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Management (MGT)
Chris Bovaird

1 MANAGEMENT MID TERM CHAPTER 1: CANADIAN BUSINESS SYSTEM Business: an organization that produces or sells goods or services in an effort to make profit. *NOT a business ex uoft, hospitals Profit: what remains after business expenses are subtracted ($ out) from its revenues ($ in). Reward owners for taking risks in investing their time and money. Deficit/loss= is when a business spends more than it gains Expenses: $ business spends/ aka costs Revenue: $ business earns selling its products/ aka sales Economics: study of how business/ppl make choices about what to produce or consume, how best to produce & how best to distribute wealth FACTORS OF PRODUCTION economic system: how a nation allocates its resources among citizens There are 4 factors of production (building blocks to produce) 1. Natural Resources: raw materials including land 2. Labor: Human resources, it is the mental and physical training of ppl 3. Capital (includes equipment): financial and technological resources to operate business 4. Entrepreneurs: ppl who organize other factors of production running risk of failure -information resources: info ex economic data that’s useful to a business ECONOMIC SYSTEMS market: exchange between buyers and sellers 2 economic systems: 1. Command or Planned Economies: Government control or own all of the factors of production, therefore they make most or all decisions Communist Economy: government controls 100% of economic decisions, very few ex north korea - Socialist Economy: government controls the majority of the factors of production, so it makes most of the economic decisions ex cuba 2. Market Economy: Individuals own or control factors of production, individuals make most or all decisions- canada= free market economy (broad regulations/entre can just start a business w/o any fees or permission) Capitalist Economy: individuals own all factors of productions, they make 100% of the economic decisions - Mixed Economy: individuals control the majority of factors of production, and make most economic decisions. Ex = Canada, France, USA, UK Canada= controlled by private individuals, gov intervenes through taxation and regulation; plus providing some services. Privatization: government enterprises convert to privately owned companies Deregulation: reduction of the number of laws affecting business activity HOW GOVERNMENTS INFLUENCES BUSINESS 2 - Government as a customer ex gov buys advertising in Canada - Government as competitor ex compete w Crown corporations - Government as a regulator ex regulate Canadian Radio-Television, Canadian Transport to protect competition, consumers & achieve social goals - Government as taxation agent: revenue taxes (income taxes; to fund gov services), progressive revenue (taxes leveled at higher rate on higher taxpayers and lower for lower taxpayers), regressive revenue (sales tax; poorer ppl to pay a higher income than richer ppl) & restrictive taxes (control activites) - Government as provider of incentives : to help economic develop - Governments as provider of essential services: ex highways, postal service DEMAND AND SUPPLY demand: willingness of buyer to purchase supply: willingness of producers to offer a product - Law of Demand: buyers will purchase more of a product as its price drops and less of a product if price increases. - Law of Supply: producers will offer more of a product for sale as its price rises and less as its price drops demand and supply schedule: assessment of diff levels of demand and supply - A demand curve shows how many products will be demanded at different prices - A supply curve show how many of the product will be supplied at different prices. Market price or equilibrium price: the price at which the quantity of goods demanded and the quantity of goods supplied are equal. SURPLUS AND SHORTAGES - Surplus: a situation in which the quantity supplied exceeds the quantity demanded. - Shortage: the quantity demanded will be greater than the quantity supplied DEGREE OF COMPETITION market economies rely on private enterprise: economic system by private property rights, freedom of choice, profits and competition - Perfect competition: lots of suppliers, all are small, more or less the same, and must sell at the same price ex. Convenience store, gas stations - Monopolistic Competition: lots of suppliers, most are small, most are more or less the same, some that are big can differentiate themselves, most sell at the same price, big suppliers can charge extra ex starbucks, Hollister - Oligopoly: small number of suppliers, all are large, each tries to differentiate themselves, industry is hard to enter and/or exit, and they follow or watch each other closely (change their price to compete with others) - Monopoly: only one supplier, 100% of market share, can set whatever price they want ex only ONE gas station in town, only ONE convenience store in town CHAPTER 2: ENVIRONMENTS OF BUSINESS 3 External environment: Is the outside of an organization’s boundaries that might affect it. Economic environment: refers to the condition of the economic system in which an organization operates. ECONOMIC GROWTH The Business Cycle: Business cycle: is the pattern of short-term ups and downs in an economy : (BustDepression->RecoveryPeakRecessionTroughRecovery) -Recession: a period in which aggregated output declines. double dip recession: what US worries about; econ shrinks, recovers weakly then shrinks again -Depression: if a recession last for a prolonged period it is called depression Aggregate output: the total quantity of goods and services produced by an economic system during a period. Standard of living: the total quantity and quality of goods and services that they can purchase with the currency used in their economic system. Gross Domestic Product (GDP): total value of all goods and services produced within a given period through domestic factors of production Gross National Product (GNP): 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. GDP per capita: is the GDP per person (total GDP / population) ex. Canada gdp= 1.5 trillion, pop= 33 mill…1.5 trillion divide by 33 million= $50, 000 per person Real GDP: is the adjusted GDP now from last time Nominal GDP: is the non-adjusted GDP, current Purchase power parity: exchange rates are set so that the prices of similar products in different countries are about the same. PRODUCTIVITY: Productivity: a measure of economic growth that compares how much a system produces with the resources needed to produce it. Productivity = outputs / inputs Higher Productivity is produced by: - Better education - Better trained labour - More money = Better technology - More and cheaper natural resources Balance of Trade: is the economic value of all the products that a country exports minus the economic value of its imported products. - Positive balance of trade when there is more export than imports. Helps economic growth 4 - Negative balance of trade when there are more imports than exports. Inhibits economic growth National Debt: amount of money that the government owes its creditors Budget Deficit: when the government spent more money that it actually received Stability: condition in an economic system in which the amount of money available and the quantity of goods and services produced are growing at about the same rate. ECONOMIC STABILITY Inflation: occurs when the widespread price increases throughout an economic system. -Measure inflation: Consumer Price Index; measures the change in price of a “basket” of 600 different goods and services a family might buy Deflation: when the bank reduces interest rates in an attempt to increase consumer demand. Unemployment: level of joblessness among people actively seeking work in an economic system - Frictional Unemployment: people who are temporarily out of job while looking for a new job - Seasonal Unemployment: people who are out of work because of the season nature of the jobs - Cyclical Unemployment: people are out of work because of a downturn in the business cycle - Structural Unemployment: people lack of skills needed to perform available jobs MANAGING THE CANADIAN ECONOMY: Fiscal Policies: policies by means of which governments collect and spend revenues. Monetary Policies: policies by means of which the government controls the size of the nation’s money supply Stabilization Policy: policy embracing both fiscal and monetary policies, whose goal is to smooth out fluctuations in output and unemployment and to stabilize prices - Highest interest rate, expensive to borrow, less consumption by consumers and producers. - Lower interest rate, cheaper to borrow, more spending by both consumers and producers. BUSINESS ENVIRONMENT Issues for Canadian business: taxation, value of Canadian dollar & need for educated/skilled workforce EMERGING CHALLENGES AND OPPORTUNITIES IN THE BUSINESS ENVIRONMENT: Core Competency: skills and resources with which an organization competes best in and creates the most values for owners Outsourcing: strategy of paying suppliers and distributors to perform certain business processes or to provide needed materials or services 5 CHAPTER 3: ENTREPENEURSHIP & SMALL BUSINESS -anyone can start a business, no fees, just begin! -2.2/2.4 mill businesses in canada Small Businesses: an owned-managed business with less than 100 employees; goods producing= less than 100, service producing= less than 50 - 98% of businesses are small businesses New Venture/Firm: recently formed commercial organization that provides goods and/or services for sale Entrepreneurship: process of identifying an opportunity in the marketplace and accessing the resources needed to capitalize on it Entrepreneurs: People who recognize and seize opportunities Intrapreneur: entrepen characteristics who create something new within an EXISTING large organization/firm -Personality= need for achievement, internal locus of control (events result from their own behavior), risk tolerance (unknown is desired) & self confident need for power is usually CEO, big companies, Need for afiliation is usually a vet, places workin with other ppl & helping, doctor 80% who are entre are influenced by parents (who were entr themselves)/ if parent is immigrant…women more successful Private Sector: part of the economy that is made up of companies and organizations that are not owned or controlled by the government IDENTIFYING OPPORTUNITIES - Ideas generation work experience most common source of new ideas - Screening (idea characteristics) o The idea creates or adds value for the customer o The idea provides comparative advantage that can be sustained o The idea is marketable and financially viable o Sales Forecast: estimate of how much of a product or service will be purchased by prospective customers over a specific period o the idea has low exit cost - Franchise: an arrangement in which a buyer (franchisee) purchases the right to set the product or service of the seller (franchiser) - Business Plan: a document that describes the entrepreneur’s proposed business venture ACCESSING RESOURCES: Financial Resources: 1. Debt: money borrowed (from financial institutions aka banks, suppliers) - Collateral: assets that a borrower uses to secure a loan or other credit, and that are subject to seizure by the lender if the loan isn’t repaid 6 2. Equity: $ that the entre invests in a business *most common (personal saving, love money aka from ppl u love, private investors ex dragons den, venture capitalists: pools of investment money) STARTING A SMALL BUSINESS - Buying an existing business: o Odds of success are better o Proven ability to attract customers - Buying a franchise: o Franchise Agreement: stipulates the duties and responsibilities of the franchisee and the franchiser o Factors that affect the decision of purchasing a franchise: Franchise sales price, Training expenses SUCCESS AND FAILURE IN SMALL BUSINESS Reasons for success: - Hard work, drive and dedication -Managerial competence: understanding of how to manage a business Reasons for failure: - Managerial incompetence or inexperience - Neglect: managers who do not put the time an effort in the business - Weak control systems CHAPTER 4: LEGAL FORMS OF BUSINESS ORGANIZATION 1. Sole Proprietorship: a business owned and operated by one person - Advantages: easy to form, no need to register your business, you get all the money. - Disadvantages: unlimited liabilities, dissolved when the owner dies, hard to get loans. *most common o Unlimited Liability: personal liability for all debts of the business 2. Partnership: form of organization established when 2 or + persons agree to combine their abilities and $ to open business (no paperwork but smart to get an agreement written) TYPES OF PARTNERSHIP General Partnership: type of partnership in which all partners are jointly liable for the obligations of the business - Limited Partnership: partnership with at least 1 general partner and 1 or more limited partners (supplies only money/does not manage/has limited liability [cant be sued]) -Advantages of Partnership: Ability to grow by adding talent and money - Disadvantages of Partnership: When a problem happens to appear, both have to pay for one’s mistake 3. Corporation: business that is a separate legal entity that is liable for its own debts and whose owners’ liability is limited to their investments (can sue corp but not owner, DOES require fees and paperwork 7 - Shareholders: persons who own shares in a corporation, limited liability, owns corp but does not manage - Board of Directors: group of individuals elected by a firm’s shareholders and charged with overseeing and taking legal responsibility for the corporations actions Inside directors: members of a corporation’s board of directors who are also full time employees of the corporation, primary responsibility ex managers, VP -Outside directors: members of a corporation’s board of directors who are not employees ex accountants Chief Executive Officer (CEO): the person who is responsible for the firms overall performance TYPES OF CORPORATIONS Public Corporations: business who shares are widely and available for sale to the general public Private Corporations: business whose shares are held by a small group of individuals and is not usually available for sale to the general public -Initial Public Offering(IPO): sale of shares in a company for the first time to the general investing public FORMATION o Federal corporation under the Canada business Corporations Act o Provincial incorporation under any of the provincial corporations acts -Advantages of incorporation: Limited Liability - Disadvantages of incorporation: cost and regulations they have to abide by REDRAWING CORPORATE BOUNDARIES acquisition: one firm buys another firm –it becomes its property merger: union of 2 companies to form a single new business -horizontal merger: 2 firms that were competitors in the same industry form -vertical merger: 2 firms that had a buyer-seller relationship form -conglomerate merger: 2 firms that were completely unrelated form friendly takeover: company welcomes the acquisition hostile takeover: company fights the acquisition divestiture: company sells part of its operation to another company spinoff: set up more units as new corporations CHAPTER 5: INTERNATIONAL BUSINESS Globalization: the integration of markets globally (interdependent system ex NAFTA- Canada US and Mexico w no barriers/protection; trade btw them) Imports: products that are made or grown abroad and sold in Canada Exports: products made or grown in Canada that are sold abroad THE MAJOR WORLD MARKETPLACES: North America, Europe and Asia-Pacific Per capita income: the average income per person of a country - High-Income countries: those with per capita income greater than $10,065. - Upper-Middle-Income countries: per capita income between $3,255 and $10,065. - Low Middle-Income countries: per capita income between $825 and $3255 - Low-Income counties: per capita income below $825 8 FORMS OF COMPETITIVE ADVANTAGE 1. Absolute advantage: nations ability to produce something cheap/better than any other country b/c climate, geography 2. Comparative advantage: nations ability to produce some products cheap/better than it can in other products 3. National competitive: engage in international trade when factor of production conditions, demand conditions, related/supporting industries, and strategies/structures/rivalries are favorable international competitiveness: country has more wealth than its competitors in world markets IMPORT-EXPORT BALANCES -canada is open economy (open to trade) Balance of Trade: the difference in value between a country’s total exports and its total imports -positive when exports more than imports -trade deficit: imports more than exports is unfavorable balance of trade Trade Surplus: when a country exports more than it imports Trade Deficit: when a country imports more than it exports Balance of Payment: difference between money flowing in to and out of a country as a result of trade -unfavorable= more money out than in EXCHANGE RATES Exchange rates: the ratio of one currency to another Fixed exchange rate: value of any country currency is constant with others floating: value varies-*most common Euro: a common currency shared among most of the members of the European Union, excluding Sweden, Denmark and the UK INTERNATIONAL ORGANIZATION STRUCTURES 1. Independent agents: a foreign individual or organization who agrees to represent an exporter’s interest in foreign markets, sales representatives 2. Licensing Arrangements: an arrangement by an owner of a process or product to allow another business to produce, distribute, or market it for a fee or royalty 3. Branch Office: A location that an exporting firm establishes in a foreign country in order to sell its products more effectively 4. Strategic Alliance: an enterprise in which two or more persons or companies temporarily join forces to undertake a particular project. 5. Foreign Direct Investment(FDI): buying or establishing tangible assets in another country ex Volkswagen buys & sets up factory in Brazil BARRIERS TO INTERNATIONAL TRADE - Social and cultural differences ex how to act properly in India 9 - Economic differences - Legal and political differences o Quota: restriction on the total number of products imported to another country o Embargo: government order forbidding exportation & importation of a particular product o Tariff: A tax levied on imported products -revenue: tariff to raise gov money -protectionist: to discourage importation of product o Subsidy: government payment to help domestic business compete with foreign firms o Protectionism: protect domestic businesses at the expense of free market competition o Local-content laws: laws requiring that products sold in a particular country be at least partly or partially made in that same country o Business practice laws: Laws/regulation governing business practices in given countries o Cartel: any association of producers whose purpose is to control the supply and price of a given product -Dumping: selling a product for less abroad than in the producing nation, illegal in Canada FREE TRADE AGREEMENTS -European Union (EU): Agreement among major Western European Nations to eliminate most trade barriers affecting group members -NAFTA CHAPTER 6; BUSINESS STRATEGY -Managers develop strategic and tactical plans, analyze their competitive environments and plan, organize, direct, and control day-to day operations (management applies to organizations like churches schools etc) SETTING GOALS AND FORMULATING STRATEGY -The starting point in effective management is setting goals Goals: objectives that a business hopes and plans to achieve Strategy: is the broad program that underlines those decisions Setting Goals Goals are performance targets (measure success or failure at every level) The Purpose of Goal Setting -An organization functions systematically because it sets goals and plans accordingly 4 main purposes in organizational goal setting: 1. Goal setting provides direction, guidance, and motivation for all managers. ex. Starbucksgoal of increasing capital spending by 15% 10 2. Goal setting helps firms allocate resources. The company allocates more resources to new projects with large scale potential than it allocates to mature products with establishing but stagnant sales potential 3. Goal setting helps to define corporate culture. 4. Goal setting helps managers assess performance. If a company sets a goal to increase sales by
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