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MGTA01H3 (348)
Lecture

Ch 1.pdf

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Department
Management (MGT)
Course
MGTA01H3
Professor
Bill Mc Conkey
Semester
Summer

Description
CHAPTER 1: Understanding the Canadian Business System THE CONCEPT OF BUSINESSAND PROFIT Business: an organization that produces or sells goods or services in an effort to make a profit Profit - the money that remains (if any) after a business’s expenses are subtracted from its revenues Expenses - the money a business spends producing its goods and services and generally running the business.Also referred to as “costs” Revenues - the money a business earns selling its products and services. aka “sales” - PROFIT rewards the business owner(s) for taking the risks involved in investing their time and money - can be large if business managed well - in CANADA’s economic system businesses exist to earn profits for owners who are free to set them up - In order for businesses to make profits, businesses must take into account the consumer’s wants & needs for that geographical region - someone who can spot a promising opportunity and then create a plan for capitalizing on it can succeed. - if no one else is supplying them OR if existing businesses are doing so inefficiently or incompletely - businesses produce most of the goods and services we consume and employ the majority of working people Benefits of a business: (1) produce most of the goods/services we consume (2) employ the majority of working people (3) create most new innovations and produce opportunities (4) provide opportunities for other businesses which serve as their suppliers (5) a healthy business climate contributes directly to our quality of life and standard of living (6) new forms of technology, service businesses, and international opportunities promise to keep production, consumption and employment growing indefinitely (7) business profits enhance the personal incomes of millions of owners and stockholders, and business taxes help to support governments at all levels (8) many businesses support charities and provide community leadership ECONOMIC SYSTEMSAROUND THE WORLD Economic systems - the way in which a nation allocates its resources among its citizens - a major determinant of how organizations operate is the kind of economic system that characterizes the country in which they do business - ECONOMIC systems differ in terms of who own and controls these resources aka FACTORS of PRODUCTION - the key diff between economic systems is the way in which they manage the factors of production Factors of production - the basic resources that a country’s businesses use to produce goods and services: labour, capital, entrepreneurs, and natural resources - traditionally economists have focused on four factors of production; labour, capital, entrepreneurs and natural resources - INFORMATION RESOURCES often included as a 5th factor of production Four Main Factors of Production: labour, capital, entrepreneurs, and natural resources (sometimes information resources). o Labour: mental and physical training and talents of people aka HUMAN RESOURCES ▯ large companies would require a labour force with a wide variety of skills ▯ employees who are well trained and knowledgeable can be a real competitive advantage for a company o Capital: funds needed to operate an enterprise. ▯ obtaining and using labour and other resources req’s CAPITAL ▯ needed to start a business, keep it running and growing ▯ Amajor source of capital for small enterprises is personal investment from its owners. • investments can come from individual entrepreneurs, from partners who start business together or from investors who buy stock ▯ revenue from the sale of products is a key and ongoing source of capital once a business starts o Entrepreneurs: individual who organizes and manages labours, capital, and natural resources to produce goods and services to earn a profit, but who also runs the risk of failure. o Natural Resources: items used in the production of goods and services in their natural state (e.g. land, water, mineral deposits, trees). ▯ newer perspectives tend to broaden the idea of natural resources to include all physical resources o Information resources: information such as market forecasts, economic data, and specialized knowledge of employees that is useful to a business and that helps it achieve its goals. ▯ tangible goods used to dominate economic systems, today information resources plays a major role ▯ businesses themselves rely heavily on market forecasts, the specializes expertise and knowledge of ppl and various forms of economic data for much of their work ▯ results in either creation of new information or repackaging of existing information for new users and diff audiences • egAmerica Online,AOL etc TYPES of ECONOMIC SYSTEMS • diff types of economic systems manage the factors of production in diff ways • economic systems also differ in the way decisions are made about production and allocation o COMMAND ▯ communism ▯ socialism o MARKET ▯ capitalism o MIXED MARKET ECONOMIES o Command Economies or Planned Economies - an economic system in which the government controls all or most factors of production and make all or most production decisions ▯ Exist in two forms: • Communism: the government owns and operates all industries. o Proposed by 19 century German economist Karl Marx  Marx envisioned a society in which individuals would ultimately contribute according to their abilities and rcv economic benefits according to their needs  also expected gov ownership of production factors to be temporary, once society matures gov would wither away and the workers would gain direct ownership  things not worked out as Marx predicted  most countries now abandoned communism for market- based economies  indiv’s may be told where they can and cannot work and companies told what they can and can’t manufacture • consumers have little or no choice as to what they purchase or how much they pay for items • Socialism: government owns and operates the main industries; individuals own and operate less crucial industries o smaller business such as clothing stores and restaurants may be privately owned o workers are allowed to choose their occupation/profession but majority work for the gov’t; o many gov’t-operated enterprises are inefficient since management positions are chosen based on political considerations over ability o extensive public welfare systems have also resulted in very high taxes o bc of these factors, socialism is generally declining in popularity o Market Economies: an economic system in which individuals control all or most factors of production and make all or most of the production decisions.  Market - a mechanism for exchange between the buyers and sellers of a particular good or service.  Here both buyers and sellers have freedom of choice. • vendors are free to charge what they want and customers are free to buy what they choose  Achoice may or may not favour a business and thus, the freedom of choice ultimately decides the success/failure of a given business. • Capitalism: kind of market economy offering private ownership of the factors of production and of profits from business activities o capitalism sanctions the private ownership of the factors of production and encourages entrepreneurship by offering profits as incentive  THE ECONOMIC BASIS OF MARKET PROCESSES IS THE OPERATION OF SUPPLYAND DEMAND*** o Individuals have the freedom to work where they please and buy what they wish. This contrasts with the command economy. o Mixed Market Economies: economic system with elements of both a command economy and a market economy, common in most nations.  command and market are two extremes or opposites  MIXED MARKET ECONOMY is a system that features characteristics of both command and market economies  The two economies don’t really exist in their pure forms in most countries. The mixed market economy is more realistic.  Privatization – the transfer of activities from the government to the public sector. • convert government owned enterprises into privately owned companies  Many ex-command economies have convert to a mixed market economy through  Another trend encouraging mixed market economies is • Deregulation – reduction in the number of laws affecting business activity and in the powers of government enforcement agencies o in most cases deregulation frees companies to do what they want without government interference, thus simplifying the task of management  deregulation in many industries eg airlines, pipelines, banking, trucking, communication INTERACTIONS BETWEEN BUSINESS and GOVERNMENT - in Canada’s MIXED ECONOMIC SYSTEM there are many important interactions between business and government HOW GOV’T INFLUENCES BUSINESS ▯ As a customer: the gov’t buy thousand of products and services from business firms eg office supplies, buildings, computers, helicopters, highways, mgmt and engineering services etc - The gov’t is the largest purchase of advertising in Canada. -many businesses depend of gov’t purchasing ▯ As a competitor: compete with business through Crown corporations which are accountable to a mister of parliament for their conduct; exist at both the provincial and federal level. ▯ As a regulator: regulate business through administrative boards, tribunals, or commissions. -egAt the federal level, Canadian Radio-television and Telecommunications Commission (CTRC) issues and renews broadcast licence, CTC (Canadian Tranpost Commission), Canadian Wheat Board reuglate the price of wheat - Reasons for gov’t regulation: 1. Protecting Competition: maintain healthy competition. Without restrictions, large companies could drive small companies out of the market. Policies try to eliminate restrictive trade practices and thereby stimulate maximum production, distribution, and employment. 2. Protecting Consumers: Consumer and CorporateAffairs Canada sadminister programs and legislations protecting consumer (e.g. Hazardous ProductsAct, TobaccoAct, Food and DrugAct). Consumers are also protected by municipal bylaws (e.g. no-smoking) 3. Achieve Social Goals: Social goals promote well-being and include universal access to health care, employment insurance, pensions and safety. This requires gov’
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