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Rita Cossa

Commerce 1E03: Business Environment and Organization January 11, 2012 Chapter 1: Managing Within the Dynamic Business Environment 2 · Business: any activity that seeks to provide goods and services to others while operating a profit. · Starting a business can be extremely risky behavior. · Business provides people the opportunity to be wealthy. · Business are not solely there just to help entrepreneurs to make mon- ey, they also exists to provide people with necessities such as food, clothing, housing, medical care, transportation, etc. · Profit: the amount a business earns above and beyond what it spends for salaries and other expenses. · Entrepreneur: a person who risks time and money to start and man- age a business. · Risk: the chance an entrepreneur takes of losing time and money on a business that may not prove profitable. · Revenue: the total amount of money a business takes in during a giv- en period by selling goods and services. · Loss: when a business’s expenses are more than its revenues. · Business failures or closures are not always bad, but most business failures are due to poor management or problems associated with cash flow. · When some companies file for bankruptcy, it means that the business is unable to pay outstanding debts, and after a lot of legal paperwork, the assets that the company holds will go towards paying its debts, and after all of the assets are spent, the debtor is relieved of the debt obligations incurred prior to filing for bankruptcy. · Even companies that do manage to make a profit, none of those profits are the same amount; the companies that make more risks usually make more profit. · As an entrepreneur, you need to read business articles and talk to busi- ness professionals to find a happy medium between risk and profit that suits you best. The more risks you take, the more successful you may become, but be wary, because a risk is a risk, and it could turn out badly. · Stakeholders: all the people who stand to gain or lose by the policies and activities of a business (customers, employees, financial institu- tions (i.e. banks and credit unions), investors (i.e. stock holders), envi- ronmentalists, government (i.e. federal, provincial, and municipal), etc. The products, policies, and practices of businesses affect all of these groups, and their concerns need to be addressed by the business. Usu- ally stakeholders will conflict with each other, and the business needs to address these conflicts and try its best to resolve them for the sake of the business. · A big challenge for business’s to handle is balancing the needs of all the stakeholders (ex. the need for businesses to make profits must be balanced against the needs of employees for sufficient income). · Offshoring: sourcing part of the purchased input outside of the coun- try. · Outsourcing: assigning various functions, such as accounting, produc- tion, security, maintenance, and legal work to outside organizations. · Outsourcing decisions affect the boundaries of the firm – what produc- tion takes place within the firm and what is purchased from outside the firm. · Changes in offshoring may be, but are not necessarily, related to changes in outsourcing. · A lot of companies are now outsourcing a lot of their research and de- velopment and design functions, which is a risky decision, giving differ- ent countries your research, which they could potentially use to pro- duce their own competitive products. · The US feels safe to offshore their products to Canada because they know they will receive the same education, a concern for privacy and individual rights, as well as polite, friendly, and helpful people at a less- er cost – this is most often the case when it comes to software develop- ment related to business intelligence, industry-specified applications, business process outsourcing, and customer-service oriented call cen- ters. · Non-Profit Organization: an organization whose goals do not include making a personal profit for its owners and organizers (ex. schools, hospitals, and charities). · Non-profit organizations make a contribution to the welfare of society. · Non-profit organizations do strive towards financial gains, but these gains are not for the business, they are for meeting the social or edu- cational goals that the organization has set. · Social Entrepreneurs: people who use business principles to start and manage non-profit organizations and help countries with their so- cial issues. · If you want to start work for a non-profit organization, you still need business skills such as information management, leadership, market- ing, and financial management. · Starting any business is risky, and once an entrepreneur has started a business, there is usually a need for good managers and others to work to keep the business running. · There are two ways to succeed in business 1. Rise up through the ranks of large companies such as Royal Bank of Canada or Manulife Financial. There is an advantage to this as somebody else assumes the entrepreneurial risk and provides you with benefits like vacation time and health insurance. 2. Start your own business and become an entrepreneur. This choice can make you extremely wealthy, but it is extremely risky. You need to be brave and realize that you may fail, as many small businesses fail every year. You also won’t receive any benefits; you will have to provide them yourself. · Business’s grow and prosper in a healthy environment, which results in a high quality of life. · The right business environment is the foundation of social progress, good schools, clean air and water, good health care, and low rates of crime. · There are five factors that contribute to wealth of a country, and they are known as the factors of production. · Factors of production: 1. Land (or natural resources) 2. Labour (workers) 3. Capital Goods (this includes machines, tools, buildings, or whatever else is used in the production of goods. It does not include money. Money is used to buy factors of production – it is not a factor itself) 4. Entrepreneurship 5. Knowledge · There used to only be 4 factors of production, but according to Peter Ducker, the most important factor of production is and always will be knowledge. · Information is not the same as knowledge. · Even if countries have some of the factors of production, it will not make them wealthy. What makes countries wealthy is the combination of entrepreneurship and the effective use of knowledge. · Business Environment: the surrounding factors that either help or hinder the development of business. · There are 6 elements in the business environment, and they are: 1. The legal and regulatory environment a. Tax laws i. The government sets low taxes on businesses so that entrepreneurs will get a high return on investment (ROI), so that entrepreneurship is more attractive. b. Contract laws i. People are a lot more willing to start businesses if the risk is great, and there are acts set up by the govern- ment that help lessen the risk of starting a business (ex. Canada Small Business Financing Act, Consumer Packaging and Labeling Act, Trade Union Act, etc.) ii. Each legislation authorizes an agency to write regula- tions that interpret the law in more detail and indicate how it will be implemented and enforced. iii.Regulations: rules or orders made by the govern- ment to carry out the purposes set in statutes. These regulations exist to help protect the consumer and the business. c. Elimination of corruption 2. The economic environment a. Income and expenditures b. Currency shifts i. A currency shift will make either the dollar stronger or weaker compared to other countries, and that will im- pact our imports and exports. c. Economic systems 3. The technological environment a. Information and technology i. Technology: inventions of innovations from applied science or engineering research. ii. From the beginning of time, people have looked to cre- ate products that make their jobs easier. iii.Companies look to technology allow them to be more productive, efficient, and effective. 1. Productivity: the amount of output that is gen- erated given the amount of input. 2. Effectiveness: producing the desired result. 3. Efficiency: producing goods and services using the least amount of resources. b. Databases: an electronic storage file in which information is kept; one use of databases is to store vast amounts of infor- mation about customers (ex. bar codes on a product). i. Identity Theft: obtaining personal information about a person using that information for illegal purposes. c. The internet i. E-Commerce: the buying and selling of goods over the Internet. 1. Business to Business (B2B) 2. Business to Consumer (B2C) ii. E-Business: any information system or application (business software) that empowers business process- es. 4. The competitive environment a. Components of competition i. Entry 1. Barriers to Entry: business practices or condi- tions that make it hard for new firms to enter the market (ex. capital requirements, product identity, distribution access, switching costs, etc.) ii. Bargaining power of buyers and suppliers: powerful buyers exists when they are few in number, they have low switching costs, or the product represents a signifi- cant share of the buyer’s total costs. iii.Existing rivalries iv. Substitution b. Customer-driven i. Due to the demanding needs of customers, businesses have to offer both high-quality products as well as competitive prices. Customers needs come first. c. Organization structure i. Empowerment: giving front-line workers the respon- sibility, authority, and freedom to respond quickly to customer requests. 5. The social environment a. Diversity i. Demography: the statistical study of the human pop- ulation with regard to its size, density, and other char- acteristics such as age, race, gender, and income. b. Demographic changes i. Baby-boom echo: a demographic group of Canadians that were born in the period from 1980 to 1995; the children of the baby-boomers. ii. Baby-boomers: a demographic group of Canadians that were born from 1947 to 1966. iii.19.8 % of Canada’s population was born outside of Canada and has come into it as immigrants. c. Family changes (based on 2006 consensus) i. More women want careers. ii. There are more families with a single parent. iii.There were more families comprised of couples with- out children than those with. iv. Just over half of Canada’s population was unmarried. v. The proportion of young adults (20 – 29) living in the parental home has increased 6. The global environment · Fewer workers are needed to produce goods, because Canada has be- come so productive. · Goods: tangible products such as computers, food, clothing, cars, and appliances. · Services: intangible products (i.e. products that can’t be held in your hand) such as education, health care, insurance, recreation, and travel and tourism. · The service sector in Canada has grown dramatically in the past 30 years due to technological advances, need to become more efficient, and ever since women have entered the workforce, there is a greater need for daycare, food preparation, household maintenance, etc. January 13, 2012 Chapter 2: How Economic Issues Affect Business · It is important to have a grasp of economics, be aware of the impact of the global environment, and understand the role of the federal and provincial governments in Canada in order to understand the condi- tions in which Canadian businesses operate. · Economics: the study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals. · There are two major branches of economics: microeconomics and macroeconomics. · Microeconomics: the part of economic study that looks at the behav- ior of people and organizations in particular markets. · Macroeconomics: the part of economic study that looks at the opera- tion of a nation’s economy as a whole. · Economics is the allocation of ‘scarce’ resources. · Resource Development: the study of how to increase resources and the creation of the conditions that will make better use of those re- sources (ex. recycling). · Adam Smith is the father of economics as he was the first to create a system for wealth and improving the lives of everyone. He was the cre- ator of developing a capitalist industrial society. He believed that peo- ple had freedom and they would work hard if they wanted to keep the freedom that they have, and once the people would work hard for their incentives, the economy would prosper. · Invisible Hand: a phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic benefits for all. · It is important for businesses to be ethical, as well as generous and give back to society. · The economic system that has led to wealth creation in much of the world is known as capitalism. · Capitalism: an economic system in which all or most of the factors of production and distribution (ex. land, factories, railroads and stores) are privately owned and operated for profit. · In capitalist countries, business people decide what to produce, how much to pay workers, how much to charge for goods and services, where to sell those goods and services, etc. · Capitalism is the term to describe free-market economies. · Free Market: a market in which decisions are made by buyers and sellers negotiating prices for goods and services. · Prices are determined by the microeconomic concepts of supply and demand. · Supply: the quantity of products that manufacturers or owners are willing to sell at different prices at a specific time. o In general, the amount supplied will increase as the price in- creases because sellers can make more money with a higher price. · Demand: the quantity of products that people are willing to buy at dif- ferent prices at a specific time. o In general, the quantity demanded will increase as the price de- creases and decrease as the price increases. · The key factor that determines the quantity supplied and demanded is price. Sellers prefer a high price, where buyers prefer a low price. · Equilibrium Point: the point at which the quantity demanded and the quantity supplied are equal. In the long run, this equilibrium point will be known as the market price. · Market Price: the price determined by supply and demand. · Supporters of a free market will argue that there is no need for govern- ment involvement or planning – the equilibrium point will eventually come out again. · In countries without a free market, there is often shortages or surplus- es of goods. · There are 4 different types of competition, according to economists. 1. Perfect Competition: the market situation in which there are many sellers in a market and no seller is large enough to dictate the price of a product (ex. agricultural products such as apples, corn, pota- toes, wheat, etc.). Although, there are no true examples of perfect competition, not even farming. 2. Monopolistic Competition: the market situation in which a large number of sellers produce products that are very similar, but they are perceived by buyers as different products (ex. hot dogs, candy and t- shirts). In monopolistic competition, product differentiation is the key to success. 3. Oligopoly: a form of competition in which just a few sellers domi- nate the market (ex. areas of oil and gas, tobacco, automobiles, alu- minum, and aircraft). 4. Monopoly: a market in which there is only one seller for a product or service (ex. traditionally, monopolies were common in areas that were considered essential to the community, like water, electricity, and telephone service, although, today, there are very few examples of monopolies in Canada). · The free market, with its competition and incentives provides a good way for poor people to work their way out of poverty. · One of the dangers of the free market is that business people an others may let greed dictate how they act. · Socialism: an economic system based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be evenly distributed among the people. Where wealth is taken from the wealthier people, in forms of taxes, and distributed among the poorer members of the population. Free education, child care, health care, and unemployment insurance are some of the bene- fits of socialism. · Socialism takes away people’s incentives to work hard, and thus wreck- ing the economy. Due to this, socialism is not doing as well as the capi- talist countries are, because people work towards incentives, and when these incentives are taken away, they won’t work as hard. · Communism is an advanced version of socialism. · Communism: an economic and political system in which the state (the government) makes all economic decisions and all of the major factors of production. · Karl Marx was the father of communism. · A problem with communism is that the government does not know what to produce because prices don’t reflect supply and demand as they do in free markets, resulting in either shortages or surpluses, also, people don’t want to work hard anymore, because they aren’t receiv- ing those incentives. · Most communist countries are suffering from economic depression and some are starving (ex. North Korea). · Two major economic systems are working hard towards dominance in the world, they are: o Free-market Economies: an economy in which the market largely determines what goods and services are produced, who gets them, and how the economy grows. o Command Economies: an economy in which the government largely decides what goods and services are produced, who gets them, and how the economy will grow. · Although, neither of these systems have resulted in optimum economic conditions. Free-market economies are not responsive enough to the needs of the poor, old, or disabled, and are not doing enough to pro- tect the environment. · Mixed Economies: economic systems in which some allocation of re- sources is made by the market and some are made by the govern- ment. Canada is a mixed economy. · Due to the fact that we are such a small country, we have set up many laws and regulations to ensure the significant economic and cultural in- stitutions, such as banks, insurance companies, and radio and TV sta- tions remain under Canadian control. · The strength of the economy has a very large effect on business. When the economy is strong and growing, most businesses prosper, and al- most everyone benefits through plentiful jobs, reasonably good wages, and sufficient revenues for the government to provide needed goods and services. Although, when the economy is weak, business are weak- ened, employment and wages fall, and the government revenues de- cline as a result. · Three major indicators of economic conditions are: 1. Gross Domestic Product (GDP): the total value of all goods and services produced in a country in a given year. a) If GDP growth slows or declines, there are often many nega- tive effects on business. b) A major influence on the growth of GDP is productivity: the total output of goods and services in a given period divided by the total hours of labor required to provide them. Today’s pro- ductivity fails to capture the increase in quality by new technolo- gy (ex. CAT scans improve patient care, but do not increase the number of patients that can be seen). c) A strong economy usually leads to a high standard of living: the amount of goods and services people can buy with the mon- ey that they have. d) Quality of Life: the general well-being of a society in terms of political freedom, a clean natural environment, education, health care, safety, free time, and everything else that leads to satisfaction and joy. 2. Unemployment Rate: the percentage of the labour force that ac- tively seeks work but is unable to find work at a given time. a) When the economy is strong, unemployment is low, and peo- ple will have an easier time finding a job, but when the economy is weak, unemployment is higher, and finding a job is more diffi- cult. 3. Price Indexes: these help measure the health of the economy be measuring the levels of inflation, disinflation, deflation, and stagflation. a) Inflation: a general rise in the prices of goods and services over time. It increases the cost of doing business, and rapid in- flation is scary. When a company borrows money, interest costs are higher, employees demand increases to keep up with the rise in the cost of living, suppliers raise their prices, and as a re- sult, the company is forced to raise its prices. b) Disinflation: a situation in which price increases are slowing (the inflation rate is declining). c) Deflation: a situation in which prices are actually declining. d) Stagflation: a situation in which the economy is slowing, but prices are going up regardless. e) Consumer Price Index (CPI): monthly statistic that mea- sures the pace of inflation or deflation. · Business Cycle (economic cycles): the periodic rises and falls that occur in economies over time. o Boom: business is booming, periods of economic boom brings jobs, growth, and economic prosperity. o Recession: two or more consecutive quarters of decline in the GDP. Prices fall; people purchase fewer products, and business fail. There is high unemployment, increased business failures, and an overall drop in living standards. o Depression: a severe recession usually accompanied by defla- tion. o Recovery: when the economy stabilizes and starts to grow, which usually leads to an economic boom, starting the cycle over again. · The goal of economists is to try and predict these ups and downs, which can be very difficult. Business cycles are based on facts, but what those facts describe can be explained only by using theories. So, the business cycle is not certain. One thing is for sure, the economy will rise and fall, no questions. · The government uses fiscal and monetary policy to keep the economy from slowing too much or growing too rapidly to minimize the dramatic swings up and down in the economy. January 16, 2012 Chapter 3: The Role of Government in Business · The government of Canada always has an important role to play in business. · Government activities that affect business may be divided into 6 cate- gories: 1. Crown Corporations: a company that is owned by the federal or provincial government (ex. a crown corporation owns the province’s electric power company, Canadian National Railway, Bank of Cana- da etc.). They were set up to provide services that were not being provided by businesses. Over time, the government sold a lot of its large corporations, which is called privatization: the process of governments selling Crown Corporations. Provincial governments undertook similar actions, (ex. Alberta privatizing its liquor board). 2. Laws and regulations: some feel that the government should have more say in business, but others disagree. Laws are derived from 4 sources: the Constitution of 1867, precedents established by judges, provincial and federal statues, and federal and provincial administrative agencies. Canada has a legislature in each province and territory to deal with local matters. Each level of government has its own roles and responsibilities, and sometimes there is an overlap. a. The primary focus of the federal government is to ensure and support the country’s economic performance, as well as im- pact business operations that include trade regulations, in- corporation of federal companies, taxation (direct and indi- rect), banking and monetary system, national defense, un- employment, immigration, criminal law, fisheries, aeronau- tics, shipping, railways, telecommunications, and atomic en- ergy. b. The primary focus of the provincial government is to ensure regulation of provincial trade and commerce, natural re- sources within their boundaries, direct taxation for provincial purposes incorporation of provincial companies, licensing for revenue purposes, the administration of justice, health and social services, municipal affairs, property law, labor law, and education. While the federal government is responsible for health care, it is up to the provincial government to imple- ment these policies, and their co-operation is critical for suc- cess. Both the federal and provincial governments fund pro- grams for post-secondary education. c. Municipal governments – cities, towns, villages, counties, dis- tricts, and metropolitan regions – are set up by provincial leg- islatures. There are roughly 4000 municipal governments in Canada that provide a variety of services. They play a role in consumer protection – have regulations and laws regarding any establishment that serves food, they have zoning re- quirements that limit the height of buildings and define how far they must be set back from the road, as well as speeding limits. All businesses must obtain a municipal license to oper- ate so the appropriate department can track them to ensure they are following regulations. 3. Taxation and financial policies: taxes affect almost every indi- vidual and business in the country. They are how all levels of gov- ernment redistribute wealth. The revenue that is collected allows governments to discharge their legal obligations and to pay for pub- lic services (ex. fire, police, libraries, etc.), to pay down debt, and fund government operations and programs. It is also used as a ‘sin tax’ as a way to reduce the use of certain classes of products (ex. cigarettes, alcohol, etc.). The government may also implement a tax credit for things such as encouraging business to hire new em- ployees, or to purchase new equipment. Taxes are also levied from a variety of sources. The main bases of tax revenue are income, sales, and property. It is important to control the debt so that they will not need as much money to pay down the national debt, and it will allow the government to spend more on social programs, or to lower taxes, which will stimulate the economy, and Canada will be considered a more attractive country to invest in. a. Fiscal Policy: the federal government’s effort to keep the economy stable by increasing or decreasing taxes or govern- ment spending. b. Deficit: occurs when a government spends over and above the amount it gathers in taxes for a specific period of time (namely, a fiscal year). c. National/Federal Debt: the accumulation of government surpluses and deficits over time. d. Surplus: an excess of revenues over expenditures. e. Federal Budget: a comprehensive report that reveals finan- cial policies for the coming year. f. Monetary Policy: the management of the money supply and interest rates (raising or decreasing interest rates). g. Bank of Canada: controls the money supply and lends out money to the federal government, they are the ones that control monetary policy. 4. Government expenditures: the government disburses tens of bil- lions of dollars annually in old-age-pensions, allowances to low-in- come families or individuals, employment insurance, welfare, work- ers’ compensation, an various other payments to individuals. Many Canadian companies and their employees benefit as a result of this purchasing power. Governments also spend huge sums of money on education, health, roads, ports, waterways, airports, and various other services required by businesses and individuals, as well as supply aid directly and indirectly. Government aid is designed to help industries or companies that are deemed to be very important – at the cutting edge of technology, providing highly skilled jobs, and oriented towards exports. a. Transfer Payments: direct payments from the government to other governments or to individuals (ex. elderly benefits and EI which provide social security and income support). b. Equalization: a federal government program for reducing fiscal disparities among provinces. These payments enable less prosperous provinces to provide their residents with pub- lic services that are roughly comparable to those in other provinces, at roughly comparable levels of taxation. 5. Purchasing policies: governments in Canada are the largest pur- chasers and consumers of goods and services. The do this to favor Canadian companies and this allows Canadian companies to ac- quire advanced technology know-how and to provide employment. 6. Services: The government of Canada has departments that pro- vide services to businesses and consumers. The two major depart- ments are Industry Canada and Foreign Affairs and International Trade Canada. a. Industry Canada: publishes brochures, booklets, and guides informing business people of the help available and how to get it. i. National Research Council (NRC): a federal agency that started in 1916 that reports to Parliament through Industry Canada. They play an important role in re- search that helps Canadian industry remain competi- tive and innovative. This organization represents Canada’s principal science and technology agency. b. Foreign Affairs and International Trade Canada: Cana- da has a large and elaborate system to assist companies in their exporting and foreign-investment activities. · When Canada was formed as a country, in 1867, the government was given the power to “regulate trade and commerce”. Canada was very scattered across a very large piece of land, and there was no way to connect everyone, until the trans-Canada railway was built. · Most people lived in the United States, and they had a way bigger pop- ulation and a bigger economy. The United States developed much faster than Canada did because they had the ability to create more products and distribute them better, two concepts that Canada had not been able to do yet. · Canada’s first prime minister, Sir John A. McDonald developed the Na- tional Policy: government directive that placed high tariffs on imports from the United States to protect Canadian manufacturing, which had higher costs. Since then, trade agreements, such as the North Ameri- can Free Trade Agreement and the Canada-Peru Free Trade Agreement have come into affect). · If the World Trade Organization is successful, then we are going to see limited protection for domestic markets, reduced tariffs and other re- strictions, and the market having a much greater impact on prices and production. · Competition Act: an act set up by the federal agency of Industry Canada that ensures that mergers of large corporations will not restrict competition and that fair competition exists among businesses. · Marketing Boards: organizations that control the supply or pricing of certain agricultural products in Canada, and they often control trade. · Both the federal and provincial governments run their own student loan programs. The federal government plans to phase out interest and other debt relief options for borrowers under the Canada Student Loans Program. This new program, the Repayment Assistance Plan (RAP), payments will be geared to income and no payments on federal loans will be requires for those individuals with a gross annual income of $20,000 or less. · Industrial Policy: a comprehensive, coordinated government plan to guide and revitalize the economy. · The Fraser Institute supports less government involvement. · Constitution Act: outlines the powers of all levels of government. · As we move forward, the government will continue to focus on interna- tional trade initiative to provide opportunities for Canadian businesses. January 18, 2012 Appendix A: Working Within the Legal Environment of Business* · Laws are an essential part of a civilized nation. · Laws must change over time to suit the changes in the needs of soci- ety. · There are 3 branches of government which each have a distinct role in the legal system: o Legislative Branch: composed of the Parliament of Canada and the legislatures of the provinces, makes the laws. o Municipal Branch: also makes laws, but their legislative power is limited to the scope delegated to them by their provincial leg- islatures. o Executive branch: government departments, administrative boards, and police departments administers the laws by putting them into practice. o Judicial Branch: courts who apply the law and interpret it when there is a dispute. · The Canadian court system has both federal and provincial courts. The courts hear cases involving both criminal and civil law. · Criminal Law: defines crimes, establishes punishments, and regulates the investigation and prosecution of people accused of doing crimes. · Civil Law: legal proceedings that do not involve criminal acts. · Business Law: rules, statues, codes, and regulations that are estab- lished to provide a legal framework within which business may be con- ducted and that are enforceable by court action. · Statutory Law: federal and provincial legislative enactments, treaties of the federal government, and bylaws/ordinances – in short, written by law. · Common Law: the body of law that comes from decisions handed down by judges; also referred to as unwritten law. · Precedent: decisions judges have made in earlier cases that guide the handling of new cases. · The Canadian legal system is complicated because it lies in 9 prov- inces, which operate under the English common law, and then they have Quebec, which operates under the French civil law system. · Administrative Agencies: federal or state institutions and other gov- ernment organizations created by Parliament or provincial legislatures with delegated power to pass rules and regulations within their man- dated area of authority. · Some administrative agencies hold quasi-legislative, quasi-executive, and quasi-judicial powers. This means that the agency is allowed to pass rules and regulations within its area of authority, conduct investi- gations in cases of suspected rule violations, and hold hearings to de- termine whether the rules and regulations have been violated. · Administrative agencies issue more rulings affecting business and set- tle more disputes than courts do. There are administrative agencies at the federal, provincial, and local levels of government. o Ex. Federal Level – CRTC (Canadian Radio-television and Telecommunications Commission) regulate the use of airwaves. o Ex. Provincial Level – public utility commissions and boards regu- late prices for services such as electricity, licensing boards, and set the qualifications require from practicing trades and profes- sions. o Ex. Local Level – zoning boards and planning commissions con- trol land use and development, and there are school boards and police commissions. · Tort: a wrongful act that causes injury to another person’s body, prop- erty, or reputation. · The tort area of law comes within provincial jurisdiction. · There are two kinds of torts. An intentional tort – willful act that re- sults in injury, and unintentional tort negligence. · Negligence: in tort law, behavior that does not meet the standard of care requires and causes unintentional harm or injury. o Ex. McDonald’s lost a lawsuit to a person severely burned by its hot coffee. The jury felt the company failed to provide an ade- quate warning on the cup, and awarded a very large amount as compensation to the victim. · Product Liability: part of our law that holds businesses liable for harm that results from the production, design, sale, or use of the prod- ucts they market. · Strict Product Liability: legal responsibility for harm or injury caused by a product regardless of fault. This has caused serious problems for businesses. · Patent: a form of intellectual property that gives inventors exclusive rights to their inventions for 20 years. The inventors must ensure that their product is truly unique. They have the right to sell or license the use of the patent to others. The penalties for violating a patent can be very severe. · Copyright: a form of intellectual property that protects a creator’s rights to materials such as books, articles, photos, and cartoons. The right extends for the life of the original author plus 50 years after his or her death. · Trademark: a brand that has been given exclusive legal protection for both the brand name and the pictorial design. They generally belong to the owner forever, as long as they are properly registered and renewed every 15 years (ex. Pillsbury Doughboy, Disney’s Mickey Mouse, etc.). · Industrial Design: a form of intellectual property that protects the owner’s exclusive right to use the visible features of a finished product that identify it (ex. fine china dishware). · Every one of Canada’s provinces has a Sale of Goods Act, which ap- plies to all contracts for the sale of goods. There must be a transfer of ownership of goods in return for money consideration. · Express Warranties: specific representations by the seller that buy- ers rely on regarding the goods they purchase (ex. the warranty you receive in a box on a toaster, DVD player, clock, etc.) · Implied Warranties: guarantees legally imposed on the seller. It is implied that the product will meet the standards of the trade or indus- try in which it competes. · Full Warranty: requires a seller to replace or repair a product at no charge if the product is defective. · Limited Warranty: limits the defects of mechanical problems that are covered. · Negotiable Instruments: forms of commercial paper (such as cheques) that are transferrable among businesses and individuals and represent a promise to pay a specified amount. It comes in three types, which are all regulated by the federal Bills of Exchange Act: promissory notes, cheques, and bills of exchange. They msut be written and signed by the marker or drawer, payable on demand or at a certain time, payable to the bearer or to a specific order, and contain an un- conditional promise to pay a specified amount of money. o Promissory Notes: a written contract with a promise to pay a sum of money in the future. o Cheque: an instruction to a bank to make a payment. o Bill (or draft): an order to make a payment. · Contract: a legally enforceable agreement between two or more par- ties. · Contract Law: set of laws that specify what constitutes a legally en- forceable agreement. · A contract is legally binding if the following conditions are met: o An offers I made. o There is a voluntary acceptance of the offer. o Both parties give consideration.  Consideration: something of value. o Both parties are competent. o The contract must be legal. o The contract is in proper form. · Breach of Contract: when one party fails to follow the terms of the contract. · If there is a breach of contract, the following conditions must be met: o Specific performance – the person who violated the contract may be required to live up to the agreement fi money damages would not be adequate. o Payment of damages. If someone fails to live up to a contract, you can sue them for damages, usually the amount that you would lose from the non-performance.  Damages: the monetary settlement awarded to a person who is injured by a breach of contract. o Discharge of obligation. If someone fails to live up to their end of the agreement, they could agree to drop the matter. · The Competition Bureau and other government agencies watch to en- sure that competition among sellers flows freely and that new competi- tors have open access to the market. · Consumerism: a social movement that seeks to increase and strengthen the rights and powers of buyers in relation to sellers. · The Parliament of Canada has enacted several major statues dealing with consumer safety and product performance. · Most provinces have legislation permitting the consumer to rescind a purchase contract within a specified “cooling off” period. · False of misleading representations about the characteristics of a prod- uct are prohibited. · A company or corporation is a person, separate from its owners (who are called shareholders or stockholders), in the eyes of the law. The shareholders select a small group of individuals (called directors) who are given ultimate decision-making authority for the corporation. In turn the directors select the officers (ex. president, CEO), who are placed in charge of the day-to-day management of the corporation. · Bankruptcy: the legal process by which a person, business, or gov- ernment entity unable to meet financial obligations is relieved of those obligations by a court that divides debtor assets among creditors, al- lowing creditors to get at least part of their money and freeing the debtor to being anew. The process is designed to minimize the nega- tive impact of this situation for both the debtor and the creditor. Bank- ruptcy can either be voluntary or involuntary. o Voluntary Bankruptcy: legal procedures initiated by the debtor. o Involuntary Bankruptcy: bankruptcy procedures filed by a debtor’s creditors. · The Bankruptcy and Insolvency Act establishes the scheme of distribu- tion to be followed by the trustee in settling the claims of a bankrupt person’s creditors. There are three basic categories of creditors for these purposes: o Secured Creditors (highest authority), who have a direct claim against a specified asset of the debtor. o Preferred Creditors (second class), who have priority over gener- al or unsecured creditors. o Unsecured Creditors (third group) who do not have a direct claim against any asset and are not given preferred treatment by the Act. · The Companies’ Creditors Arrangement Act (CCAA) is a federal statute that provides a second option in the commercial context for insolvent debtors to avoid bankruptcy proceedings. · Deregulation: government withdrawal of certain laws and regulations that seem to hinder competition (ex. those in the airline – government let go of control with regards to where to land, so now there is a lot more competition, and telecommunications industries – government let go of the control, which resulted in a flood of options in the telecommu- nications market). February 8, 2012 Chapter 4: Ethics and Social Responsibility · Those that break the law and ethical practices need to be punished. · Ethics: standards of moral behavior; that is, behavior that is accepted by society as right vs. wrong. · All of the world’s major religions hold the same golden rule: do unto others as you would have them do unto you. · It is important to ask yourself the following questions when facing an ethical dilemma: 1. Is it legal? 2. Is it balanced/fair? 3. How will it make me feel about myself? · A business should be run ethically for many reasons: o To maintain a good reputation o To keep existing customers o To attract new customers o To avoid lawsuits o To reduce employee turnover o To avoid government intervention o To please customers, employees, and society o To do the right thing · Compliance-based Ethics Codes: ethical standards that emphasize preventing unlawful behavior by increasing control and by penalizing wrongdoers. · Integrity-based Ethics Codes: ethical standards that define the or- ganizations guiding values, create an environment that supports ethi- cally sound behavior, and stress a shared accountability amoung em- ployees. · Whistleblowers: people who report illegal or unethical behavior. · After there were major corporate and accounting scandals in the Unit- ed States in the early 2000’s (ex. Enron), there was a new US federal legislation known as the Sarbanes-Oxley Act (SOX): helps to estab- lish stronger standards to prevent misconduct and improve corporate governance practices; helps to ensure the accuracy ad reliability of published financial information, and therefore the main part of the leg- islation requirements deal with the proper administration routines, pro- cedures, and control activities. They also protect whistleblowers. · Bill C-11: The Public Servants Protection Disclosure Act. It is the only national whistleblower legislation passed in 2005. It provides signifi- cant powers to investigate wrongdoing, it contains a clear legal prohibi- tion of reprisal against those who make good-faith allegations or wrongdoing, and it proposes measures to protect the identity of per- sons making disclosures. · Federal Accountability Act: implemented to help strengthen ac- countability and increase transparency and oversight in government operations. · Corporate Social Responsibility (CSR): a business’s concern for the welfare of society as a whole. o Corporate Philanthropy: dimensions of social responsibility that includes charitable donations. o Corporate Social Incentives: dimensions of social responsibil- ity that includes enhanced forms of corporate philanthropy that are more directly related to the company’s competencies (ex. In a tsunami disaster relief, pharmaceutical companies sent antibi- otics). o Corporate Responsibility: dimensions of social responsibility that includes everything from hiring minority workers to making safe products. o Corporate Policy: dimension of social responsibility that refers to the position a firm takes on social and political issues. · There are two different views of corporate responsibility to stake hold- ers: o The strategic approach: management’s primary orientation to be towards the economic interests of shareholders. Adam Smith’s notion of the invisible hand suggest that maximum so- cial gain is realized when managers attend only to their share- holder’s interests. o The pluralist approach: the special responsibility of manage- ment to optimize profits, but not at the expense of employees, suppliers, and members of the community. · Customers like to do business with those that they can trust. · Unethical behavior results in financial damage. · Ethical behavior is good for the shareholder wealth. · Insider Trading: an unethical activity in which insiders use private company information to further their own fortunes or those of their family and friends. · If a company treats employees with respect, they usually will respect the company as well. · Social Audit: a systematic evalutation of an organization’s progress toward implementing programs that are socially responsible and re- sponsive. · Triple-bottom line (TBL; 3BL; or People, Planet, Profit): a frame- work for measuring and reporting corporate performance against eco- nomic, social, and environmental parameters. · There are four types of groups that serve as watchdogs regarding how well companies enforce their ethical and social responsibility policies: o Socially conscious investors – a company should extend its own high standards to all its suppliers. o Environmentalists – apply pressure by naming the names of companies that don’t abide by the environmentalists’ standards. o Union officials – hunt down violations and force companies to comply to avoid negative publicity. o Customers – take their business elsewhere if a company demon- strates unethical or socially irresponsible practices. · Sustainable Development: implementing a process that integrates environmental, economic, and social considerations into decision mak- ing. · Putting a cost on plastic bags, or switching to paper bags at a grocery store is a sustainable movement. · Many businesses are demanding socially responsible behavior from their international suppliers. February 8, 2012 Chapter 5: Competing in Global Markets · It is hard to find a major Canadian company that does not cite global expansion as a link to its future growth. · Exporting: selling goods and services to another country. · Importing: buying goods and services from another country. · Free Trade: the movement of goods and services amoung nations without political or economic obstruction. · Comparative Advantage Theory: theory that states that a country should sell to other countries those products that it produces most ef- fectively and efficiently and buy from other countries those products that it cannot produce as effectively or efficiently. o Canada has a comparative advantage with certain forestry prod- ucts, aluminum, and various minerals. · Absolute Advantage: the advantage that exists when a country has the ability to produce a particular good or service using fewer re- sources (and therefore at a lower cost) than another country. · Balance of Trade: a nation’s ratio of exports to imports. o Trade Surplus: when the value of the country’s exports ex- ceeds that of its imports. o Trade Deficit (unfavorable balance of trade): occurs when the value of a country’s imports exceeds that of its exports. · Balance of Payments: the difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows from other factories such as tourism, foreign aid, mil- itary expenditures, and foreign investment. o Exports – Imports + money flows from other factors (tourism, foreign aid, military expenditures, and foreign investment) · Canada is very dependent on the USA. · According to reports, it states that by 2050, India will be the world’s third-largest economy, behind only USA and China. · Businesses use many different strategies to compete in global mar- kets: o Exporting: selling goods and services to another country and establishing foreign trading relationships. o Licensing: a global strategy in which a firm (the licensor) allows a foreign company (the license) to produce its product in ex- change for a fee (royalty). o Franchising: an arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a produce or service to others in a given country. o Contract Manufacturing: a foreign production of private-label goods to which a domestic company then attaches its brand name or trademark; also called outsourcing. o International Joint Ventures and Strategic Alliances:  Joint Venture: a partnership in which two or more com- panies (often from different countries) join to undertake a major project or to form a new company. · Benefits: shared technology and risk, shared mar- keting and management expertise, entry into mar- kets where foreign companies are often not allowed unless goods are produces locally, and shared knowledge of the local market, including local cus- toms, government connections, access to local skilled labour and supplies, and awareness of do- mestic laws and regulations.  Strategic Alliance: a long-term partnership between two or more companies established to help each company build competitive market advantages. They do not usually share costs, risks, management, or even profits. o Foreign Direct Investment: the buying of permanent property and businesses in foreign nations.  Foreign Subsidiary: a company owned in a foreign country (host country) by the parent company (home country). · Expropriation: when relations with the host coun- try falter and the firms assets could be taken over by the foreign government.  Multinational Corporation: an organization that manu- factures and markets products in many different countries and has multinational stock ownership and multinational management. · Succeeding in any business takes work and effort due to the many challenges that exist in all markets, and unfortunately, the hurdles are higher and more complex in global markets than in domestic ones. o Sociocultural Forces  Culture: the set of values, beliefs, rules, and institutions help by a specific group of people.  Ethnocentricity: an attitude that one’s own culture is su- perior to all others. o Economic Forces  Exchange Rate: the value of one nation’s currency rela- tive to the currencies of other countries. · A high value of the dollar means that a dollar would be traded for more foreign currency than normal. · A low value of the dollar means that a dollar would be traded for less foreign currency than normal.  Global markets operate under a system called floating ex- change rates, in which currencies “float” according to the supply and demand in the global market for the currency.  Devaluation: lowering the value of a nation’s currency relative to other countries.  Countertrading: a complex form of bartering in which several countries may be involved, each trading goods for goods or services for services. o Legal and Regulatory Forces  In Canada, federal, provincial, and municipal laws heavily affect business practices. In global markets, no such sys- tem exists. o Technological Forces  Technological constraints may make it difficult given the nature of exportable products (i.e. hosts in developing countries do not have electrical system that match those of Canadian homes). · Trade Protectionism: the use of government regulations to limit the import of goods and services. · Dumping: selling products in a foreign country at lower prices than those charged in the producing country. · Tariffs: a tax imposed on imports. o Protective tariff: designed to raise the retail price of imported goods so that domestic products will be more competitively priced. o Revenue tariff: designed to raise money for the government. o Import Quota: a limit on the number of products in certain cat- egories that a nation can import. o Embargo: a complete ban on the import or export of a certain product or the stopping of all trade with a particular country. · General Agreement on Tariffs and Trade (GATT): a 1948 agree- ment agreed upon by 23 nations, that established an international fo- rum for negotiating mutual reductions in trade restrictions; the coun- tries agreed to negotiate to create monetary and trade agreements that might facilitate the exchange of goods, services, ideas, and cultur- al programs. It · World Trade Organization (WTO): the international organization that replaced the General Agreement on Tariffs and Trade, and was as- signed the duty to mediate trade disputes amoung nations. It has 153 member nations and its purpose is to oversee cross-boarder trade is- sues and global business practices amoung those nations. · International Monetary Fund (IMF): created in 1944, an interna- tional bank that makes short-term loans to countries experiencing problems with their balance of trade. Their basic objectives are to pro- mote exchange stability, maintain orderly exchange arrangements, avoid competitive currency depreciation, establish a multilateral sys- tem of payments, eliminate exchange restrictions, and to create stand- by reserves. · World Bank (International Bank for Reconstruction and Devel- opment): a autonomous United Nations agency that borrows money from the more prosperous countries and lends it to less-developed countries to develop their infrastructure. It borrows from more prosper- ous countries and lends at favourable rates to less-developed coun- tries. · Producers’ Cartels: organizations of commodity-producing countries that are formed to stabilize or increase prices to optimize overall prof- its in the long run. · Common Market (trading bloc): a regional group of countries that have a common external tariff, no internal tariffs, and a coordination of laws to facilitate exchange; also called a trading bloc. o NAFTA (North American Free Trade Agreement): agree- ment that created a free0trade area amoung Canada, the United States, and Mexico. Came into affect on January 1, 1993. They wanted to:  Eliminate trade barriers and facilitate cross-boarder move- ment of goods and services amoung three countries.  Promote conditions of fair competition in this free-trade area.  Increase investment opportunities in the territories of the three nations.  Provide effective protection and enforcement of intellectu- al property rights (patents, copyrights, etc.) in every na- tion’s territory.  Establish a framework for further regional trade co-opera- tion.  Improve working conditions in North America. o EU (European Union): began in the late 1950’s, and today has 27 member nations, located primarily in Europe. It is the world’s biggest trading power. In 1999, the EU officially launched its joint currency – the euro. · It is expected that China will be a key driver in the world’s economy, with its openness to trade and investment, educated workforce, and stable infrastructure. February 16, 2012 Chapter 6: Forms of Business Ownership · One key success in starting anew business is understanding how to get the resources you need. · Three major forms of business ownership are: o Sole Proprietorship: a business that is owned and operated by one person, without forming a corporation.  Advantages of Sole Proprietorships: · Ease of starting and ending the business. · Being your own boss. · Pride of ownership. · Retention of company profit. · No special taxes. · Less regulation.  Disadvantages of Sole Proprietorship: · Risk of personal losses - Unlimited Liability: the responsibility of business owners for all the debts of the business. · Limited financial resources. · Management difficulties. · Overwhelming time commitment. · Few fringe benefits. · Limited growth. · Limited lifespan. · Possibly pay higher taxes. o Partnership: a legal form of business with two or more parties.  General Partnership: a partnership in which all owners share in operating the business and in assuming liability for the business’s debts. · General Partner: an owner (partner) who has un- limited liability and is active in managing the firm.  Limited Partnership: a partnership with one or more general partners and one or more limited partners. · Limited Partner: an owner who invests money in the business but does not have any management responsibility or liability for losses beyond the in- vestment. o Limited Liability: the responsibility of a business’s owners for losses only up to the amount they invest; limited partners and shareholders have limited liability.  Advantages of Partnerships: · More financial resources. · Shared management and pooled/complementary skills and knowledge. · Longer survival. · Shared risk. · No special taxes. · Less regulation.  Disadvantages of Partnerships: · Unlimited liability. · Division of profits. · Disagreements among partners. · Difficult to terminate. o Partnership Agreement: legal document that specifies the rights and responsibilities of each partner. · Possibly pay higher taxes. o Corporations: a legal entity with authority to act and have lia- bility separate from its owners. There are 1.5 million corpora- tions in Canada and they have the largest share of revenue by far.  Public Corporation: corporation that has the right to is- sue shares to the public, so its shares may be listed on a stock exchange. This offers the possibility of raising large amounts of capital, regardless of the size of the company.  Private Corporation: corporation that is not allowed to issue stock to the public, so tis shares are not listed on stock exchanges; it is limited to 50 or fewer shareholders. This greatly reduces the cost of incorporating.  Advantages of corporations: · Limited liability. · More money for investment. · Size. · Perpetual life. · Ease of ownership change. · Ease of drawing talented employees. · Separation of ownership from management.  Disadvantages of Corporations: · Extensive paperwork. · Double taxation. · Two tax returns. · Size. · Difficulty of termination. · Possible conflict with stockholders and board of di- rectors. · Initial cost. o Professional Corporations: a Canadian-controlled private cor- poration engaged in providing professional services. o Non-Resident Corporations: conducts business in Canada but has its head office outside of Canada. o Non-Profit Corporations: formed for charitable or socially beneficial purposes. o Crown Corporations: companies that only the federal or pro- vincial government can set up. · Corporate Governance: the process and policies that determine how an organization interacts with its stakeholders, both internal and exter- nal. · Articles of Incorporation: a legal authorization from the federal or provincial/territorial government for a company to use the corporate format. · Merger: the result of two firms forming one company. · Acquisition: one company’s purchase of the property
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