Transcript introduction - Dr. Gehan Dhameeth

PART 01-THE ENVIRONMENT OF
BUSINESS
CHAPTER-01
1
Dr. Gehan Shanmuganathan, (DBA)
SITUATION ANALYSIS
2
SITUATION ANALYSIS

Global terrorism

Global economic crisis

Political instability in gulf and other parts of the
world

Increasing unemployment

Increasing number of business failures

Reduced consumer spending

Slow down home building and increased foreclosures
3
SOLUTIONS…
4
SOLUTIONS….

American’s belief is that we could recover
through Change and Creativity

Free enterprise allows the Americans to decide
what to produce, how to produce, what price to
sell, and where to sell through “free enterprise”
system.
5
CHAPTER-01
EXPLORING THE WORLD OF
BUSINESS AND ECONOMICS
6
CHAPTER FOCUS
What business is
 How business go that way
 Our future in business and reasons to study
business
 Define business
 What is capitalism and command economies
 How the nations measure economic performance
 Four types of competitive situation
 Events that shape today’s business systems
 Current business environment
 Business challenges

7
WHY STUDY BUSINESS ?
8
WHY STUDY BUSINESS
Knowledge is life time wealth
 Help to choose a career
 Be a successful employee by performing the
role with relevant skills and working in cultural
diversity
 To improve your management skills
 To start your own business- work hard, extra
work hours, required knowledge
 To become a better informed consumer and an
investor

9
BUSINESS DEFINITION..
10
BUSINESS DEFINITION
Business
is the organized
effort of individuals to
produce and sell, for a profit,
the goods and services that
satisfy society’s needs (Pride
B.,Hughes B., Kapoor J., 2012)
11
THE ORGANIZED EFFORT OF INDIVIDUALS
Things to organize –materials, human ,
financial, and information
 Material resources- raw materials, buildings
and machinery
 Human resources- people who furnish their
labor for a wage
 Financial resources – money required to pay
wages, raw materials, rent and etc
 Information resources- methodology used to
measure how effectively managers use other
resources combined

12
BUSINESS TYPES



Production- Fast Moving Consumer Goods
(FMCG)- e.g-Coca cola
Service- Verizon, Financial Institutions
Marketing intermediary- e.g Best Buy,
Walmart
13
SATISFYING NEEDS

Customers need different solutions

Different products for different needs/ wants
14
BUSINESS PROFITS


Profits through high turnover and low
expenses
Importance of profits for stakeholders
15
TYPES OF ECONOMIC SYSTEMS
16
TYPES OF ECONOMIC SYSTEMS
Economics is the study of how wealth is
created and distributed
 “who get what”
 It is all about making decisions on scarcity of
resources
 Micro (decisions made by households and
businesses)and macroeconomics (taxes,
government spending, interest rates, and similar
decisions on nations)

17
HOUSEHOLDS
Made up of individuals who are customers
 As resource owners, members of households
provide businesses with labor, capital, and other
resources. In return, businesses pay wages, rent,
dividends, and interest which households receive
as income
 Consumers buy products and services produced
by businesses
 70% of total products of the nation (US) is
consumer products (purchase for personal
consumption)

18
BUSINESS

Exchange money for natural resources, labor, and
capital to produce goods and services

Exchange their goods and services to sales
revenue

Businesses retain their profits for future growth,
while households save their earnings for savings
19
GOVERNMENT
Constitution is framed government to intervene
to private sector businesses to protect and
promote public welfare
 Local, state, and federal government discharge
these responsibility through regulation and
provision of service
 Services are national defense, police and fire
protection, education, roads, construction and
highways
 To produce these services, government collects a
variety of taxes from households such as personal
income tax and sales tax. From businesses,
corporate income taxes are collected

20
FACTORS OF PRODUCTION
21
FACTORS OF PRODUCTION

Land and natural resources- land, water, oil,
forest

Labor- time and effort used by employees

Capital- money, equipment, facilities, machines

Entrepreneurship- willingness to take the risk
of starting and operating the business
22
ECONOMIC SYSTEMS

Capitalism

Command economies (Socialism)
23
CAPITALISM
24
CAPITALISM


Economic system in which individuals own
(private sector) and operate majority of
businesses that provide goods and services
Society’s interests are best served when the
individuals within that society are allowed to
pursue their own self-interest (invisible handAdam Smith)
25
ADAM SMITH’S BASIC ASSUMPTIONS OF
CAPITALISM

Creation of wealth is a concern of private
individuals, not government

Private individuals must own resources used to
create wealth

Economic freedom ensure the existence of
competitive markets that allow both buyers and
sellers to enter and exist as they wish (market
economy)
26
CAPITALISM IN THE


UNITED STATES
Practices a mixed economy
Economic decisions are made through the
interaction of households, businesses, and
governments
27
COMMAND ECONOMIES
28
COMMAND ECONOMIES (SOCIALISM)


Government decides what, where, how, how
many, and at what price to produce (sell) goods
and services through centralized government
planning system
Examples are North Korea, and Cuba
29
SOCIALISM (COMMAND ECONOMIES)







Key industries are owned by government and these
industries are transportation, communication,
utilities, banking, and steel
Private ownership of small business is allowed
The focus of the socialism is the elimination of
poverty and equal distribution of wealth among the
population
Countries transitioning from socialism to capitalism
are France, Sweden, and India
Disadvantages of socialism is increased taxation, loss
of incentives and motivation for both individuals and
business owners (discuss motivation…….)
Today North Korea and Cuba are evident of being
socialist countries
However, special talents and skills are given
privileges (professionals and athletes)
30
ADAM SMITH AND KARL MARX



Adam Smith is the father of capitalism with a view
point of free market (Scottish Philosopher 17231790)
Karl Marx is the father of socialism with a view
point of classless society whose citizens equally own
all the economic resources (German Philosopher
1818-1883)
Discuss classlessness
31
MEASURING ECONOMIC
PERFORMANCE
32
MEASURING ECONOMIC PERFORMANCE

Productivity- average output per labor per hour (between
1979 and 2006 US growth is 3.9% - 2006 stats)


Good and the bad of increased productivity of a nationDiscuss……..
Gross Domestic Products (GDP) – total dollar value of
all the goods and services produced by all the people in a
country with in a year.
To make a comparison, the country need to adjust the dollar
value to inflation or deflation
 Inflation is a general increase in all the prices and a deflation
is general decrease in all the prices


Consumer Price Index (CPI)- monthly measure of
changes in prices of fixed basket of goods purchased by a
typical consumer in an urban area


Goods listed in the CPI are food and beverages,
transportation, housing, clothing, medical care, recreation,
education, and communication
Producer Price Index (PPI)- Prices at the whole sale
level
33
BUSINESS CYCLE AS A MEASUREMENT

The regular fluctuations in businesses
34
ECONOMIC DEPRESSION

Longer than a recession

High unemployment rate

Low wages

Reduced purchasing power

Lack of confidence in economy

General decrease in business activities
35
WHAT DOES GOVERNMENT DO TO OFFSET
THE EFFECTS OF RECESSION?

Monitory policy- federal reserve decisions that
determine the size of the supply of money on the
nation and the level of interest rates (stimulus plan)

Fiscal policy- the government could influence the
amount of savings and expenditure by altering the
tax structure and changing the level of government
spending

Federal deficit- government spending is greater
than its earnings which leads to national debt
36
TYPES OF COMPETITION
37
TYPES OF COMPETITION


Capitalism induces competition for the benefit of the
customer
Perfect competition- where there are many
buyers and sellers for one product and they
cannot affect the price of that product- market is
symmetric, homogenous products, no one could
control the market e.g- wheat

Demand and supply/ equilibrium market or price(
graphical demonstration)
Monopolistic competition- many sellers and
buyers in the market and the sellers differentiate
their products/ services to increase their revenue
 Oligopoly- few sellers. Eg- automobile, airline
 Monopoly – one seller. Eg- public utilities

38
AMERICAN BUSINESS TODAY
39
AMERICAN BUSINESS TODAY


Early business development –barter systemsdomestic system- factory systems- specialization
New systems and e-business – regionalization
and globalization (service economy)
40
CURRENT BUSINESS
ENVIRONMENTS
41
CURRENT BUSINESS ENVIRONMENTS
Competition/Rivalry
 Environments









Political
Economic
Socio-cultural
Technological
Ethical
Environmental (ecological)
Legal
Global
42
POLITICAL / LEGAL FACTORS
Legislative structure
 Political structure
 Government stability
 Political orientation
 Taxation policies
 Employment legislation
 Pressure groups
 Trade union power
 Relationship with foreign governments
 Foreign trade regulations
 Competitive behaviour legislation

43
ECONOMIC FACTORS

Business cycles

Interest rates

Level of confidence

Investment incentives and policies

Unemployment levels

Energy costs

GNP, GDP
44
TECHNOLOGICAL FACTORS

Levels of R & D expenditure

Patterns and speed of technological change

Product life cycles

National attitude towards technology
45
SOCIAL AND CULTURAL FACTORS
 Demographic
structures
 Lifestyles
 Social
mobility
 Attitudes
 Consumerism
46
ECOLOGICAL FACTORS

Ecological consciousness

Ecological management

Eco-friendly products
47
ETHICAL FACTORS

Business ethics

Ethical ideology
48
HOW COULD WE FACE THE
CHALLENGES AHEAD?
49
BEING
CREATIVE AND
DIFFERENT..
50
QUESTIONS…….
51
WEEKLY ASSIGNMENT –01

Describe what capitalism is and explain the
critical factors that affect businesses in a such
economy.
52