Chapter 1 The Changing Face of Business What Is Business? Definitions: A business is an organized economic economic activity that involves the exchange, purchase, sale, or creation of goods and services with the goal of profit. The term business also refers to the efforts and activities undertaken by individuals to produce and sell goods and services for profit. Businesses can be for-profit entities or non-profit organizations fulfilling a charitable mission or furthering a social cause. Businesses range in scale and scope from sole proprietorships to large, international corporations. Objective of The Business: The business objective is what makes the business go on and conduct its activities in a long run. It is the reason why the business exists. While most of the people argue that profit making is the core objective of every business. Few have come up with the new underlying objective. According to the traditional concept, business exists only to earn profits by providing the goods and services to the customers.According to the modern concept, the underlying objective of every business is customer satisfaction as this is what results in most profits. If the customer is satisfied, business excels. Profits is the rewards earned by businesspeople who take the risks involved in blending people, technology, and information to create and market want-satisfying goods and services. A business may have different goals depending on its financial standing, products, industry, etc. However, generally, we can categorize business objectives in four different ways. Economic Objectives basically depend on the financial needs of any business entity. Economic objectives may include growth, profits, survival, etc. Human Objectives generally target the business employees, their needs, personal growth, security, satisfaction, motivation, etc. Organic Objectives include anything and everything that focuses on business improvement. Common examples include improving brand reputation, strengthening the business, raising capital, innovation, growth, etc. Social Objectives include everything that focuses on the betterment of society. Social objectives may include fair price policy, customer satisfaction, quality products, charities, fair employment practices, fair trade practices, environmental protection, etc. Types Of Business Businesses can be classified into but are not limited to 4 types. Manufacturing: Manufacturing businesses are the producers who develop the product and sell it either directly to the customer or the middlemen to conduct sales. Examples of manufacturing businesses are steel factories, plastic factories, etc. Service: This type of business deals in selling intangible goods to the consumers. Unlike tangible goods, services cannot be stored or separated from the provider. Service firms offer professional services, expertise, commission-based promotions, etc. Examples include salons, schools, consultancy etc. Merchandising: Merchandizing is a type of business in which the seller/business sells tangible products to the customers/consumers. In simple words, merchandising is basically a retail business where the seller buys products directly from manufacturers or wholesalers and then sells them to consumers at a higher price (retail price). Common examples include Walmart, Amazon, etc. Examples of a merchandising business are grocery stores, supermarkets, distributors etc. Hybrid: Hybrid businesses have the characteristics of two or more types of businesses explained above. For example, a restaurant develops its own dishes (manufacturing), sells the products like cold drinks which are manufactured by other businesses (merchandising), and provide service to the customers (service). Forms of Business Ownership(organizations) Business ownership comes in many forms based on the number of owners, the liability of the owners, representation, and motives. Sole Proprietorship: Sole proprietorship is a business owned and operated by a single individual. It is easy to set-up, operate, and register. All the profits of the business belong to the owner and he’s also liable for all the liabilities incurred. Partnership: When two or more persons join hands to run a business, they usually come into partnership. Partnerships come in two forms – general and limited. A general partnership is like sole proprietorship but with more than one owner where all the owners face unlimited liability. In limited partnerships, some or all of the partners have limited liability. Corporation : A corporation is a business which has a separate legal identity from the people who own or run it. Ownership is usually represented in the form of shares of the stock. Owners enjoy limited liability but are not necessarily involved in running the business. The business is operated by a group (board of directors) elected by the shareholders. Limited Liability Company(LLC): A limited liability company is a hybrid form of business which has characteristics of both a corporation and a partnership. A partnership because it is not incorporated and a corporation because all of the partners/owners enjoy limited liability. Business Sizes Small Businesses: Small owner-operated companies are called small businesses. Commonly managed by one person or a small group of people with less than 100 employees, these companies include family restaurants, home-based companies, clothing, books, and publishing companies, and small manufacturers. Mid-Sized Enterprises: There is no definitive specification to define a mid-sized or medium-sized company. However, when large U.S. cities such as Philadelphia, Baltimore, and Boston evaluate the landscape of operating businesses, a medium-sized company is defined as one with 100 to 249 employees or $10 million to less than $1 billion in annual gross sales. Large Businesses: Large businesses commonly have 250 or more employees and garner more than $1 billion in gross receipts. They may issue corporate stock to finance operations as a publiclytraded company. Large enterprises may be based in one country with international operations. They are often organized by departments, such as human resources, finance, marketing, sales, and research and development. What Are Factors of Production? Factors of production are the inputs needed for creating a good or service, and the factors of production include land, labor, entrepreneurship, and capital. Those who control the factors of production often enjoy the greatest wealth in a society. In capitalism, the factors of production are most often controlled by business owners and investors. In socialist systems, the government (or community) often exerts greater control over the factors of production. How Factors of Production Work The modern definition of factors of production is primarily derived from a neoclassical view of economics. The concept of labor as a factor of production from socialism, into a single definition. Land, labor, and capital as factors of production were originally identified by early political economists such as Adam Smith, David Ricardo, and Karl Marx. Today, capital and labor remain the two primary inputs for processes and profits. There are four factors of production—land, labor, capital, and entrepreneurship. Land As a Factor Land has a broad definition as a factor of production and can take on various forms, from agricultural land to commercial real estate to the resources available from a particular piece of land. Natural resources, such as oil and gold, can be extracted and refined for human consumption from the land. Cultivation of crops on land by farmers increases its value and utility. For a group of early French economists called “the physiocrats,” who predated the classical political economists, land was responsible for generating economic value. While land is an essential component of most ventures, its importance can diminish or increase based on industry. For example, a technology company can easily begin operations with zero investment in land. On the other hand, land is the most significant investment for a real estate venture. Labor As a Factor: Labor refers to the effort expended by an individual to bring a product or service to the market. Again, it can take on various forms. For example, the construction worker at a hotel site is part of labor, as is the waiter who serves guests or the receptionist who enrolls them into the hotel. Even an artist involved in making art. For the early political economists, labor was the primary driver of economic value. Production workers are paid for their time and effort in wages that depend on their skill and training. Labor by an uneducated and untrained worker is typically paid at low prices. Skilled and trained workers are called “human capital” and are paid higher wages because they bring more than their physical capacity to the task. Capital As a Factor: In economics, capital typically refers to money. However, money is not a factor of production because it is not directly involved in producing a good or service. Instead, it facilitates the processes used in production by enabling entrepreneurs and company owners to purchase capital goods or land or to pay wages. For modern mainstream (neoclassical) economists, capital is the primary driver of value. It is important to distinguish personal and private capital in factors of production. A personal vehicle used to transport family is not considered a capital good, but a commercial vehicle used expressly for official purposes is. During an economic contraction or when they suffer losses, companies cut back on capital expenditure to ensure profits. However, during periods of economic expansion, they invest in new machinery and equipment to bring new products to market. Entrepreneurship As a Factor: Entrepreneurship is the secret sauce that combines all the other factors of production into a product or service for the consumer market. An example of entrepreneurship is the evolution of the social media Meta (META), formerly Facebook. Mark Zuckerberg assumed the risk for the success or failure of his social media network when he began allocating time from his daily schedule toward that activity. When he coded the minimum viable product himself, Zuckerberg’s labor was the only factor of production. After Facebook, the social media site, became popular and spread across campuses, it realized it needed to recruit additional employees. He hired two people, an engineer (Dustin Moskovitz) and a spokesperson (Chris Hughes), who both allocated hours to the project, meaning that their invested time became a factor of production. The continued popularity of the product meant that Zuckerberg also had to scale technology and operations. He raised venture capital money to rent office space, hire more employees, and purchase additional server space for development. At first, there was no need for land. However, as business continued to grow, Meta built its own office space and data centers. Each of these requires significant real estate and capital investments. Technology and the Entrepreneur: Goods and services are produced using the factors of production available to the economy. Two things play a crucial role in putting these factors of production to work. The first is technology, the knowledge that can be applied to the production of goods and services. The second is an individual who plays a key role in a market economy, the entrepreneur. An entrepreneur is a person who, operating within the context of a market economy, seeks to earn profits by finding new ways to organize factors of production. In non-market economies the role of the entrepreneur is played by bureaucrats and other decision makers who respond to incentives other than profit to guide their choices about resource allocation decisions. The interplay of entrepreneurs and technology affects all our lives. Entrepreneurs put new technologies to work every day, changing the way factors of production are used. Farmers and factory workers, engineers and electricians, technicians and teachers all work differently than they did just a few years ago, using new technologies introduced by entrepreneurs.The book you are reading was written and manufactured using technologies that did not exist ten years ago.What we cannot dispute is that they have made our lives different.
