Transcript MGT_101_-_Chapter_1_By_Mostafa_Kamel_0x

Prepared By: Mostafa Kamel
Chapter 1
The Business Environment
Prepared By: Mostafa Kamel
This first chapter dives right into the world of
business, explaining what business is, what its main
goals and functions are, and how the external
environments of business affect the success and
failure of any organization.
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After reading this chapter, you should be able to:
• Define the nature of U.S. business and
identify its main goals and functions.
• Describe the external environments of
business and discuss how these
environments affect the success or failure of
any organization.
• Describe the different types of global
economic systems according to the means by
which they control the factors of production.
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After reading this chapter, you should be able to:
• Show how markets, demand, and supply
affect resource distribution in the United
States, identify the elements of private
enterprise, and explain the various degrees
of competition in the U.S. economic system.
• Explain the importance of the economic
environment to business and identify the
factors used to evaluate the performance of
an economic system.
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Chapter Outline
•The Concept of Business and the Concept of Profit
A.Consumer Choice and Demand
B.Opportunity and Enterprise
C.The Benefits of Business
•The External Environments of Business
A.Domestic Business Environment
B.Global Business Environment
C.Technological Environment
D.Political-Legal Environment
E.Sociocultural Environment
F.Economic Environment
•Economic Systems
A.Factors of Production
B.Types of Economic Systems
•The Economics of Market Systems
A.Demand and Supply in a Market Economy
B.Private Enterprise and Competition in a Market Economy
•Economic Indicators
A.Economic Growth, Aggregate Output, and Standard of Living
B.Economic Stability
C.Managing the U.S. Economy
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The Concept of Business and the Concept of Profit
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A Business is an organization that provides goods or services to earn profits.
Profits are the difference between a business’s Revenues and Expenses.
! Crucial to know that the prospect of earning profits is what encourages people
to open and expand businesses
o Consumer Choice and Demand: In a capitalistic system like that of the
United States (and majority of the world) , consumers have freedom of choice.
In turn, businesses must take into account consumer demand in their pursuit of
profits.
o Opportunity and Enterprise: Unmet consumer demands provide promising
opportunities for potential business success.
o The Benefits of Business: Businesses produce most of the goods and
services consumed, employ most working people, create new innovations, and
provide opportunities for new businesses to serve as suppliers. Further,
businesses contribute to the quality of life and the standard of living.
Prepared By: Mostafa Kamel
Chapter Outline
•The Concept of Business and the Concept of Profit
A.Consumer Choice and Demand
B.Opportunity and Enterprise
C.The Benefits of Business
•The External Environments of Business
A.Domestic Business Environment
B.Global Business Environment
C.Technological Environment
D.Political-Legal Environment
E.Sociocultural Environment
F.Economic Environment
•Economic Systems
A.Factors of Production
B.Types of Economic Systems
•The Economics of Market Systems
A.Demand and Supply in a Market Economy
B.Private Enterprise and Competition in a Market Economy
•Economic Indicators
A.Economic Growth, Aggregate Output, and Standard of Living
B.Economic Stability
C.Managing the U.S. Economy
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The External Environments
of Business
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The External Environment consists of everything outside an organization’s boundaries that might affect it.
Economists examine six major dimensions of the external environment
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Domestic Business Environment
The domestic business environment refers to the environment
in which a firm conducts its operations and derives its
revenues.
Discussion Hints:
• GMC…
• Al-Mara’ey…
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Global Business Environment
• The global business environment refers to the international
forces that affect a business.
• various factors affect the global environment at both the
General level and Immediate level.
Assumingly, you are going to expand your
operations from Saudi Arabia to US or Japan,
generate and classify some examples for both
the general and immediate levels of the
global environment that you may face?
International Trade agreements …
Different languages and diverse cultures ..
Competitors ..
Currency values ..
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Technological Environment
• The technological environment generally includes all the ways by which
firms create value for their constituents.
• Technology includes human knowledge, work methods, physical
equipment, electronics and telecommunications, and various
processing systems that are used to accomplish business activities.
“Souq.com” the online shopping
company…
What
is
needed
technological
infrastructure necessary to operate
the business?
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Political-Legal Environment
The political-legal environment reflects the relationship
between Business and Government, usually in the form of
government regulation of business.
• What business can and can’t do
• Regulating advertising practices
Give some examples according to the
Saudi Arabian market …
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Sociocultural Environment
The sociocultural environment includes the customs, mores,
values, and demographic characteristics of the society in
which an organization functions.
Sociocultural forces plays
an important role in
determining the good and
services as well as the
standards of business
conduct, that a society is
likely to value and accept.
Examples in Saudi Arabia
….
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Economic Environment
The economic environment refers to relevant conditions that
exist in the economic system in which a company operates.
For Instance…
If an economy is doing well enough
that most people have jobs, a
growing company may find it
necessary to pay higher wages to
be able to attract workers from
other companies
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The External Environment plays a major role in
determining the success or failure of any business.
That’s why managers must have a complete and accurate
understanding of their environment and then strive to
operate and compete in it
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Chapter Outline
•The Concept of Business and the Concept of Profit
A.Consumer Choice and Demand
B.Opportunity and Enterprise
C.The Benefits of Business
•The External Environments of Business
A.Domestic Business Environment
B.Global Business Environment
C.Technological Environment
D.Political-Legal Environment
E.Sociocultural Environment
F.Economic Environment
•Economic Systems
A.Factors of Production
B.Types of Economic Systems
•The Economics of Market Systems
A.Demand and Supply in a Market Economy
B.Private Enterprise and Competition in a Market Economy
•Economic Indicators
A.Economic Growth, Aggregate Output, and Standard of Living
B.Economic Stability
C.Managing the U.S. Economy
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Economic Systems
An Economic System is a nation’s system for
allocating its resources among its individual
citizens and organizations.
A basic difference among economic systems is
the way in which they manage their resources,
known as factors of production.
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Economists focus on five factors of production:
1. Labor: The human resource element in businesses, labor includes the
physical and intellectual contributions people make while engaged in
economic production.
2. Capital: The financial resources needed to operate an enterprise are
known as capital.
3. Entrepreneurs: An entrepreneur is an individual who accepts the risks
and opportunities entailed by creating and operating a new business.
4. Physical Resources: The tangible things that organizations use to
conduct their business are physical resources.
5. Information Resources: Businesses rely on information resources,
such as market forecasts, the specialized knowledge of people, and
economic data.
What is the most important factors of production … Justify what ever
your answer ?
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Two essential criteria are being
used to assess the type of the
Economic Systems:
1. The way in which they
manage their factors of
production.
2. The ways in which
decisions are made about
production and allocation
of goods and services.
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According to the previous two criteria you will find two extreme types of
economic systems:
1.Planned Economies: These systems rely on partial or total government
control of all or most of the factors of production and allocation decisions. With
communism ‫ الشيوعية‬all sources of production are owned and operated by the
government.
2.Market Economies: Producers and consumers control production and
allocation decisions through supply and demand. The political basis of a market
economy is capitalism, which allows the private ownership of the factors of
production and encourages entrepreneurship by offering profits as incentives.
Let’s Classify some countries according to their market systems …
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However, In Reality, there are really no pure planned or pure
market economies. Most countries rely on some form of mixed
market economy:
A Mixed Market Economies: This type of economy features characteristics of
both planned and market economies.
• Many countries are moving from planned systems to mixed market systems
through (privatization), which involves the transformation of governmentcontrolled businesses into privately owned enterprises.
• In the “partially planned system” called socialism, the government owns and
operates selected major industries.
…. The postal system in many countries is governmentally owned.
…. Canada privatized its air traffic control system.
…. England and France keep government control of some areas as health care.
What about the case in Saudi Arabia … ?
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Chapter Outline
•The Concept of Business and the Concept of Profit
A.Consumer Choice and Demand
B.Opportunity and Enterprise
C.The Benefits of Business
•The External Environments of Business
A.Domestic Business Environment
B.Global Business Environment
C.Technological Environment
D.Political-Legal Environment
E.Sociocultural Environment
F.Economic Environment
•Economic Systems
A.Factors of Production
B.Types of Economic Systems
•The Economics of Market Systems
A.Demand and Supply in a Market Economy
B.Private Enterprise and Competition in a Market Economy
•Economic Indicators
A.Economic Growth, Aggregate Output, and Standard of Living
B.Economic Stability
C.Managing the U.S. Economy
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The Economics of Market Systems
Market systems allow businesses the
flexibility to decide what to produce, how much
to produce, and what price to charge.
On the other hand, Customers are a driving
force in market systems because they decide
what to buy and at what price.
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Demand and Supply in a Market Economy
Demand and supply are the predominant forces that guide decisions about
what to buy and what to sell.
• Demand is the willingness and ability of
buyers to purchase a product;
• Supply is the willingness and ability of
producers to offer a good or service for
sale.
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The laws of Demand and Supply
• The law of demand states that buyers will purchase more of a product as its
price drops;
• The law of supply states that producers will offer more of a product for sale
as its price increases.
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The Demand and Supply Schedule
• The Demand and Supply Schedule: indicates how much of a product will be sold
at various prices.
The more consumers are willing to pay
for a good, the more producers are
likely to divert resources to make more
of the good.
Conversely, as the price at which
consumers are willing to pay for a
produce falls, production becomes less
profitable and producers cut back on
production to divert resources to more
profitable areas.
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Demand and Supply Curves
A Demand Curve : Shows how many products will be demanded at different prices.
A Supply Curve : Shows how many products will be supplied at different prices.
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The point at which the two curves intersect is the Market Price (or Equilibrium price).
Surpluses and Shortages:
With a surplus the quantity supplied
quantity demanded;
exceeds the
With a shortage the quantity demanded exceeds the
quantity supplied
Where is the Entrepreneur's Opportunity !
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Private Enterprise and Competition in a Market Economy
Market economies rely on a Private Enterprise system
Private enterprise system: is the one that allows individuals to pursue their own
interests with minimal government restriction.
Such a system requires the presence of four
elements:
1. Private property rights: The ability of individuals
to own factors of production
2. Freedom of choice: The ability to choose where
to work and what to buy
3. Profits: The ability to take risk to earn profit, and
4. Competition: The ability to compete for customers
and scarce resources.
Competition occurs when two or more businesses vie
for the same resources or customers.
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Degrees of Competition
Economists have identified four degrees of competition in a private enterprise system:
A. Perfect Competition: Market or industry characterized by Many small firms
produce almost identical product; no single firm is powerful enough to influence
price.
B. Monopolistic Competition: market or an industry that has Fewer sellers than
perfect competition, but many buyers exist, so buyers focus on numerous
differentiation strategies, such as brand names, design, styling, and advertising.
Product differentiation also gives sellers some control over price.
C. Oligopoly: market or an industry that has only a handful of sellers; market entry is
difficult because large capital investment is needed. Strongly affected by each other’s
actions.
D. Monopoly: An industry or market has only one producer; that producer enjoys
complete control over price.
Refer to Table 1.1 page 36 for detailed comparison..
Let’s Give Some Examples for each ….
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Chapter Outline
•The Concept of Business and the Concept of Profit
A.Consumer Choice and Demand
B.Opportunity and Enterprise
C.The Benefits of Business
•The External Environments of Business
A.Domestic Business Environment
B.Global Business Environment
C.Technological Environment
D.Political-Legal Environment
E.Sociocultural Environment
F.Economic Environment
•Economic Systems
A.Factors of Production
B.Types of Economic Systems
•The Economics of Market Systems
A.Demand and Supply in a Market Economy
B.Private Enterprise and Competition in a Market Economy
•Economic Indicators
A.Economic Growth, Aggregate Output, and Standard of Living
B.Economic Stability
C.Managing the U.S. Economy
Prepared By: Mostafa Kamel
Economic Indicators
Knowing how an economy is performing is useful for both business owners and
investors alike.
Experts look to various Economic Indicators to help assess the performance of
the economy
Economic Indicators are statistics that show whether an economic system is
strengthening, weakening, or remaining stable.
Economic Growth, Aggregate Output,
and Standard of Living
• Aggregate output is the total quantity of goods and
services produced by an economic system during a given
period. Simply put, an increase in aggregate output is
growth.
• An increase in aggregate output is Economic growth.
• When output grows, two things usually follow:
 Output per capita goes up
 The system provides more of the goods and services
that people want.
• When these two things occur people benefit from higher
standard of living.
Standard of living refers to the total quantity and quality of goods and services
that can be purchased with the currency used in an economic system; standard of
living increases when the quantity of goods and services increases, and the
economic system provides more of the goods and services people want.
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• GDP is the total value of all goods and services produced within a given period
through domestic factors of production; GDP is a measurement of aggregate
output.
• Gross national product (GNP) refers to the total value of all goods and
services produced by a national economy within a given period regardless of
where the factors of production are located.
• Real Growth Rate: Real growth depends on output increasing at a faster rate
than population; the real growth rate of the U.S. economic system seems quite
healthy and the U.S. standard of living should be increasing.
• GDP per Capita: GDP per capita means GDP per person. GDP divided by total
population equals GDP per capita.
• Real GDP: Real GDP means that GDP has been adjusted to account for
changes in currency values and price changes.
• Purchasing Power Parity(PPP) : Purchasing power parity is the principle that
exchange rates are set so that the prices of similar products in different
countries are about the same.
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Sample Economic data for 2012
Saudi
Arabia
Gross Domestic
Product (GDP)
Population
(million)
GDP per capita
GDP Growth %
(2012)
$727 billion
29.2
$25,085
6.8%
U.S.
2.2%
U.K.
0.3%
Singapore
1.3%
South Africa
$384 billion
51.19
2.5%
Using These information, which do you think is best place to start your
business?
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Historical Data for the United Kingdom (2003-2012)
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Population (Million)
59.50 59.80 60.20 60.50 60.90 61.40 61.80 62.00 62.70 63.20
GDP (Trillion US $)
1.85
2.19
2.29
2.45
2.82
2.64
2.18
2.25
2.44
2.43
GDP growth (annual %)
3.81
2.91
2.77
2.60
3.63
-0.97
-3.97
1.80
0.99
0.27
Do you notice the Growth GDP % ??… what can we conclude…?
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Productivity: a measure of an economic growth that compares how much a
system produces with the resources needed to produce it; increases in
productivity yield increases in the standard of living.
Balance of Trade: A country’s balance of trade is the economic value of all the
products that it exports minus the economic value of its imported products.
• A positive balance results when the value of a country’s exports is greater than
its imports; that is, more money is flowing into the country as a result of exporting.
• A negative balance (Trade deficit) results when a country imports more than it
exports.
National Debt: A country’s national debt is the amount of money that is owed to
creditors.
As an entrepreneur, How can you benefit from these figures ?
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Economic Stability
Stability: is a condition in which the amount of money available in an economic
system and the quantity of goods and services produced in it are growing at about
the same rate.
A chief goal of an economic system, stability can be threatened by certain factors:
• Inflation
• Unemployment
• Recessions and depressions
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Inflation: Inflation occurs when widespread price increases plague an
economic system; in other words, the amount of money in the economic
system exceeds the amount of actual output.
Unemployment. Unemployment is the level of joblessness among people
actively seeking work in an economic system.
• when unemployment is high, a surplus of available workers exists.
• Unemployment is sometimes a symptom of a recession, when aggregate
output declines, or of a depression, a prolonged and deep recession.
• People in different sectors may lose their jobs at the same time. As a result,
overall income and spending may decline to the extent that businesses
begin to implement cost saving measures—including reduction in force
(downsizing), leading to more unemployment.
Recession and Depression. Governments and economists define a recession
as a period during which aggregate output, as measured by real GDP, declines.
• The U.S. economy went into recession in 2008 and many commentators do
not believe the economy will begin to recover until 2010.
What is depression?
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Historical Data for the Greece (2003-2012)
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Population
(Million)
11.00
11.10
11.10
11.14
11.20
11.24
11.28
11.31
11.30
11.30
GDP (Billion$)
192.80
227.90
240.00
261.70
305.40
341.50
321.00
292.30
289.60
249.00
5.94
4.37
2.28
5.51
3.54
-0.21
-3.14
-4.94
-7.10
-6.38
GDP Growth %
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Managing the U.S. Economy
The government acts to manage the U.S. economic system through two sets of
policies: fiscal and monetary.
Fiscal Policies: Policies used by a government regarding how it collects and
spends revenues.
Monetary Policies: Policies used by the government to control the size of its
money supply.
Taken together, fiscal policy and monetary policy make up stabilization policy –
government economic policy whose goal is to smooth out fluctuations in output and
unemployment and to stabilize prices.
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Summary of Learning Objectives
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