Textbook Notes (369,133)
Canada (162,403)
Commerce (1,696)
Rita Cossa (83)
Chapter 1-3

Commerce - Chapter 1-3 Notes.docx

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Department
Commerce
Course Code
COMMERCE 1B03
Professor
Rita Cossa

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CHAPTER ONE – MANAGING WITHIN THE DNAMIC BUSINESS ENVIRONMENT Business and Entrepreneurship: Revenues, Profits and Losses  Business: any activity that seeks to provide goods/services to others while operating at a profit  Entrepreneur: person who risks time ad money to start/manage a business Matching Risk with Profit  Revenue: total amount of money a business takes in during a given periods by selling goods and services  Loss: when a business’s expenses are more than its revenues  Risk: chance an entrepreneur takes of losing time and money on a business that may not prove profitable  Must calculate risks and rewards of each decision made in business Responding to the Various Business Stakeholders  Stakeholders: all of the people who stand to gain/lose by policies/activities of a business  Ex. Customers, employees, financial institutions, investors, government, etc.  Business managers must balance needs of various stakeholders  Ex. Balance employee pay and stakeholders’ profits  Offshoring: sourcing part of purchased inputs outside of the country  Outsourcing: assigning various functions to outside organizations (accounting, production, security, maintenance, legal work, etc.)  Canada and US often work together because customers view as mostly the same Using Business Principles in Non-Profit Organizations  Non-profit organization: organization whose goals do not include making a personal profit  Do not strive for financial gains  Financial gains used to meet social/educational goals of organization  Social entrepreneurs: people who use business principles to start and manage nonprofit organizations to help countries with social issues Entrepreneurship versus Working For Others  Advantage of working for others: o Somebody else assumes entrepreneurial risk o Someone else provides benefits like paid vacation and health insurance The Importance of Factors of Production to the Creation of Wealth  Factors of production: resources used to create wealth: o Land: used to make homes, cars, other products o Labour: people produce goods and services o Capital goods: machines, tools, buildings, etc. o Entrepreneurship: someone must take risk of starting a business in order for resources to be used o Knowledge  Land, labour, capital are not the critical elements for wealth creation  Countries with a lot of these still poor and countries with little still rich  Entrepreneurship and effective use of knowledge create wealth Freedom Equals Prosperity  Freer country has wealthier citizens  GDP: total value of all final goods and services produced in a country divided by the number of people in the country  GDP of freer countries is larger than less free countries  Canada scores high in 7 of the 10 economic freedoms The Business Environment  Business environment: surrounding factors that help or hinder development of a business  Six elements in business environment: 1. Legal and regulatory environment 2. Economic environment 3. Technological environment 4. Competitive environment 5. Social environment  Creating right business environment is foundation for social progress The Legal and Regulatory Environment  People more willing to start a business if risk of losing money is lower  Government can lessen risk of starting and running business through laws  Laws: Competition Act, Trade Unions Act, Consumer Packaging and Labelling Act, Canadian Small Business Financing Act  Regulations: rules/orders made by government to carry out purposes set out in statutes  Regulations protect consumers and businesses Laws Affect Business  Entrepreneurs want a high ROI (return on investment – including time)  Places with high taxes and restrictive regulations drive entrepreneurs out  Places with low taxes and less restrictive regulations attract entrepreneurs The Economic Environment  Economic environment looks at income, expenditures and resources that affect cost of running a business  Movement of one country’s currency relative to others also in environment  Lower Canadian dollar than US dollar makes exports cheaper and more attractive to US market  Consumers can buy more products with higher-valued currency  Governments sell business they owned to private individuals to create more wealth  Activities occurring in one environment have impact on other environments  All environments are linked The Technological Environment  Technology: inventions or innovations from applied science or engineering research  Information technology (IT) has had most lasting impact on businesses (ex. computers, cell phones, modems) How Technology Benefits Workers and You  Productivity: amount of output that is generated given the amount of input  Effectiveness means producing desired result  Efficiency means producing goods/services using least amount of resources  Effectiveness is more important than efficiency The Growth of Electronic Commerce (E-Commerce)  E-commerce: buying and selling of goods/services over the Internet  Two major types of e-commerce: 1. Business-to-consumer (B2C) 2. Business-to-business (B2B)  E-business: any information system/application that empowers business processes Using Technology to Be Responsive to Customers  Businesses who respond to customers wants/needs are most successful  Database: electronic storage file where info is kept  One use of databases is to store lots of info about customers  Identity theft: obtaining personal info about a person and using it for illegal purposes The Competitive Market Components of Competition  Entry: o Firm must asses likelihood of new entrants o More producers means lower prices o Barriers to entry: conditions that make it difficult for new firms to enter the market  Power of buyers and suppliers: o Buyers gain power when: few buyers, low switching cots, product represents significant share of buyer’s total costs o Supply gains power when: product is critical to buyer  Existing Competitors and Substitutes: o Competition is stronger in slower growing industry o High fixed costs create competitive pressures Competing by Exceeding Customer Expectations  Business is becoming customer-driven not management-driven like in past  Must now listen more closely to customers to determine their wants/needs  Adjust firm’s products, policies and practices to meet demands of customers Competing by Restructuring and Empowerment  Empowerment: giving front-line workers responsibility, authority and freedom to respond quickly to customer requests  Must be able to make decisions within certain limits without asking mangers The Social Environment  Demography: statistical study of the human population with regard to it’s size, density and other characteristics such as age, race, gender, income The Aging Population  More people living longer cause of better medicine, healthier lifestyle  Baby-boom echo: children of the baby boomers (born 1980-1995)  Baby boomers: demographic group of Canadians born from 1947-1966  Must monitor age of most of population to see what goods/services will be needed in the economy  Ex. If most people are old – make products for old people Managing Diversity  19.8% of people living in Canada were not born there  Proportion of foreign-born people has been increasing since 1990s because of: o High level of annual admission to immigrants o Slow rate of natural growth in population  Companies respond to diverse customer base with a more diversified workforce to serve them The Family Portrait  Factors contributing to growth in two-income families: o High costs of housing o High costs of maintaining comfortable lifestyle o Women wanting career outside of home  New findings in the 2006 Census: o More families of couples without children than with children o More unmarried people over 15 than married people o More young adults age 20-29 living with their parents The Global Environment  Important environmental changes in recent years: 1. Growth of international competition 2. Increase of free trade among nations  Two things that led to more trade: o Improvements in transportation o Improvements in communication  Better technology, machinery, tools, education, training allow workers to be more productive  Mobilizing Science and Technology to Canada’s Advantage: science and technology strategy that will foster business environment by encouraging innovations that provide solutions to environmental, health, other important social challenges, while also improving the country’s economic competitiveness  Carbon footprint: impact of human activity measured by amount of CO emitted into atmosphere  Food miles: distance travelled from place where food produced to place where eaten (damage transportation causes)  Eco-village: small-scale, environmentally friendly settlement designed for sustainable living The Evolution of Canadian Business  Goods: tangible products like computers, food, clothing, cars, appliances Progress in the Agricultural and Manufacturing Industries  Modern faming industry is technologically efficient  Number of farms has dropped  Canadian agriculture workers have become more productive so need less farms  Elimination of many jobs in one sector allows other jobs to be created in another sector Canada’s Manufacturing Industry  Goods-producing sector includes: o Manufacturing o Construction o Utilities o Agriculture o Forestry o Fishing o Mining  Many Canadian jobs lost in late 2000s  Lost because of rising Canadian dollar and increasing global competition  Why manufacturing sector is important to Canada: o Directly accounts for 17% of Canadian economy o Every $1 of manufacturing output makes $3.05 in economic activity o Accounts for 2/3 of Canada’s total exports of goods and services Progress in Service Industries  Services: intangible products (ex. education, health care, insurance, travel)  Employment makeup shifted from goods industries to service industries  Reasons for growth in this sector: o Technological improvements allow businesses to reduce payrolls and increase output o Businesses have become more complex since staffing has been downsized o Specialized companies rely more heavily on outside service firms o Large manufacturing companies wan to become more efficient so contract out services –creates more opportunities for business people CHAPTER TWO – HOW ECONOMIC ISSUES AFFECT BUSINESS How Economic Conditions Affect Business  To understand situation/conditions in which Canadian businesses operate: 1. Must have some grasp of economics 2. Must be aware of impact of global environment 3. Must understand role of federal and provincial governments  Major part of economic success: social and economic climate that allows businesses to operate freely  Foreign investors like Canada cause of stable economic and political environment What is Economics?  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  Macroeconomics: operation of a nation’s economy as a whole  Microeconomics: behavior of people and organizations in particular markets  Resource development: study of how to increase resources and create conditions that will make better use of resources  Businesses can invent products that increase available resources (ex. new ways to grow food, new sources of energy) Growth Economics and Adam Smith  Adam Smith believed freedom was vital to survival of economy  Most important: freedom to own land/property, freedom to keep profits  Said people will work hard if have incentive  Theory: as long as entrepreneurs could see economic rewards for their efforts, they would work long hours and work hard (as a result the economy would prosper) How Businesses Benefit the Community  Invisible hand: self-directed gain turns into social and economic benefits for all  Adam Smith assumed wealthier people will then reach out to help the less fortunate  Government regulation is required since this is not what always happens Understanding Free-Market Capitalism  Capitalism: economic system in which all or most of the factors of production and distribution are privately owned and operated for profit  In capital countries business people decide: o What to produce o How much to pay workers o How much to charge for goods/services o Where to sell goods/services  No country is pure capitalist  Government sets minimum wage and subsidizes stuff How Free Markets Work  Consumers send signals to tell producers how much to make, how many, etc.  Send signal to producers by willingness to pay  Free market: prices determined by consumers not producers The Economic Concept of Supply  Supply: quantity of products that producers are willing to sell  Amount supplied increases as price increases  Supply curve represents relationship between price and quantity supplied The Economic Concept of Demand  Demand: quantity of products people are willing to buy  Quantity demanded increases as price decreases  Demand curve shows relationship between price and quantity demanded The Equilibrium Point and the Market Price  Sellers want a higher price  Buyers want a lower price  Market price: price determined by supply and demand  Non-free market: no mechanism to tell businesses what to produce and how much  Results in shortages or surpluses Competition Within Free Markets 1. Perfect competition: o Many sellers in a market and no seller is large enough to impact the price of a product o Sellers produce products that appear to be identical 2. Monopolistic Competition: o Large number of sellers produce products that are very similar but perceived by buyers as different o Product differentiation is the key to success 3. Oligopoly: o Just a few sellers dominate the market o Initial investment to enter the business is very large o Prices from different companies usually close to the same o Product differentiation is key to success 4. Monopoly: o One seller for a good/service o Seller controls total supply of product and price Benefits and Limitations of Free Markets  Free-market capitalism provides opportunities for people to work their way out of poverty  Allows competition among companies  Free-market also creates inequality: business owners/managers make more money than workers  Government rules are necessary to make sure all of business’s stakeholders are protected Understanding Socialism  Socialism: most basic businesses should be owned by the government so that profits can be evenly distributed among the people  Believe wealth should be more evenly distributed than in free-markets  Social equality since income taken from wealthy (taxes) and redistributed to poor  Benefits: free education, health care, childcare, etc.  Takes away business people’s incentives to work hard  Results in fewer inventions and less innovation  People less motivated to invent things if do not receive a reward Understanding Communism  Karl Marx is the father of communism  Communism: the government makes all economic decisions and owns almost all of major factors of production  Government has no way of knowing what to produce because prices do not reflect supply and demand  Shortages may develop  People do not want to work hard cause government take most of earnings  Most communist countries today suffering from economic depression The Trend Toward Mixed Economies  Two major economic systems in the world today: 1. Free-market economies: exist when market determines what goods/services are produced, who gets them (ex. capitalism) 2. Command economies: exist when government decides what goods/services are produced, who gets them (ex. socialism and communism)  Free-market haven’t been responsive enough to poor, old, disabled  Businesses in free-market do not protect environment enough  Socialism and communism haven’t always created enough jobs/wealth  Mixed economies: some allocation of resources is made by market and some by the government Canada’s Mixed Economy  Canada has a mixed economy  Canada is one of largest countries in the world but has small population  Has one of lowest population densities in the world  US exerts powerful influence on Canada as largest trading partner  Government passed many laws to ensure significant institutions remained under Canadian control  Government has funded many operations that investors were not willing to (ex. airplanes)  Groups now lobby for government to relax regulations so they can become more competitive with each other  New businesses enter marketplace and have to compete with government funded institutions  They want to move more money to private sector than public sector Understanding Canada’s Economic System Key Economic Indicators  Major indicators of economic conditions:  (1) Gross domestic product (GDP) o Total value of final goods/services produced in a country in a given year o Can be domestic company or a foreign-owned company that produces goods/services o Major influence on growth of GDP is how productive workforce is (how much output workers create with given amount of input) o GDP growth has been affected in the past by rising employment, low inflation and low interest rates o Higher GDP means higher standard of living for that country o Standard of living: amount of goods/services people can buy with the money they have  (2) Productivity in Canada: o Productivity: total output of goods/services in a given period divided by the total hours of labour required to produce them o Things that increase productivity or reduce labour costs make country more competitive o Higher productivity means lower costs to produce products so lower prices o Productivity has grown more in manufacturing than service sector o Fewer new technologies available to assist service workers o Machinery may add to quality of service but not productivity  (3) Unemployment rate: o Unemployment rate: percentage of labour force that actively seeks work but is unable to find work at a given time o Key indicator of the health of the economy and society o Strong economic growth means low unemployment rate o Jobs may be lost if employer goes out of business, company cuts staff, young people enter market, companies merge and are trimmed, etc.  (4) Price indexes: o Inflation: general rise in prices of goods/services over time o Inflation increases cost of doing business o Country will become less competitive in world market o Disinflation: price increases are slowing (inflation is declining) o Deflation: prices are declining (country produces too many goods that people cannot afford to buy them all) o Stagflation: economy is slowing but prices are going up regardless o Consumer price index (CPI): monthly statistic that measures pace of inflation or deflation o CPI affects almost all Canadians directly or indirectly o Calculate using a “basket” of goods/services for average family  Quality of life: general well-being of society in terms of political freedom, clean environment, education, health care, safety, free time, everything else that leads to satisfaction and joy The Business Cycle  Business cycles: periodic rises and falls that occur in economies over time  Often measured using real GDP
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