Transcript UNITED STATES GDP
CHARACTERISTICS OF BUSINESS
CHAPTER 1
OBJECTIVES
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
1.
2.
3.
3 Business Activities Production Making a product or providing a service Manufacturing – produce good Service Firms – provide assistance to satisfy specialized needs Marketing Deals with how goods or services are exchanged between producers and consumers Finance 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
Services Intangible products that use mostly labor to satisfy consumer needs (mowing the lawn) Industry Refers to all businesses within a category 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
PRODUCTIVITY PER WORKER (page 9)
120 105 90 75 60 45 30 15 0 USA 1980 France 1985 Germany Japan 1990 Canada 1996 England
Achieving Efficiency
3 ways Efficiency can be achieved 1.
2.
3.
Specialization of effort Better technology and innovation 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
10 8 2 0 6 4 4.7
1987 5.8
1990 6.3
7.1
7.8
8.8
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
Personal Computers Answering Machines Cordless Phones Clothes Washers Microwave Ovens Color Televisions Refrigerators 0% 35.0% 20% 40% 58.4% 61.4% 77.4% 83.0% 60% 80% 99.8% 99.9% 100%
ENTREPRENEURSHIP
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.
2.
Individuals want to own their own business 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 non franchised 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 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% 54% 18% Voluntarily Closed Failed Still Surviving
Obligations of Ownership
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