1-3 THE CONTRIBUTIONS OF BUSINESS BUSINESS MANAGEMENT PAVONE BUSINESS GROWTH AND PROSPERITY GROSS DOMESTIC PRODUCT • Gross Domestic Product (GDP) – The chief measure of a nations economic wealth; it is the total market value of all goods and services produced in a country in a year. • Underground Economy – Income that escapes being recorded in the GDP (drugs, counterfeit merchandise, etc). • The European Union maintains the highest GDP in the world, slightly ahead of the United States. GROSS DOMESTIC PRODUCT Countries with the Largest GDPs World $78,280,000,000,000 1 European Union $18,240,000,000,000 2 United States $17,420,000,000,000 3 China $10,380,000,000,000 4 Japan $4,616,000,000,000 5 Germany $3,860,000,000,000 6 United Kingdom $2,945,000,000,000 7 France $2,847,000,000,000 8 Brazil $2,353,000,000,000 9 Italy $2,148,000,000,000 10 India $2,050,000,000,000 INDIVIDUAL WELL-BEING • Next measure of a nations wealth is individual well-being of its citizens; GDP gives overall picture of economy but not economic worth of individuals. • With increased income, an average family improves its level of living, with luxuries that were not available years ago. • Americans also spend money on self-improvement and lifeenrichment. • Overall, Americans have done well financially compared to other countries, but economic and social problems still exist. BUSINESS OWNERSHIP POPULARITY OF SMALL BUSINESS • Entrepreneur – Someone who starts, manages, and owns a business. • Almost anyone can start a new business, with little money needed to start, also with little or no space needed to start. • Small business is a company owned by one or more individuals; they account for more than half of employment in this country and can offer high-paying jobs. • Many small businesses are one-person or family operations, such as restaurants, gift shops, bakeries or online companies. • Most large businesses begin as small businesses (for instanceSubway, Kinko’s, etc). GROWTH OF FRANCHISE BUSINESS • Franchise – A Legal agreement in which an individual or small group of investors purchases the right to sell a company’s product or service under the company’s trademark. • Franchisor – Parent company of a franchise agreement that provides the product or service. • Franchisee – Distributor of a franchised product or service. • In a franchise agreement, a franchisee pays an initial fee to the franchisor and a percentage of sales; typically failure rate is much less for franchised businesses. • Prospective franchisees need to be careful when looking into purchasing a franchise. • Franchises have grown steadily and now account for about 5 percent of businesses. RISKS OF OWNERSHIP • Success of a business is greatly dependent on managerial effectiveness in order to turn a profit. • Risk, the possibility of failure, is faced by all businesses and derives from competition, price changes, price style and economic conditions. • One out of every four to five businesses fail within the first three years, half cease operations within six to seven years. • Economic Causes • Finance Causes • Disaster and Fraud • Neglect Causes • Strategy Causes • Experience Causes OBLIGATIONS OF OWNERSHIP • Businesses have responsibility to their business community in which they operate; their failure can create a loss for other businesses. • Successful businesses also have economic and social responsibilities, such as to their customers, employees, management, competitors, investors and the public. • The community also has obligations to businesses, such as awareness of turning a profit, realization of prices of goods and services are affected by expenses and awareness that businesses cannot provide jobs unless a worker is trained and motivated to work. INTRAPRENEURSHIP • Intrapreneur – An employee who is given funds and freedom to create a special unit or department within a company in order to develop a new product, process or service. • Employers give their employees the power to be creative and work independently in order to provide the company with innovative products and services, without creating a financial risk for the employees. • Businesses have found ways in which they can profit share or give partial ownership to their employees through profit sharing and company stock purchasing in order to obtain funding by their own employees. STUDYING BUSINESS PRINCIPLES AND MANAGEMENT • People obtain great benefit from understanding the production, marketing and financial activities of a business; as an owner, it is important to have a full understanding of a business operation, employee relations and government regulations.