Fundamental Principles of Business

Maria Charalambous- Papamiltiades

EUC

What is a business?
A business is any activity that seeks profit by providing goods and services to others Profit is the amount a business earns above and beyond what it spends for salaries and other expenses Business provide us with necessities such as food, clothing, housing, medical care, transportation / other goods and services that make our lives easier and better Business also provide people with the opportunity to become wealthy

Business
Entrepreneur: A person who assumes the risk of starting a business Business can provide wealth and a high quality of life for almost everyone A nations businesses are part of an economic system that contributes to the standard of living and quality of life for everyone in the country

Business
Standard of living: the amount of goods living and services people can buy with the money they have Quality of life: the general well-being of a society in terms of political freedom, a clean natural environment, education, health care, safety etc

Non-profit Organisations
Public schools, civic associations, charities, groups devoted to social causes Non profit organisation an organisation whose goals do not include making a personal profit for its owners. Gains/profits are used to meet the the stated social/educational goals of the organisation So, business skills (such as information management, marketing, financial management) are also needed for managing a non-profit organisation

Entrepreneurship Versus Working for Others Starting your own business (chances to succeed but also to fail) (High risk) Working in a large business (Low risk)

Opportunities for Entrepreneurs No occupation in the world is more diverse than entrepreneurship Opportunities exist for virtually everyone to start and manage a small business (from a restaurant to a software business)

Matching Risk with Profit

Profit Revenue minus expenses Revenue: The total amount of money a business earns in a given period by selling goods and services A loss occurs when a businesss expenses are more than its revenues Risk: is the chance an entrepreneur takes of losing time and money on a business that may not prove profitable

Matching Risk with Profit Companies that take the most risk may make the most profit As a potential business owner, you want to invest your money in a company that is likely to make a large profit but that isnt too risky You need to find a balance between risk and profit

Factors of Production
Factors of Production: The resources businesses use to create wealth Land (and other natural resources) Labour (workers) Capital (e.g., machines, tools, and buildings) Entrepreneurship Knowledge

Importance of Factors of Production

Not all production factors have the same weight in creating wealth
Many poor countries have many workers and plenty of land and natural resources

Entrepreneurship and the effective use of knowledge are the most critical elements in creating wealth

The Business Environment

The business environment has a tremendous effect on the success or failure of entrepreneurs The economic environment, including taxes and regulation The technological environment The competitive environment The social environment The global business environment

The Economic Environment Governments can do a lot to promote entrepreneurship

Freedom of ownership: allowing private ownership of business, giving incentives to people wanting to work hard and create profit, PRIVATISATION Minimising taxes: States that have high taxes and restrictive regulations tend to drive entrepreneurs out, while states with low taxes attract entrepreneurs.

The Economic Environment

Entrepreneurs are looking for a high ROI (Return on Investment): the return a

businessperson gets on the money he/she and other owners invest in the firm.

The Economic Environment

Contract laws (that cover things like warranties, contracts etc) can limit the risk of starting a business. The government can establish currency that is tradable in world markets (euro) Eliminating corruption in business and in the ranks of the government is also important in a flourishing business area: in many countries, the
permission to built a factory or open a store is obtained through bribery of public officials

The Technological Environment

The emergence of Information technology (computers, modems, cellular phones, the internet etc.) had a huge impact on businesses
The Internet offers maximum potential to communicate with a worldwide audience: there are no geographical limits in cyberspace, it can be accessed in any time

The Technological Environment: The E-commerce explosion

The E-Commerce Explosion: The buying and selling of products and services over the internet
Low transaction costs: Large purchases per transaction Flexibility Large catalogs Improved customer interactions

How e-commerce affects intermediaries

E-commerce has changed the role of intermediaries as well (today, through the e-commerce, companies produce and sell their products directly to consumers)
Intermediaries are companies that help move goods and services between producers and consumers (e.g., wholesalers and retailers)

The Competitive environment: Customer service

Customer service: Todays customers are very demanding. They want good quality at low price and great service. Successful businesses/organisations must listen more closely to customers to determine their wants and needs, and then adjust their products, policies and practices to meet those demands Business today is customer-driven: The products and services are designed to delight and fascinate customers, not only to satisfy them

The Competitive environment: Competing with Speed

The companies that provide speedy services are those that are leading Todays customers want fast food, fast delivery, fast responses to internet searches, etc. Businesses demand the same fast service from other businesses as well

The Competitive environment: Meeting Stakeholders needs

Stakeholders are all the people who stand to gain or lose by the policies and activities of a business Stakeholders include: Customers, employees, stockholders, suppliers, dealers, bankers, people in the local community, environmentalists, and elected government leaders Organisations have to work towards ensuring that all stakeholders needs are considered and satisfied

The Competitive environment Meeting Stakeholders needs

Meeting the needs of employees is very important (Employee empowerment, involvement in decision making, training etc) Concern for the natural environment

The Social Environment

Demographic changes: The statistical study of the human population with regard to its size, density, and other characteristics such as age, race, gender, and income, is an important factor that affects businesses. Population Diversity (people of different ages, experiences and national origins): In a business context, population diversity and multi-culturism is important. A diverse population is a strong population because it can provide diverse ideas and concepts. Moreover, population diversity is important in working with people in global markets

The Social Environment

Family changes: Two income families, single parents, the increase in the number of older population, are also factors that affect the business environment

The Global Environment

The global environment refers to the surrounding environmental influences (the growth of international competition, the increase of free trade among nations, etc.)

References
Meeting the challenges of todays dynamic business environment (chapter 1). In: Nickels, Mchugh, and Mchugh (2002). Understanding business. McGraw-Hill