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Introduction to BusinessIntroduction to Business

Lecturer:

Asep Hendrasyah, M.Pd,

Faculty of Business and ManagementDepartment of Management

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What Is Business?What Is Business?

An organization that provides goods and services to earn profits(Ebert & Griffin, 2005)A business is an enterprise that provides products or services desired by customers.(Jeff Madura, 2004)

Profits:The positive difference between revenues and expenses

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Economic Systems Around the WorldEconomic Systems Around the World

Economic SystemEconomic SystemA nation’s system for allocating its resources among its citizens

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Physical Resources

Labor Capital

Entrepreneurs

Factors of ProductionFactors of Production

InformationResources

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Factors of ProductionFactors of ProductionNatural Resources

Materials supplied by nature (such as land, water, mineral deposits, and trees)

Labor (or Human Resources)Physical and mental capabilities of people as they contribute to economic production

CapitalFunds needed to create and operate a business enterprise

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Factors of ProductionFactors of ProductionEntrepreneur

Person who starts a new business or makes the decisions that expand a small business

Physical ResourcesTangible things organizations use in the conduct of their business

Information ResourcesData and other information used by a business

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How Are Factors of Production Allocated?How Are Factors of Production Allocated?

Planned Economy: An economic system in which the government owns and operates all sources of production

Market Economy: An economic system in which buyers and sellers interact based on freedom of choice

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Circular Flow in a MarketEconomy

Circular Flow in a MarketEconomy

Figure 1–1

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Capitalism:A Fundamentally Market-Based EconomyCapitalism:A Fundamentally Market-Based Economy

Individuals Choose:Where to workWhat to buyHow much to pay

Producers Choose:Who to hireWhat to produceHow much to charge

Government supports private ownership and encourages entrepreneurship

Government supports private ownership and encourages entrepreneurship

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Mixed Economies: Planned and MarketMixed Economies: Planned and Market

The economies of most countries include both planned and market elements.Worldwide trend is toward more market elements.

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Socialism: Mixed Economy Socialism: Mixed Economy

SocialismA planned economic system in which the government owns and operates selected sources of production

Privatization: The process of converting government enterprises into privately owned companies

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Private Enterprise SystemPrivate Enterprise SystemIndividuals are free to pursue their own interests without government restriction.

Four Key Elements:Private Property RightsFreedom of ChoiceProfitsCompetition

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CompetitionCompetition

Competition motivates businesses to produce their products better or cheaper

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Degrees of CompetitionDegrees of CompetitionPure Competition

Market or industry characterized by numerous small firms producing an identical product

Monopolistic CompetitionMarket or industry characterized by numerous buyers and relatively numerous sellers trying to differentiate their products from those of competitors

OligopolyMarket or industry characterized by a handful of (generally large) sellers with the power to influence the prices of their products

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Degrees of CompetitionDegrees of Competition

MonopolyMarket or industry in which there is only one producer, which can therefore set the prices of its products

Natural MonopolyIndustry in which one company can most efficiently supply all needed goods or services

Natural MonopolyIndustry in which one company can most efficiently supply all needed goods or services

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Degrees of CompetitionDegrees of Competition

Table 1–1

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Understanding Economic PerformanceUnderstanding Economic Performance

KEY CONCEPTSBusiness Cycle Aggregate Output Standard of LivingGross Domestic Product (GDP)Gross National Product (GNP)

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Evaluating Economic Systems

Nearly every economic system has three broad goals:

Stability

Full Employment

Growth

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Economic GoalsEconomic Goals

StabilityCondition in which the balance between the money available in an economy and the goods produced in it are growing at about the same rate

InflationPhenomenon of widespread price increases throughout an economic system

RecessionPeriod characterized by decreases in employment, income, and production

DepressionParticularly severe and long-lasting recession

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Economic GoalsEconomic Goals

Full EmploymentEveryone who wants to work has an opportunity to do so

UnemploymentLevel of joblessness among people actively seeking work

Knowledge WorkersSkilled employees in high-tech industries

GrowthIncrease in the amount of goods and services produced by a nation’s resources

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Assessing Economic PerformanceAssessing Economic Performance

Gross National Product (GNP)The value of all goods and services produced by an economic system in a year regardless of where the factors of production are located

Real Gross National Product (real GNP)Gross national product adjusted for inflation and changes in the value of a country’s currency

Gross Domestic Product (GDP)The value of all goods and services produced in a year by a nation’s economy through domestic factors of production

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Assessing Economic PerformanceAssessing Economic PerformanceProductivity

Measure of economic growth that compares how much a system produces with the resources needed to produce it

Balance of TradeThe difference between a country’s exports to and imports from other counties

Budget DeficitSituation in which a government body spends more money than it takes in

National DebtTotal amount that a nation owes its creditors

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Three Major Forces of BusinessThree Major Forces of Business

1. The information revolution will continue to enhance productivity across all sectors of the economy, but most notably in such information-dependent industries as finance, media, and wholesale and retail trade.

2. New technological breakthroughs in such areas as biotechnology will create entirely new industries.

3. Increasing globalization will create much larger markets while also fostering tougher competition among global businesses; as a result, companies will need to focus even more on innovation and cost cutting.

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Projected Trends & PatternsProjected Trends & Patterns

1. The economy will maintain strong and consistent growth rates, perhaps exceeding 3 percent per year. New technological breakthroughs in such areas as biotechnology will create entirely new industries.

2. Inflationary surges and large budget deficits will become less likely.

3. Countries that encourage free trade, innovation, and open financial systems will prosper.

4. The most successful businesses will be those that are able most effectively to master new technologies and keep abreast of their competitors.

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Lessons to RememberLessons to Remember

Successful businesses do not require a great invention.

Many focus on making life more convenient for customers.

Some business ideas will fail—but entrepreneurs can learn from failures and make revisions.

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Impact of TechnologyImpact of Technology

Technology definedKnowledge or tools used to produce products and services

Information technologyRepresents over 1/3 of the growth in U.S. outputReduces cost of producing productsWorkers in technology industries earn more than workers in other industries.

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Impact of TechnologyImpact of Technology

E-business or e-commerceUse electronic communications to produce or sell products and services

Sales to individual customers B2B e-business: transactions between a business and its suppliersGenerates $301 billion in revenue and creates 1.2 million jobs each year

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Successful E-BusinessesSuccessful E-Businesses

Started out smallCreated to sell a product or service that was not offered by competitorsTransformed how traditional firms conducted business

Improved communication with customersImproved information flowImproved efficiencyComplemented traditional business operations

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E-Business ExamplesE-Business Examples

AmazonOnline seller of books, music and other productsLow overhead costs allow price discounting

Yahoo!Internet search engine and the most visited site on the WebOffers variety of services - free email, web page hosting, custom-designed start-up pagesGenerates revenue by selling advertising

eBayOnline auction service

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Key Functions of BusinessKey Functions of Business

Human Resources ManagementMeans by which employees and other resources are used by the firm

MarketingMeans by which products and services are developed, priced, distributed, and promoted to customers

FinanceMeans by which firms obtain and use funds for their business operations

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Key Functions of BusinessKey Functions of Business

AccountingSummary and analysis of the firm’s financial conditionUsed to make various business decisions

Information systemsInformation technology, people, and procedures that provide appropriate information to make effective decisions

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How Business Decisions Affect a Firm’s EarningsHow Business Decisions Affect a Firm’s Earnings

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Reference:Reference:

Ebert & Griffin, 2005, Business Essential, 5th

ed., Prentice Hall Inc.Jeff Madura, 2004, Introduction to Business, 3rd ed., South-Western.