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Chapter 1 The Dynamic Business Environment

Chapter 1 The Dynamic Business Environment. *. Profile. *. A 17-year-old high school student Reopened small town’s only grocery store Borrowed $22,000 to buy building & fixtures Worked to save $10,000 to stock the store Worked 90-100 hours per week Paid off loan in one year.

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Chapter 1 The Dynamic Business Environment

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  1. Chapter 1The Dynamic Business Environment

  2. * Profile * • A 17-year-old high school student • Reopened small town’s only grocery store • Borrowed $22,000 to buy building & fixtures • Worked to save $10,000 to stock the store • Worked 90-100 hours per week • Paid off loan in one year NICK GRAHAMMain Street Market 1-2

  3. What Are Businesses? • Activities that provide goods and services and seek a profit. • Goods: tangible products (bicycles, pizzas) • Services: intangible products (maid services, landscaping) • Started by entrepreneurs • Business operate within groups called industries.

  4. What Do Businesses Do? • They try to earn profit (excess of revenues over expenses) • Revenue: total money a business makes • Expenses: costs associated with a business • Do all businesses make a profit? • What can a profit be used for? • A business that does not operate at a profit is operating at a loss.

  5. Profit and Risk • Risk – The chance that a business’s owners will lose their money and waste their efforts. • Businesses that take on more risk have the ability to make more profit. • “The Greater the Risk, the Greater the Reward.”

  6. Review Questions • What is a business? • What is the goal of a business? • If Sue opens her business, and sells $5000 of goods in the first month, while spending $3000 in rent, salaries, and products to resell to customers, what is her profit?

  7. Review Questions • Dan opens a business and invests $10,000 in cash to start it. Bill opens a business in the same industry and invests $500 cash to start it. • Who is taking on more risk? • Who is more likely to make more money in the first year? • What is the difference between revenue and profit?

  8. The Importance of Businesses • Standard of Living • How much you can buy with a set amount of money, in your country • U.S. standard much higher than Japan • Quality of Life • General well-being of a country (health, wealth, governmental freedoms) • Very high in Nordic countries • How does the presence of businesses affect these?

  9. The Importance of Business • Businesses are the mills that turn factors of production into wealth. • Factors of production • Land • Labor • Capital (assets like buildings and machinery) • Entrepreneurship • Knowledge Critical in today’s global economy

  10. The Importance of Business • Stakeholders • People who will gain or lose, depending on the fate of a business • Your banker • Your customers • Your suppliers • Your government • Your competitors • Your community • The environment around you

  11. Review Questions • In which of the following countries would you expect the quality of life and standard of living to be highest? • India, Kenya, Australia, Sweden, United States • Why? • What is another name for someone who takes the risk in starting a new business?

  12. Review Questions • Name the five factors of production. • Which two factors of production are the most important in today’s business environment? • Why?

  13. Classifying Forces in the Business Environment • Economic and Legal • Technological • Competitive • Social • Global All of these forces affect the ability of a business to earn a profit, and sometimes, even to exist at all!

  14. * The Business Environment * LG2 TODAY’S DYNAMIC BUSINESS ENVIRONMENT 1-14

  15. Economic and Legal Forces • Economy – a system in which resources are allocated among individuals and used to produce goods and services. • How does the economy affect business, and vice-versa? • Legal Forces – the effects of laws • The level of government interference with business can stifle or ignite business growth.

  16. How Can Government Help Businesses? • Keep regulations to a necessary minimum/ minimize spending. • Allow private ownership of businesses. • Allow for enforcement of contracts. • Have a strong, tradable currency. • Minimize corruption.

  17. Most Important Point in the Chapter • A capitalist society DEPENDS on honesty, integrity, and high ethical standards. • Mortgage lending collapse happened because lenders failed to do necessary research and because borrowers could not pay.

  18. * The Economic and Legal Environment * LG3 Most Corrupt Somalia & Myanmar (tie) Iraq Haiti Afghanistan Least Corrupt Denmark New Zealand Sweden Singapore CORRUPTION WORLDWIDE Sources: Forbes.com, June 2008 and Transparency International, 2009. 1-18

  19. Technological Forces • Technology = the state of knowledge that helps us deal with our surroundings • Technology helps us increase productivity, and produce more goods with less resources. • What is an example of this concept in today’s business environment? • What are some of the technological advances that are helping businesses today?

  20. Competitive Forces • Competitors are other businesses that provide the same products your business provides. • Competition is good. • The presence of competing businesses drives other businesses to work harder.

  21. Social Environment • Social trends are behaviors and preferences that most people have in any one cultural group. • Social trends affect businesses through their customers and their employees.

  22. The Effects of Social Trends • U.S. bottled water sales in past 15 years increased more than four-fold to $9.8 billion • Today, the trend is switching to NOT drinking bottled water, or refilling bottles with tap water • How will this affect makers of bottled water?

  23. * The Social Environment and Managing Diversity * LG6 WHO WILL SUPPORT SOCIAL SECURITY?Number of Workers per Retiree Source: U.S. Census Bureau, www.census.gov, March 2009. 1-23

  24. * The Social Environment * LG6 DEMOGRAPHY of the U.S. by RACE in 2005 Source: Newsweek, www.newsweek.com, January 2009. 1-24

  25. * The Social Environment * LG6 DEMOGRAPHY of the U.S. by RACE in 2050 Source: Newsweek, www.newsweek.com, January 2009. 1-25

  26. Global Forces • In the late 20th century (1900s), we moved from competing on a national level to a global level in many industries. • Global forces include those trends in international politics, resource supply, and economics that affect businesses around the world. • What are some global forces that are affecting us right now?

  27. The Transition from a Manufacturing Economy to a Service Economy • The U.S. used to be a very agrarian economy, and produced most of the food for the world. • Throughout the first half of 20th century, the U.S. became a manufacturing society. • Now we are moving to become a service society, and on to an information society.

  28. * The Evolution of U.S. Business * • Agriculture Era • Manufacturing Era • Service Era • Information-Based Era LG8 The EVOLUTION of BUSINESS 1-28

  29. Review Questions • What are some things that governments can do to help businesses start and grow? • How does technology help business? • What countries pose the biggest competitive threat to U.S. businesses in the future? Why?

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