Introduction to Business LECTURE 1 Introduction to Business

Introduction to Business LECTURE 1: Introduction to Business MGT 100 1

Introduction to Business Course Objectives: 1. To provide students with theoretical background regarding basic business concepts so that a framework is developed in to which specialized fields can be studied. 2. To assist students in applying acquired skills and knowledge to real-life situations. 3. To provide a virtual classroom environment that enhances the quality of learning of the off campus students. 2

Introduction to Business Course Policy Course Description: 1. Understanding the business systems 2. Understanding the environment of business 3. Conducting business ethically and responsibly 4. Understanding entrepreneurship and new ventures 5. Managing the business enterprise 6. Organizing a business enterprise 7. Managing human resource 8. Motivating and leading employees 9. Understanding marketing processes and consumer behavior 10. Developing and pricing products 11. Distributing and promoting products 12. Understanding principles of accounting 13. Understanding financial and risk management 3

Introduction to Business Course Policy (Contd. ) Marks Distribution: Marks 1. Assignments (04) : 15 2. Quiz (04) : 10 3. Sessional Exam 1 : 10 4. Sessional Exam 2 : 15 Internal Marks : 50 5. Final Examination : 50 Total : 100 Passing Marks: 50 4

Introduction to Business Course Policy (Contd. ) Text Book: Business Essentials, 8 th Edition by Ricky W. Griffin & Ronald J. Ebert, Prentice Hall Reference Text: Business. Today, Stephan P. Robbins, Harcourt College Publishers 5

Introduction to Business Chapter 1: Understanding Business Systems 6

Introduction to Business (Chapter 1) In this chapter we will: • Define the nature of business • Identify its goals and functions • Discuss history of business • Describe different types of global economic systems • Study demand supply and its affect on resource distribution • Discuss private enterprise and various degree of competition 7

The Concept of Business and Profit • Business – An organization that provides goods or services that are then sold to earn profits. • Profits – The difference between a business’s revenues and its expenses. The rewards owners get for risking their money and time. • Consumer Choice and Demand – The freedom of consumers to choose how to satisfy their wants and needs. – The freedom of business owners to decide how to meet those wants and needs. • Opportunity and Enterprise – Success in business requires spotting a promising opportunity and then developing a good plan for capitalizing on it. 8

The Concept of Business and Profit (cont) • The Benefits of Business – Provision of goods and services – Employment of workers – Innovation and opportunities – Increased quality of life and standard of living – Enhanced personal incomes of owners and stockholders – Tax payments support government – Support for charities and community leadership 9

The Evolution of Business • The Factory System and the Industrial Revolution • Middle of the 18 th century • Manufacturing was changed – factory system brought together material, worker in one place and produced large quantities • Low cost raw material • Specialization of labor • Mass production replaced a skilled worker with a semi skilled worker trained to perform one task, aided by a specialized equipment • Increased output • Laissez faire and the Entrepreneurial Era • During the 19 th century • Government should not interfere in the economy – run business without regulations • Risk and entrepreneurship became the practice • Difficult for competitors to enter the market • Corporations controlled market • Society demanded greater accountability 10

The Evolution of Business (cont) • The Production Era • Early 20 th century • Further increase output by scientifically studying jobs and defining one best way to perform • Model of management was dubbed as scientific management • Henry Ford introduced the assembly line • Fixed workstations • Increased task specialization • Concepts of scientific management • Moving the work to the worker • Growth and assembly line came at the cost of worker freedom • Rise of labor unions • The Marketing Era • After world war II • Previously businesses had been production and sales oriented • Now, businesses started to produce what customer wanted • Choose what best suited their need by producing a variety of products 11

The Evolution of Business (cont) • The Global Era • The 1980’s saw • Technological advances • Computer technology • Communication capabilities • Global economy • Advantages of other country resources • The information Era • Use of internet • Small Vs large companies 12

Economic Systems • Economic System – A nation’s system for allocating its resources among its citizens, both individuals and organizations • Factors of Production – Labor: Human resources – physical and intellectual contribution – Capital: Financial resources – Entrepreneurs: Persons who risk starting a business – Physical resources: Tangible things used to conduct business – Information resources: Data and other information used by businesses • Market forecast, economic data, knowledge of people 13

Types of Economic Systems • Planned Economy – A centralized government controls all or most factors of production and makes all or most production and allocation decisions for the economy. • Market Economy – Individual producers and consumers control production and allocation by creating combinations of supply and demand. • Market – A mechanism of exchange between buyers and sellers of a good or service. 14

Planned Economies • Communism – A system Karl Marx envisioned in which individuals would contribute according to their abilities and receive benefits according to their needs. • The government owns and operates all factors of production. • The government assigns people to jobs and owns all businesses and controls business decisions. 15

Market Economics • Capitalism – The government supports private ownership and encourages entrepreneurship. – Individuals choose where to work, what to buy, and how much to pay. – Producers choose who to hire, what to produce, and how much to charge. • Mixed Market Economy – Features characteristics of both planned and market economies. – Privatization: The process of converting government enterprises into privately owned companies. – Socialism: The government owns and operates select major industries such as banking and transportation. Smaller businesses are privately owned. 16

Economics of Market System • Demand – The willingness and ability of buyers to purchase a product (a good or a service). • Supply – The willingness and ability of producers to offer a good or service for sale. • The Laws of Demand Supply in a Market Economy – Demand: Buyers will purchase (demand) more of a product as its price drops and less of a product as its price increases. – Supply: Producers will offer (supply) more of a product for sale as its price rises and less of a product as its price drops. 17

Demand Supply in a Market Economy • Demand Supply Schedule – The relationships among different levels of demand supply at different price levels as obtained from marketing research, historical data, and other studies of the market. • Demand curve: How much product will be demanded (bought) at different prices. • Supply curve: How much product will be supplied (offered for sale) at different prices. • Market price (equilibrium price): The price at which the quantity of goods demanded and the quantity of goods supplied are equal. 18

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Surpluses and Shortages • Surplus – A situation in which the quantity supplied exceeds the quantity demanded • Causes losses • Shortage – A situation in which the quantity demanded will be greater than the quantity supplied • Causes lost profits • Invites increased competition 21

Private enterprise in a Market Economy • Private Enterprise System – Allows individuals to pursue their own interests with minimal government restriction. • Elements of a Private Enterprise System – Private property rights – Freedom of choice – Profits – Competition 22

Degree of Competition • Perfect Competition – Prices are determined by supply and demand because no single firm is powerful enough to influence the price of its product. • All firms in an industry are small. • The number of firms in the industry is large. – Principles of perfect competition: • Buyers view all products as identical. • Buyers and sellers know the prices that others are paying and receiving in the marketplace. • It is easy for firms to enter or leave the market. • Prices are set exclusively by supply and demand accepted by both sellers and buyers. 23

Degree of Competition (cont) • Monopolistic Competition – There are numerous sellers trying to differentiate their products from those of competitors so as to have some control over price. – There are many sellers, though fewer than in pure competition. – Sellers can enter or leave the market easily. – The large number of buyers relative to sellers applies potential limits to prices. 24

Degree of Competition (cont) • Oligopoly – An industry with only a few large sellers. – Entry by new competitors is hard because large capital investment is needed. – The actions of one firm can significantly affect the sales of every other firm in the industry. – The prices of comparable products are usually similar. – As the trend toward globalization continues, most experts believe that oligopolies will become increasingly prevalent. 25

Degree of Competition (cont) • Monopoly – An industry or market that has only one producer (or else is so dominated by one producer that other firms cannot compete with it). • The sole supplier enjoys complete control over the prices of its products; its only constraint is a decrease in consumer demand due to increased prices. – Natural monopolies: Industries in which one firm can most efficiently supply all needed goods or services; typically allowed and regulated by legislated acts and governmental agencies. • Example: Electric company 26