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Defining BusinessWhat does business mean?

Any activity that provides goods or servicesto consumers for the purpose of making profit.

any activity that seeks to provide goodsand services to others while operating at a

profit.

Key Terms in Business Definition

Seeking profit Activity

Goods and Services

Consumers

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Goods and Services GOODS refer to all tangible products.

SERVICES refer to intangible products. (i.e., productsthat cant be held in your hand)

Classify the following types of businesses into goods andservices

Car repair shops Hospitals and medical clinics

Travel agencies shoes

Grocery shops Schools and universitiesHotels and restaurants Sport and fitness clubs

Banks Car manufacturing

Car agencies Dairy products (Milk, butter..etc)

Computer manufacturing Department stores (Prisma, CM, Lidl)

Facts about goods and services

Since The industrial revolution in late 18th centuryand early 19th century, businesses continued to shiftfrom manufacturing to service provision.

Nearly two third of business ideas nowadays areservice based.

Information technology is one contributor to thisgreat shift.

Wealth and prosperity is another reason. (speciallyin Developed countries)

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Goods vs. Services Goods production contribution to Finland GDP

is 38.1%

Services contribution is 61.9%

Consumers

They are the key factor for any business to exist andsucceed.

They are the buyers of the goods and services

provided.

A business must satisfy and fulfill a specificconsumer need.

Key issue in Marketing!

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Profit You earn aPROFIT when you sell goods or services for

more than it costs. PROFIT = Sales revenues Expenses (costs) REVENUE: is the total amount of money a business takes

in during a given period by selling goods and services (UnitPrice * units sold)

EXPENSES: are all costs paid to produce/ provide goods orservices. (cost of raw material, rents, salaries, wages, etc)

What if Expenses are higher than Revenues? LOSSES!

Business is Risky There is always some level of uncertainty.

Exercise

A business bought 10 thousand units of productX from the factory at 3/ unit.

Paid rent for the shop: 2000

Paid salary for the salesman: 1500 Paid electricity: 500

sold 10 thousand units of product X at 5/ unit

Define the businesss revenues and expenses

Did it make profit?

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Activities Business activities may be classified into the

following: Primary activities:

extraction of raw materials from the earth mining, fishing,agriculture, forestry.

Secondary activities: Processing of raw materials into finished or semi-finished

products manufacturing.

Services

leisure, tourism, transportation, banking, finance, distribution,retailing, wholesaling, communications, etc.

Can a single business have multiple activities?

Business Objectives

What ever the activity or industry in which thebusiness is operating, businesses have a group ofcommon objectives. Profitability

Survival

Reputation

Quality

Efficiency

Growth* Surely more objectives exist depending on the business specific

industry, environment, and stage.

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Factors of Production Goods and services are the result of a transformation

done by the different factors of production within thebusiness.

Main Factors of production are: Land: refers to the location of the business. Also refers to

the natural resources, and raw material land provides.

Capital: refers to buildings, money, equipments, tools... Etcused in the transformation process.

Labor: the working force that use raw material, andequipments to produce goods and services.

Enterprise: refers to entrepreneurs who combine andorganize the production factors of land, labor and capital tomake goods and services.

The business process (cont.)

Land

Labor Capital

Entrepreneurship

Business

(Transformation)

Outputs

Goods Services

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Business Stakeholders Business stakeholders refer to all the people/ parties who

have close relationship with the business, which may leadto either achieve gains or losses by the activities of thebusiness.

How all these parties can affect and are interested in yourbusiness??

ConsumersEmployeesSuppliersDealers

Investors

Banks/ other financial institutionsCommunity interest groups (e.g.

environmentalists)Government ( e.g. taxation)

ExerciseFactors of Production & Stakeholders

Group of 3-4 students.

Define the key factors of production of OurSchool.

Think of the schools stakeholders

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The business Environment

Any business (Organization) operates within two layers ofenvironment. Internal environment

External environment

Internal environment consists of the factors of production

used by the business.

External environment refers to all outside institutions andforces.

Business External Environment

The external environment plays a great role indetermining the success or failure of any businessorganization.

It is therefore that managers must, not only managethe internal environment through the differentmanagement functions , but have a complete andaccurate understanding of the external environmentin order to operate and compete within.

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Business External Environment

Business

Political andLegal

Economic

Technological

and Ecological

Socio-cultural

Competitive

Global

Political, Economic & LegalEnvironment

Freedom versus restriction of ownership. Political system (democracy vs. autocracy!) Economic system (free market/ Centrally planned)

Investments regulations (encouraging/ discouraging) Economic condition (e.g. interest rate/ currency

stability/ inflation/ unemployment)

Corruption. Bureaucracy.Taxation.

Business law enforcement (e.g. contractualregulations)

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Technological and Ecological

EnvironmentTechnology plays an important role in the development

of business. (e.g. new technology to improveproduction efficiency, improve communication withcustomers), innovation for creating new concepts.

Also technological developments can generate newbusiness ideas, new opportunities. (e.g. internet and E-commerce)

Ecological status, natural resources and depletionresources.

Competitive Environment

A business operating in any given industry issurrounded with many other similar businesses. Allcompeting for extra market share, and increasingsales revenues.

Every unit sold by a competitor is a minus oneunit of your sales.

It is no longer enough providing a high qualityproduct, but extend it to high quality service tocreate customer loyalty.

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Social Environment Social environment refers to the customs, values, and

other cultural issues in the community.

Also the demographic characteristics of the society inwhich the business is operating. The demographicdistribution of population. Immigration, agingpopulation.

Cultural issues such as time awareness, and familyrelationship.

Religions, Beliefs and values of the community.

Global Environment

Free trade agreements, and increasing internationalcompetition. (opportunity or threat)

Wars and other crises with global scale

Outsourcing and business expansion across the border. Environmental matters that affect business globally.