Introduction to Business
BUS& 101
Olympic College
Professor: Alan M. Ward
Chapter 1
Managing within the Dynamic
Business Environment:
Taking Risks & Making Profits
Chapter 1 – Learning Goals
1. 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 Decisions
by Andy Andrews
1.
2.
3.
4.
5.
6.
7.
The Buck Stops Here.
Seek Wisdom: Let other help guide you.
I am a person of action.
I have a decided heart.
Today, I will choose to be happy.
I will greet each day with a forgiving spirit.
I will persist without exception.
Business & Entrepreneurship:
Revenues, Profits & Losses
The Profit Table: A Way to do Marginal Analysis
Revenue:
- Cost
Example 1_
$1,000,0000
Example 2_
$2 billion
$900,000
$2.1 billion
=====================================================================
Profit/Loss
$100,000
-$100,000
Matching Risk with Profit
Types of Risks:
Political
Credit
Inflation
Liquidity
Principal
Reinvestment
Price
Interest Rate
Currency
Sector
Legislative
Call
Default
Market
http://www.uwf.edu/rconstand/5994content2003/T4-RiskReturn/T4riskreturnP02.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
Customers
Surrounding Community
Government Leaders
Environmentalists
Bankers
Suppliers
Employees
Dealers
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 money
Run their own enterprise (be the boss/decisionmaker; to do it their way.)
Freedom from …
or to…
Control their time and pay
Leave a legacy
Reach a personal/financial goal
How they get started
Business Owners Must:
Understand their business/competition
Understand their market/potential customers
a good reputation and quality service is valuable
Understand the cost/commitment of success
Understand that serving more people earns them more
money & builds their business
Everyone has the same amount of time: 24/7/365
Profit is what allows you to stay in business
Business in Nonprofits
(and for Profit Business)
Setting Goals & Dividing Responsibilities
Worker Relations
Public Good Will: Stakeholders
Resource Management
Growth of Organization
Decisions & 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?
Entrepreneurship
Working 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 Entrepreneurs
to the Creation of Wealth
Factors of Production: C.E.L.L. + K.I.T.
1) Land
2) Labor
3) Entrepreneurship
4) Capital
*Knowledge, Innovation, Technology
Global Business Environment
Economic & Legal Environment
Technological Environment
Competitive Environment
Social Environment
Technology
Productive Capacity
Effective use of Factors of Production
Efficient use of Factors of Production
Productivity: per worker hour
Specialization & Division of Labor
Growth of E-commerce
Advertising
Product Sales
Customer Service
Electronic Databases
Issue: Identity theft
SSN & CC#
Competitive Environment
Monopoly: one firm controls supply & price
Oligopoly: few firms compete for market share
price & 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 Satisfaction
Customer Orientation
Profit Orientation
Reactive Ethics
Product Orientation
Managerial Focus
Delighting the Customer
Customer & Stakeholder
Orientation
Profit & Social Orientation
Proactive Ethics
Quality & Service
Orientation
Customer Focus
Social Environment
Baby Boomers 1946-64
Gerber & Disposable Diapers
Mattel & Hasbro 1950-60s
Boomer Echo 1971-89
Schwinn
1960s
Cars & Homes
1970-80s
Investments
Retirement
1990s
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 Term
A. Company Retirement Plan:
401(k); 403(b)
B. IRAs: Individual Retirement Account
Roth; Traditional
C. Changes in Social Security: make your
contributions your money not the
governments to spend.
Maturing of American Business
Subsistence Economy
Community Development
Specialization & Division of Labor
Agricultural & Natural Resource Economy
Development of Industry: The Industrial
Revolution
Growth of the Services Industry
Information Industry
Your Future in Business
Getting Work Experience
Getting Specialized Training
Developing Positive Work Ethics & People Skills
Find something you like doing that pays well
Multiple Streams of Income
Residual 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 & oral
forms: informing, persuading, technical
B. Math & computer skills for collecting,
organizing, analyzing & displaying data
C. Management skills: recruiting, training &
team building
Knowledge 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 theft
loss nonprofit organization outsourcing productivity profit quality of life
revenue 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
$20,000
Avg. income
Chinese Taipei
$13,010
Avg. income
North Korea
<$1,000
China
<$1,000
What are Economic Conditions?
High
Unemployment
Low
Inflation
Taxes
International Trade
Government Regulation
Workforce Skills
Capital
Money & 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
study aggregates
whole economy
Microeconomics
individuals & firms
choices & behavior
Adam Smith
The Economics of Growth – The Wealth of
Nations, 1776
Private ownership of land (resources)
Keep profits from business or labor
Incentives of wealth for providing goods &
services to others
Making 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 & firms
not 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 Decide
Consumers Decide
what to produce
how to make it
where to sell
what price to set
what services to
offer
what to buy
when to buy
how much to buy
how to finance
who to buy it from
How price is set
Supply Curve
Demand Curve
Price
S
Pe
Qe
D
Quantity
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 share
price & 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
responsibility
honesty
fair return
reputation
societal norms
External regulation
accountability
contractual duty
maximize profit
wealth
legal norms
Free Market
Benefits
quality
fair price
good service
incentive to work
Disadvantages
income inequality
class politics
greed/short term
capture theory
Benefits & Limitation
of Free Markets
Benefits:
Limitations:
Competition between
firms; efficiency &
customer service
Wealth inequality
Opportunity for the have
not to become the
haves
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 government
steel 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:
Limitations:
Free Health Care &
Education (through
college)
Extremely high tax rates
Redistribution of Wealth
Greater income equality
Why do so many Eurpoean
nations have a monarchy?
Are power elite groups
found in Socialist countries?
Economic disincentive
The “Brain Drain”
Emigration to find more
opportunity & freedom
Unsustainable System
Communism
Most resources & firms owned by government
Decisions 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
Capitalism
Mixed
Economies
Personal
Freedom
Communism
Socialism
Governmental
Control
Economic System of U.S.
Key Economic Indicators:
GDP = Gross Domestic Product
Real GDP; Per Capita Real GDP
Purchasing Power Parity
Unemployment Rate
Inflation/Deflation:
Price Indexes; CPI, PPI, WPI, PCE
Productivity
The Business Cycle
The ups & downs of the economy
worst = depression = 6+ quarters of decline
in GDP
Poor = recession = 2 to 6 quarters of decline
in GDP
Recovery = GDP growth < 5% or so
Boom = GDP growth > 5%
Stabilizing the Economy
Fiscal Policy: government actions to stimulate
or slow the economy; Tax/Spend
Balanced 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 Rate
The Money Supply: increase or decrease
Read pages 52-54
Check Vocabulary Terms:
brain drain business cycles capitalism command economies communism CPI deflation
demand depression disinflation economics fiscal policy free-market economies GDP
inflation invisible hand macroeconomics market price microeconomics mixed economies
monetary 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
South America
Africa
Europe
Australia
Asia
7.9%
12.5%
5.6%
12.7%
12.5%
0.5%
60.8%
Economy Types
Subsistence Level Economy
Gathering basic needs
Hunting
Fishing
Foraging
Self-sufficient farming
Agricultural Economy
Farming dominates economy
Excess harvest traded
Next year’s seed kept
Food supply allows time for other pursuits
Planning/Building
Leisure time/Recreation/Travel
Prosperity & Release of excess labor
Industrial Economy
Absorbs former agricultural labor
Innovation and invention leads to new
products
Growth & diversity of opportunities/job
Need for labor & raw materials
Development of transportation &
communication
Educational system developed
Services Industry
Financial
Communication
Legal
Entertainment
Education Options
Repair/Maintenance
Transportation
Health/Medicine
Rental 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 Advantage
Comparative Advantage
Skills and/or resources
A skill or resource could
of one group give it an
be used to give an
advantage.
advantage, but to do so
a more productive
If the president of a firm
activity may be lost.
could out type all the
typists, he would have Should the firm’s
an absolute advantage
president type all
in this skill.
company letters?
What Product & Services
are a Good Fit?
Canada
Europe
South America
Africa
Australia
Asia
Balance of Trade & Payments
Trade Deficit
import > exports
Trade Surplus
exports > imports
Balance of Payments
Foreign Investment
$I > $E
$E < $I
Holding $$$ 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 Trading
in Global Markets
Sociocultural Forces
Economic & Financial Forces
Legal & Regulatory Forces
Physical & Environmental Forces
Unions, Tariffs & Protectionism
American Steel
Dominance
Foreign Competition
Dumping
Protectionism
Innovation &
Revival of the US Steel Industry
WTO = World Trade Organization
1948 – 23 nations: GATT formed reduce trade
restrictions
1986 – 124 nations: the Uruguay Round
modified GATT
1994 – US Congress approved; Avg 38% drop in
tariffs
Common Markets
Trading Bloc
external tariffs
no internal tariffs
EU
South American Common Market
or Mercosur
NAFTA
Eliminate trade barriers
Promote conditions of fair competition
Increase investment opportunities
Protect and enforce intellectual property rights
Establish framework for further cooperation
Improve working conditions
Results of NAFTA
Predicted US Job Loss
Capital leaving the US
New markets for US goods
Create 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 Cycles
3-5 yr
7-9 yrs
longer cycles
13-15 yr
Cycles affect how resources get to businesses.
Productivity
Effective & Efficient use of time, labor &
resources = CELL
C
E
L
L
= Capital: physical & human
= Entrepreneurship
= Land (resources)
= Labor
Quintiles of Income per year
Q1
Q2
Q3
Q4
Q5
LOWEST 20%
Lower middle 20%
MIDDLE 20%
Upper middle 20%
HIGHEST 20%
Top 1%
>$300,000
< $22,000
$22k-40k
$40k-67k
$67k-100k
>$100k
Chapter 4
Demonstrating Ethical Behavior
&
Social Responsibility
If only…
I knew the consequences of my actions before
I 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 Us
1.
Is it legal?
Setting Corporate Ethical Standards
2.
Is it balanced? (fairness)
IMSA = Insurance Marketplace Standards Association
IMSA 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
Integrity
Conform to outside standards
Conform to outside standards &
Chosen Internal Standards
Laws & Regulations
Avoid Criminal misconduct
Lawyers lead compliance
Methods: Education, reduced
employee discretion, controls
& penalties
Enable responsible employee
conduct
Manager lead compliance with aid
from lawyers and others
Education, leadership, accountability,
decision processes, controls &
penalties
Whistle-blowers
Phone lines to report compliance violations or
suspected infractions or customer complaints.
2002 – Sarbanes-Oxley Act
Corporate & 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 Responsibility
Corporate Social Initiatives
Corporate Policy
To Customer
Quality product (Lemon Laws)
Trial possession (Autos)
Return policy
Recalls & quick solutions
Service (Customer-friendly)
To Investors
Profit and profit-sharing
Ethical behavior
Firm’s financial report gives investors information
Must be accurate & timely
Insider Trading: Illegal
Fair Disclosure to all, not just a few, at the same time.
To Employees
Job creation
Growth of firm
People need to see that
integrity, hard work, goodwill, ingenuity & talent pay off
Salaries & benefits
Work environment: Safe, Pleasant, Positive
Being treated fairly
leaders lead rather than manage
Business relations become a dialogue, not a monologue
reduces confrontations and animosity between
management & workers
To Society & Environment
Create new wealth
1/3 of American worker receive salaries from
nonprofit organizations
receive funding from business:
directly or indirectly
Community Volunteers & Foundations
How business is done: Environmental Safe
chemicals, processes, waste management
resource management
Social Auditing
Evaluating the firm as a system
progress toward implementing socially responsible
program & responsiveness to social concerns
Socially conscious investors
Environmentalists
Union officials
Customers
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 Image
developing a common inspection system with
other firms.