Download The External Environments of Business (cont.)

1
chapter
The U. S. Business Environment
Business Essentials, 7th Edition
Ebert/Griffin
PowerPoint Presentation prepared by
Carol Vollmer Pope Alverno College
LEARNING OBJECTIVES
After reading this chapter, you should be able to:
1. Define the nature of business and identify its main
goals and functions.
2. Describe the external environments of business
and discuss how these environments affect the
success or failure of any organization.
3. Describe the different types of global economic
systems.
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L E A R N I N G O B J E C T I V E S (cont’d)
After reading this chapter, you should be able to:
5. Identify the elements of private enterprise
6. Explain the importance of the economic
environment to business and identify the factors
used to evaluate the performance of an economic
system.
© 2009 Pearson Education, Inc.
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Exercise
A. Write four things do you know about
business. Write 4 things you would like
to know?
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.
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The Concept of Business and Profit
• 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.
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The Concept of Business and Profit (cont.)
• The Benefits of Business
1. Provision of goods and services
2. Employment of workers
3. Innovation and opportunities
4. Increased quality of life and standard of living
5. Enhanced personal incomes of owners and
stockholders
6. Tax payments support government
7. Support for charities and community leadership
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The External Environments of Business
• External Environment
– Everything outside an organization’s boundaries
that might affect it
1. The domestic business environment
2. The global business environment
3. The technological environment
4. The political-legal environment
5. The sociocultural environment
6. The economic environment
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The External Environments of Business (cont.)
• Domestic Business Environment
– The environment in which a firm conducts
its operations and derives its revenues by:
1. Seeking to be close to its customers
2. Establishing strong relationships with its
suppliers
3. Distinguishing itself from its
competitors
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The External Environments of Business (cont.)
• Global Business Environment
– The international forces that affect a business:
• International trade agreements
• International economic conditions
• Political unrest
• International market opportunities
• Suppliers
• Cultures
• Competitors
• Currency values
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The External Environments of Business (cont.)
• Technological Environment
– All the ways by which firms create value for their
constituents:
• Human knowledge
• Work methods
• Physical equipment
• Electronics and telecommunications
• Various business activity processing systems
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The External Environments of Business (cont.)
• Political-Legal Environment
– The regulatory relationship between business and the
government (legal system) and its agencies that define
what organizations can and can’t do:
• Product identification laws
• Local zoning requirements
• Advertising practices
• Safety and health considerations
• Acceptable standards of business conduct
– Pro- or anti-business sentiment in government and
political stability are also important considerations,
especially for international firms.
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The External Environments of Business (cont.)
• Sociocultural Environment
– The customs, mores, values, and demographic
characteristics of the society in which an
organization functions
– Sociocultural processes determine the goods,
services, and standards of business conduct a
society is likely to accept
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The External Environments of Business (cont.)
• Economic Environment
–The relevant conditions that exist in
the economic system in which a
company operates
–Examples:
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The External Environments of Business (cont.)
• Economic Environment
– Examples:
• If an economy is doing well enough that most
people have jobs, a growing company may find
it necessary to pay higher wages and offer
more benefits in order to attract workers from
other companies.
• If many people in an economy are looking for
jobs, a firm may be able to pay less and offer
fewer benefits.
© 2009 Pearson Education, Inc.
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Factors of Production
Labor
Capital
Information
Resources
Entrepreneurs
Physical
Resources
Factors of production
A. Labor: The people who work for businesses.
Labor includes both physical and mental
contributions. A country with a highly
educated workforce is considered rich in this
resource.
B. Capital: The funds needed to create and
operate a business. Sources include personal
investment by owners, loans, sale of stock
and bonds, and revenue from the sale of
product.
Factors of production
A. Entrepreneurs: People who are willing to accept
the risks that are part of creating and operating
businesses, in return for the potential profits.
B. Physical resources: Tangible things organizations
use in the conduct of their business.
Possibilities include natural resources, raw
materials, office equipment and facilities,
computers, transportation and communication
infrastructure, etc.
C. Information resources: Data and other
information used by business. This factor has
become increasingly important in the last
decade.
Exercise: group Discussion
Higher Education service.
list the factors of production that were used to
produce it.
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
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
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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.
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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.
© 2009 Pearson Education, Inc.
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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.
© 2009 Pearson Education, Inc.
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Market Economics
• 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.
© 2009 Pearson Education, Inc.
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The Economics of Market Systems
• 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.
© 2009 Pearson Education, Inc.
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The Economics of Market Systems
• The Laws of Demand and 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.
© 2009 Pearson Education, Inc.
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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
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Economic Indicators
• Economic Indicators
–Statistics that show whether an
economic system is strengthening,
weakening, or remaining stable
–Measure key goals of the economic
system: economic growth and
economic stability
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Economic Indicators
–Economic growth indicators
• Aggregate output, standard of living,
gross domestic product, and
productivity
–Economic stability indicators
• Inflation and unemployment
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Economic Growth, Aggregate Output, and
Standard of Living
• Business Cycle
– The pattern of short-term ups and downs
(or, better, expansions and contractions) in
an economy.
• Aggregate Output
– Growth during the business cycle is
measured by the total quantity of goods
and services produced by an economic
system during a given period.
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Economic Growth, Aggregate Output, and
Standard of Living
• Standard of Living
–The total quantity and quality of goods
and services that consumers can
purchase with the currency used in
their economic system.
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Economic Indicators (cont.)
• Gross Domestic Product (GDP)
– An aggregate output measure of the total
value of all goods and services produced
within a given period by a national
economy through domestic factors of
production. In US $14 trillion
• If GDP is going up, aggregate output is
going up; if aggregate output is going up,
the nation is experiencing economic
growth.
© 2009 Pearson Education, Inc.
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Economic Indicators (cont.)
• Gross National Product (GNP)
–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.
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Economic Growth
• Productivity
– A measure of economic growth that compares
how much product a system produces with the
resources needed to produce that product.
• If more product is produced with fewer factors
of production, the price of the product
decreases.
• The standard of living in an economy improves
through increases in productivity.
© 2009 Pearson Education, Inc.
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Economic Growth (cont.)
• Balance of Trade
– The economic value of all the products a country
exports minus the economic value of its imported
products.
• Positive balance of trade: When a country
exports (sells to other countries) more than it
imports (buys from other countries).
• Negative balance of trade: When a country
imports more than it exports. Commonly called
a trade deficit.
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FIGURE 1.4 Balance of Trade
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Economic Growth (cont.)
• Recession
– A period during which aggregate output, as
measured by real GDP, declines
• Depression
– A prolonged and deep recession
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Types of Policies
Monetary Policy:
A. Designed to control the amount of money flowing
around the economy (the money supply).
B. This policy is used to tackle inflation and balance of
payments.
Methods under this policy:
1. Interest rates:
2. The government may impose restrictions on
financial institutions to affect borrowing.
3. The central bank can control bank assets and the
amount of lending.
Types of Policies
Fiscal policy:
A. Aims to control the total spending in the
economy.
1. Government spending.
2. Change in direct taxation.
3. Change in indirect taxation.
Managing the U.S. Economy
• Stabilization Policy
–Coordinating fiscal and monetary
policies to smooth fluctuations in
output and unemployment and to
stabilize prices.
© 2009 Pearson Education, Inc.
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Assignment
Interview a Business Owner
Interview a business owner or senior manager and ask
them how demand and supply affect their
business, what essential factors of production are
most central to the firm’s operations, and how
fluctuations in economic indicators affect their
business.
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