Why study business ?

Businesses exist to fulfill a need, and provide investors’ a return from company income after expenses and taxes are paid. The remaining money will be the profit.

Profit Motive ?

Is the goal of earning money. Without this motivation, businesses have no motivation for innovation and improvement.

-Imagine a row of 5 stalls selling “Nasi Lemak” – what are the customers’ method of selecting which stall to buy.

vs

-5 stalls selling “Nasi Lemak”, but one stall came up with a differentiating catch phrase e.g. “20 % than the everybody else” or “Nasi Lemak Kukus UPM Special”

Key Concepts

Types of businesses ? Nonprofit vs Profit-seeking businesses…

Nonprofit organizations include schools, charities, government agencies, and museums. They do not have a profit motive, but they bring in revenue just like the for-profit businesses. Fund raising, donations, and grants are some of ways nonprofit organizations receive revenue. Both nonprofit and profit-seeking companies must have resources to produce goods and services.

The five factors of production to produce goods and services ?

These are crucial factors used for the production of goods and services : natural resources, human resources, capital, entrepreneurs, and knowledge.

Key Concepts

Types of businesses ? Nonprofit vs Profit-seeking businesses…

Key Concepts

Profit Motive is the main driver …What about ethics ?

Key Concepts

Types of businesses ? Goods-producing vs Service-oriented businesses…

Goods-producing businesses create, build, or produce objects of all sizes and forms. Examples of goods-producing businesses are Proton, Shell, HP, and animal farming etc.

Goods-producing businesses often require a large initial investment in materials, equipment, and facilities. Goods producing companies are often capital-intensive, so they require large amounts of money or equipment to begin and maintain a business.

Capital is the input needed to create a product or service. It can take the form of money, computers, machines, tools, or buildings.

Key Concepts

Types of businesses ? Goods-producing vs Service-oriented businesses…

Service-producing businesses market knowledge and/or labour that enhance, explain, or deliver goods. Examples are FedEx, Radicare, Vet Diagnostics Sdn Bhd, Veterinary Practices. Service companies are often labor-intensive. In labor-intensive businesses, human resource costs are the highest.

Key factors that have contributed to the growth of service-producing business are :

1.consumers have more disposable income,

2.services target changing demographics and lifestyles – e.g. increase in pet ownership due to a myriad of reasons.

3.services need to support complex goods and new technology like e-commerce, electronic patient filing systems, advanced medical and laboratory services - companies are increasingly seeking professional advice

4.Perceived lower Capex & barriers to entry.

Key Concepts

Economics ?

Economics is the study of how a society uses its scarce resources to produce and distribute goods and services.

The two common categories of economics are macroeconomics and microeconomics. In very simple terms :

Microeconomics studies behaviour among consumers, businesses, and industries that collectively determine the quality of goods and services demanded. - e.g. increasing health consciousness and the rise of organic products farming .

Macroeconomics studies the role that individuals and government play in allocated a society’s resources.i.e. Issues for the entire economy. E.g. Bank Negara revises the OPR (Overnight Policy Rate) and affects the cost of getting loan to fund a business. Or government launching microcredit scheme to help the farming community.

Key Concepts

Economic System

The method of developing, managing, and allocating resources.

Two types of prevailing market systems :

Free market system vs Planned system

Two types of free-market systems: capitalism and mixed capitalism. Freedom and competition are the core of capitalism. Adam Smith was is the father of capitalism. The economic system of capitalist societies provides economic freedom and pure competition without any government intervention. – too much freedom could be bad as seen from the 2008 Subprime Mortgage Crisis.

In mixed capitalism, as practiced in Malaysia etc (U.S.A. included). The government does intervene to influence some prices, wages, and allocation of resources. E.g. fuel and essential items subsidy, setting minimum wage –Minimum Wage Council/Act in Malaysia (2011).

Key Concepts

Economic System

The method of developing, managing, and allocating resources.

Two types of prevailing market systems :

Free market system vs Planned system

The government fully or predominantly controls planned systems. When the government has total control, as it does in Cuba, it is a communist system. Communism exists on centralized planning and the absence of any private enterprise. Countries that control ownership and operation of vital industries but permit private ownership of less vital ones practice socialism. When a planned system country begins to adopt free-market system attributes, it is privatizing –as in People’s Republic of China & Vietnam.

Business challenges & requirements are grossly different across different market systems

Key Concepts

Supply vs Demand in an economy

Key Concepts

In a free economy.When prices increases :-More suppliers are willing to supply but,-Less people can afford it.-Supply = Demand at Equilibrium price

Supply vs Demand in an economy : Bring in UBER – Ridesharing service

Key Concepts

-Controversial innovation and business model (disruptive innovation ?), banned in several countries and cities. Uproar in Malaysia (GABUNGAN and various taxi organizations urge SPAD to take action (protest since Aug 2014, Jun/Jul 2015…….)-Fare calculated by distance if vehicle speed exceeds (18km/h), otherwise by time. -Practices “Surge Pricing” policy to ensure supply meets demand

Supply vs Demand in an economy : Bring in Grabcar – App-based car with driver service

Key Concepts

-Evolution of MyTeksi app to counter threats from UBER & to meet unmet demand by MyTeksi app. Emphasis is on car rental (with a twist) with no-midnight surcharge.-Example of charge schedule (31 Aug 2015)

Supply vs Demand

Businesses have to address the supply and demand issues based on their understanding of their competition.

It could turn out as :

-Competitive advantage - a business can differentiate its product from others in the market.

-Monopoly - not any competition for the product. Could be gained via innovation (as in Windows OS), barrier of entry (as in Chicken Egg farming & broiler business), legal and financial avenue (lawsuits, M&A’s, regulations and outright business buy-out), etc.

-Oligopoly - few large producers overwhelmingly dominate the market. E.g. for the broiler farming business, and telcos in Malaysia.\

-Pure competition - industry has a large number of buyers and sellers, and there are no clear dominating forces or differentiated products…where the small animal industry is heading to for the moment…..affects starting wage etc…..

Key Concepts

Supply vs Demand

The government helps maintain balance in a free market system by promoting competition. The four major economic roles the government serves:

1. Enacting laws and creates regulations to foster/stifle competition (e.g. new licensing requirements for practicing vets following liberalization of services industry under AFTA, antitrust legislations, limiting the number of telcos…).2. Regulating and deregulates certain industries – control prices and quality, as well as to ensure ethical and safety practices (SALT scheme for farms, HALAL and VHM certification, imposing ceiling price for chickens, deregulating the price of rice in the country) 3. Protecting stakeholders’ rights (IP laws etc, in M&A’s)4. Intervening to contribute to economic stability (far sighted economic policies, fiscal stimulus, tax breaks) – this is because the economy is rarely static, government should prevent the economy from “overheating”(productive capacity unable to cope with aggregate demand), rein in inflation as well as to minimize impact of an economic contraction.

Key Concepts

Businesses in the challenging global economy

1.Entity must appreciate and reflect the cultural diversity/ethical expectations of its marketplace. It is important to act in a socially responsible and ethical manner that is consistent with the different cultures. Vegan practice in pets ? Pet fashion ? Prevalence of chemical castration in pigs instead of surgical castration ? Organic farming ? As globalization increases, social responsibility becomes more complex.2.Quickly produce and adapt quality products. E.g. how to position “Local Premium beef” vs “Indian” beef or Australian or New Zealand imports.3.Small businesses must able to make their product difficult to imitate. That is particularly tricky in with technologically advanced or well-funded competition (going against KFCH ?). 4.Sufficient capital to successfully weather tough times in the volatile global economy. They must move quickly, and be creative to compete in the marketplace. 5.Creating and improving customer satisfaction is imperative. Customer satisfaction factors incorporate every aspect of the organization and operations.

Key Concepts

Businesses in the challenging global economy

6. Competition and anticompetitive behaviour – overwhelming market dominance would predispose to unhealthy business practices at the expense of consumers and competition. Different countries would have different act to regulate anti-competitive behaviour.

Key Concepts

Malaysian Competition Act 2010

The Sherman Act 1890

Treaty of Lisbon, 2007 (prohibits price fixing & abuse of dominant position)

Australian Competition Law