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Chapter 2

MGTA01H3 Chapter Notes - Chapter 2: Athabasca Oil Sands, Barrick Gold, Suncor Energy


Department
Management (MGT)
Course Code
MGTA01H3
Professor
Chris Bovaird
Chapter
2

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Building a Business: The Factors of Production—Chapter 2
Introduction: How do you make a business?
Everything is made up of parts…even a business. Businesses are made up of small number of
fundamental parts. Every business uses some combinations of these. By understanding these
parts, the role of each, and how they relate to each other business owners can better control,
maintain, or improve the business performance.
The Theory of Factors of Production
Factor of Production: the basic building blocks that, in combination, are required to make a
business, and produce things.
These are:
Natural Resources
Labor
Capital
Entrepreneurship
Natural Resources
-Natural Resources: things found in nature. Resources that grow out of the earth or can be
extracted from it. Examples: land, water, wood, coal, cotton, oil, and wheat.
-People need, and are willing to pay for, natural resources.
-The oldest industries in the world is farming and fishing.
-Canada has abundant land and natural resources, Indeed it was a abundance that first brought
Europeans to Canada.
-15th and 16th centuries, Portuguese’s came to Atlantic coast in pursuit of fish.
-16th century the French came to is now Quebec, in search of fur.
-18th and 18th century the British established business to exploit the supply of timber.
-Canada is the 6th largest supplier of wheat. And 2nd largest supply of oil.
-Some of Canada’s largest businesses continue to rely on searching for; and extracting, natural
resources as their main activity.
-Suncor Energy, Canada’s 3rd biggest business ranked by revenue, extracts oil from northern
Alberta tar sands.
-Domtar, headquartered in Montreal, is the worlds largest paper company.
-Barrick Gold is the worlds largest gold mining company.
-Businesses whose activities are predominantly dependent on the production or use of natural
resources are called Resource Intensive.
-Resource Intensive: An activity that is predominantly dependent on the production or use of
natural resources.
-Example of Resource Intensive: Apple Growing, the farmer needs a great deal of land and
needs to divert water for irrigation, and sells a product that is entirely natural. The number of
trees that can be planted on an acre of land is finite. Therefore, if the apple farmer wants to
double the size of crop, the most obvious and logical way is to buy more land.
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Labour
-No business can exist without people.
-Every business needs at least one person to organise and plan things.
-Labour: The people who contribute their efforts to a business
-A business that employs a lot of people is sometimes called labour intensive.
-India and China, the worlds two most populous countries, are home to five of the worlds 10
most labour intensive organisation. Because the supply of labour is plentiful and relative to
most Western countries, wages and salaries are low.
-Labour Intensive: A business or a process that require a large amount of labour to produce its
good or service.
Capital
-Capital: Money, or the machines and technologies that money can buy.
-Farmers (labour) needs land and seed (natural resources) in order to farm, he usually needs
tools or technologies to help him cultivate, plant and harvest. Farmers cannot produce his crop
without the aid of plough, a tractor a rake or a shovel.
-A business that requires a lot of money is known as capital intensive.
-Auto Manufactures and oil companies are capital intensive because they must use a lot of
expensive machinery and equipment.
-The most “capital intensive” business in the worlds are businesses whose very purpose is to
raise, package and distribute money: banks.
-According to Forbes Magazines ranking of the largest businesses in the world, in the year 2011
there were 30 businesses that used more than $1 trillion dollars of money, machinery and
equipment and every one of them was a bank.
-Capital Intensive: A business or a process that requires a large amount of money, machines or
technology to produce its goods or services
-Other businesses require a great deal of machinery, equipment and technology.
-2011, Toyota was using $323 billion in capital, followed closely by Shell at $317 billion and
Exxon-Mobil with $302 billion
Combining The Factors of Production
-No business can exist without some combination of labour, natural resources and capital.
-Businesses like globe and mail need reporters, editors, and photographers (labour, large
suppliers of newsprint (natural resources) as well as computing hardware, publishing software,
printing presses (capital) in order to produce the daily paper.
-Some businesses rely more heavily on natural resources, than on labour or capital. Some
businesses rely heavily of labour, and uses lesser amount of machinery and equipment.
-Others require huge amounts of capital and natural resources are only incidental.
-The theory of factors of production suggest that all businesses, whether large or small, use
some combination of these factors to conduct their affair.
-The owner and managers of individual’s businesses must understand the available quality,
quality, and cost of factors of production. Example: if the owner of a clothing manufacturer
finds that the quantity of cotton available is falling they may substitute it for polyester or wool.
-A business may consider replacing people with machines.
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