Complicated
-Make sure shareholders are protected
-Lots of rules to financial disclosures
-Lack of secrecy
Globalization
-Single interdependent system
-Selling it in another market other then the domestic market
-Globalization is a result of increasing trade agreements
Forces:
-Greater awareness of benefits
-Technology makes it easier, faster, cheaper
-Competitive pressure
Forms of Competitive Advantage
Absolute Advantage
-Cheaper/ better then other countries
-National Level: when you produce better or cheaper than anyone else in the world
30
Comparative Advantage
-Better then other goods; lower opportunity cost
-What does the country have an advantage in, what are they more productive at in
comparison to other countries
-Makes sense to produce in what you have a comparative advantage in and then buy
what you’re not as good at producing
National Competitive Advantage
-Need all 4 to have comparative advantage
Considerations in Going International
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-First step: environment
-Second step: Social factor
-Third Step: economic factor
-Fourth Step: Diamond E Capabilities
-If yes to all the above considerations, go international
-If no then stay domestic
Barriers to International Trade
Social and Cultural Differences
-Adapting to customer needs
-Is the kind of product you’re offering something people around the world would
want?
-Language barriers
-If firms do not understand cultural differences in foreign market they will not be
successful
-Knowledge of local dos and don’ts is important in international business activity
Economic Differences
-Exchange rates
-Comparison to Canadian dollars
Legal and Political Differences
-Quotas, tariffs, subsidies
-Quota: number of products that can be exported into a particular market
-Once the quota is met product isn’t allowed or taxed at a higher rate
-Tariffs: tax put on the import to make the import more expensive
-Subsidies: a government payment to help domestic business compete with
foreign firms
-Make it difficult for foreign companies to compete and make import
products more expensive
-Protectionism
-Any action or policy the government takes to protect local firms
-Protecting domestic business at the expense of free market competition
-Local Content Laws
-Laws requiring that products sold in a particular country be at least partly
made in that country
-What percentage of domestic products needs to be produced from Canadian
sources?
-Business Practice Laws: cartel and dumping
-Most cartels not legal decide where they set the price and control quantity
off output
-Cartel: any association of producers whose purpose is to control supply of
and prices for a given product
-Dumping: Selling a product for less abroad than in the producing nation
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Overcoming Trade Barriers
-Government support through free trade treaties
-GATT, WTO, EU, NAFTA, TPP
-Employing firm strategies for next market entry
-Government work actively to open their markets up
-Have to open the door to your market for open countries to open their doors to
their markets
Firms Strategies for Entering Foreign Markets
Alliances with local firms- overcome S, E but will the partnership work?
-Company finds a partner in a foreign country where it would like to conduct
business
-Each party agrees to invest resources and capital in a new business
-Help with local barriers and exchange rate problems
-Help you be on the inside
-Benefit from partners knowledge and they are familiar with the rules and the laws
Establishment of foreign subsidiaries (buy or build)
-Buying or establishing tangible assets in other countries
-Overcome E and P (if allowed)
-Do you know social factors?
-Risky
-Do you know the social context well enough?
-Big investment
-Manufacturing operations there, going in completely alone
-Costs a lot of money and have to know a lot stuff to be able to be successful
-Overcome tariffs, duties, and exchange rates but do you know enough about that
market to be successful
-Establishing an entire company
Branch Offices
-A location that an exporting firm establishes in a foreign country to sell its
products
More efficiently
-Low risk; marketing control; overcome S?
-Doesn't help with P or E since you are exporting
-Compromise: manufacture in domestic market but set up sales office in foreign
market and send employees to develop distribution network, and you just export
product
-Complete control over marketing
-If employees aren't familiar with foreign market might not overcome these barriers
-All setting up is the sales office
Local Agents - marketing know how (overcome S) & low risk but oddest help
-Is a foreign individual or organization that agrees to represent an exporters
interest in foreign markets
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-Hire local people to run the company
-Local experts
-Renting out the capabilities from local employees
-Doesn’t have with exchange rate and doesn't help with quotas and duties
Licensing- overcome S, E, P, but lower marketing control
-Agreement in which firms choose foreign individual or organizations to
Manufacture or market their products in another country
-Someone can undermine your brand
-Benefit as already familiar with the given market and will produce things that will
sell in the foreign market
-Overcome exchange rate, tariffs, duties, quotas,
-Don’t have to set up own subsidiary
-Damage could occur as you loss marketing control, as you don't know that the
manufacturer won’t undermine the quality of products you produce
Critical Success Factors
Acheiving
Finanical
Performance
Creating a
Distinctive
Competitive
Advantage
Meeting
customers
Needs
Fostering
Employee
Comitemnt
Buidling
Quality
products
and sercies
Encoruaging
Innovation
and
Creativity
Diamond-E Framework
34
Porters Five Forces
35
36
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