Transcript UNITED STATES GDP

CHAPTER
CHARACTERISTICS
OF BUSINESS
1
OBJECTIVES
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Explain the general types and changing nature of
businesses.
Describe how global competition has affected the way
American businesses operate.
Show how businesses have grown and improved the
economic well-being of people.
Discuss the role and nature of entrepreneurship and the
opportunities, problems, and obligations of small
businesses.
Summarize the value of plans that allow employees to
function like entrepreneurs inside businesses.
Explain the importance of studying business principles and
management.
NATURE
OF BUSINESS
Business
 An organization that produces or
distributes a good or service for profit
Profit
 The difference between earned income
and costs
Income – Costs = Profit
NATURE
OF BUSINESS
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3 Business Activities
1. Production
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Making a product or providing a service
 Manufacturing – produce good
 Service Firms – provide assistance to satisfy specialized
needs
2. Marketing
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Deals with how goods or services are exchanged
between producers and consumers
3. Finance
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Deals with all the money matters related to running a
business
NATURE
OF BUSINESS
 Supply
 The number of similar products that will
be offered for sale at a particular time
and at a particular price
 Demand
 The number of similar products that will
be bought at a given time at a given
price
Supply vs. Demand
Supply
Demand
Price will decrease
Demand
Supply
Price will increase
Types of Businesses
 2 major types of businesses
 Industrial businesses
 Produce goods used by other businesses or
organizations to make things
 Highly Industrial – US, Japan, Germany
 Third World Nation – Usually poor and few
manufacturing firms (Peru, Chile, Nigeria, Pakistan)
 Commercial businesses
 Engage in marketing (wholesalers and retailers), in
finance (banks and investment companies), and in
services (medical offices or motels)
Types of Businesses
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Services
 Intangible products that use mostly labor to satisfy consumer
needs (mowing the lawn)
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Industry
 Refers to all businesses within a category
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What Industry?
 Produces and sells books, magazines, newspapers, and other
printed documents?
 Publishing Industry
 Produces services such as fire and police protection
 Government (include all services provided by local, state, and federal
governments)
 Provides sporting events, live theater, movies, night clubs,
concerts, and casinos
 Entertainment Industry
Service or Manufacturing?
 A watch repair shop
 Service
 Jewelry made by a group of Native
Americans
 Manufacturing
 Someone who mows lawns, shovels snow,
and removes fallen trees
 Service
 A shop that makes minute timers
 Manufacturing
Changing Nature of Business
 Businesses are constantly changing
 Must be able to react quickly to change
 Innovations affect the kinds of products and
services offered for sale
 Clothes (natural vs. synthetic fibers)
 Innovations also affect business operations
 Computers
 Internet Sales
IMPACT OF GLOBAL
COMPETITION ON BUSINESS
 Focusing on the right things
 Achieving effectiveness
 Achieving efficiency
 Specialization
 Technology and innovation
 Reorganization
IMPACT OF GLOBAL
COMPETITION ON BUSINESS
 Americans have led the way
 Consumers purchased new products that were
invented in the US
 Workers from other countries came by the
thousands to find jobs
 Over the last 30 years, other countries have become
more industrialized
 Americans now purchase foreign products
 Excellent products in greater varieties at lower prices
 Global Competition
 The ability of profit-making organizations to compete with
businesses in other countries
Focusing on the right things
 Effectiveness
 Making the right decisions about what products
or services to offer customers and how to
produce and deliver them
 Efficiency
 Producing needed goods or services quickly and
at low cost
 Goal = provide products at the lowest cost
will maintaining quality
 Good managers focus on BOTH
 Effectiveness – Doing the right things
 Efficiency – Doing the right things well
Achieving Effectiveness
 Focus attention on customers’ needs
 Choices have increased because of competition
among domestic and foreign firms
 Domestic Firm
 Products made by firms in the US
 Foreign Firm
 Products made by firms in other countries
 Provide excellent customer service
 Companies spend millions of dollars researching
customers’ preferences
 Keeping customers satisfied after the sale =
customer loyalty
Achieving Effectiveness
 Offer high-quality goods and services
 New designs, different shapes and colors,
readable instructions, and simplicity of products
 Americans learned quality lessons from the
Japanese (cars)
 Total Quality Management (TQM)
 Commitment to excellence that is accomplished
by teamwork and continual improvement
 Receive a great deal of training from experts
 Result = well-made products
Achieving Efficiency
 Must produce the products efficiently
(measured by output)
 Output
 The quantity produces within a given time
 Productivity
 Refers to producing the largest quantity in
the least amount of time by using efficient
methods and modern equipment
Output per Hour
PRODUCTIVITY
PER WORKER (page 9)
120
105
90
75
60
45
30
15
0
1980
USA
France
1985
Germany
1990
Japan
Canada
1996
England
Achieving Efficiency
 3 ways Efficiency can be achieved
1. Specialization of effort
2. Better technology and innovation
3. Reorganization
1. Specialization
 Workers become an expert at their assigned
task (car mechanics)
 Improves quality while increasing the amount
produced
 Mass production
 The use of up-to-date equipment and assembly
line methods to produce large quantities of
identical goods
 The cost decreases
2. Technology & Innovation
 Advances in technology
 Businesses spend billions of dollars
annually on inventing, buying, and
using new technology
 Innovation
 Refers to the development of new ideas,
products, and processes that contribute to
satisfying customers
3. Reorganization (most difficult)
 Downsize
 Cutting back on the goods and services provided
and the number of employees needed to produce
them
 Employees are the most important resource
 Empowerment
 Letting workers decide how to perform their work
tasks and offer ideas on how to improve the work
process
 Quality of work improved
 Fewer managers needed
 If a student was fastest to finish an
exam but received the lowest grade,
would you say the student was
1.
2.
3.
4.
Effective and efficient
Effective but inefficient
Ineffective but efficient
Ineffective and inefficient
 Answer 3
BUSINESS GROWTH
AND PROSPERITY
 Gross domestic product (GDP)
 Underground economy
 Individual well-being
GDP
 GDP (Gross Domestic Product)
 The total market value of all goods and
services produced in a country in a year
 Measures a nation’s economic wealth
 Underground Economy
 Income that is not recorded in the GDP
 Illegal activities – drugs
 A student babysitting
UNITED STATES
GROSS DOMESTIC PRODUCT
Trillions of Dollars
10
8
6
4
5.8
6.3
7.1
7.8
8.8
4.7
2
0
1987
1990
1992
1994
1996
1998
Individual Well-Being
 Another measure of the nation’s wealth
 Economic wealth of individuals
 Average yearly family income
 More than $42,000
 Male with no high school diploma
 $16,000
 Male with a high school diploma
 $25,000
 College graduate
 More than $39,000
INDIVIDUAL WELL-BEING
Percentage of U.S. Households
Owning Selected Items
35.0%
Personal Computers
58.4%
Answering Machines
61.4%
Cordless Phones
77.4%
Clothes Washers
83.0%
Microwave Ovens
Color Televisions
99.8%
Refrigerators
99.9%
0%
20%
40%
60%
80%
100%
ENTREPRENEURSHIP
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Popularity of small business
Growth of small business
Growth of franchise business
Risks of ownership
Obligations of ownership
Entrepreneur
 Someone who starts, manages, and
owns a business
 2 reasons for business growth
1. Individuals want to own their own
business
2. The ease in which a business can be
started
Popularity of Small Business
 Small Business
 A business that is operated by one or a
few individuals
Growth of Franchise Business
 Franchise
 Legal agreement in which a distributor buys the
right to sell the franchising company’s product or
service under the company’s name and
trademark
 2 parties:
 Franchisor – the parent company of a franchise
agreement that provides the product or service
 Franchisee – the distributor of a franchised
product or service
Franchise (cont)
 Franchisee pays initial fee
 Pays 3-8% of weekly sales
 Get exclusive rights to sell the franchised
product/service
 Get special training and advice
 Failure rate = 5-10% (much lower than nonfranchised businesses)
 12% of all businesses are franchises
 Greatest # of franchises are in auto/truck
dealerships and gasoline stations
Risk of Ownership
 Success – depends on managerial effectiveness
 Risk – the possibility of failure
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Competition from businesses
Changes in prices
Changes in style
Competition from new products
Changes in economic conditions
 1 out of every 4 to 5 fail within 3 years
 About half cease in 6-7 years
 This includes businesses that voluntarily go out of
business, sell the business, or add new owners
 Failure Category = 18%
The Results of 814,000 Firm s 8 Years
After Starting (in %)
28%
Voluntarily
Closed
Failed
54%
18%
Still Surviving
Obligations of Ownership
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To Customers
To Workers
To Management
To Competitors
To Investors
To the Public
Page 21
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
Employee Stock Ownership Plan (ESOP)
 Permits employees to directly own the company
in which they work by allowing them to buy
shared in it
 Highly motivated to make their company profitable