Lecture on Business Activity and Economics

The Economic Problem

• Unlimited wants and limited resources lead to scarcity.
• Scarcity causes opportunity cost.

Business Activity

• Added Value: Selling price minus cost of bought materials.
• Division of Labor: Production process split into tasks, a form of specialization.
• Specialization: Concentrating on what one does best.
• Four Factors of Production:
  • Land
  • Labor
  • Capital
  • Enterprise

Classification of Businesses

• Sectors:
  • Public Sector: Government owned
  • Private Sector: Run by individuals
• Stages of Economic Activity:
  • Primary Sector
  • Secondary Sector
  • Tertiary Sector

Enterprise, Business Growth and Size

• Comparing Business Sizes:
  • Value of sales
  • Value of output
  • Number of employees
• Types of Business Growth:
  • External Growth: Horizontal, vertical, and lateral merging
  • Internal Growth

Reasons for Business Size and Failure

• Why Stay Small:
  • Owner's objectives
  • Types of industry
  • Market size
• Why Businesses Fail:
  • Overexpansion
  • Poor management
  • Failure to plan for change

Business Plans

• Easier to get loans
• Motivates employees
• Keeps focus on mission

Characteristics of Entrepreneurs

• Risk-takers
• Creative
• Effective communication
• Optimistic and innovative

Types of Business Organizations

• Three Types:
  • Joint Stock Companies
  • Sole Traders
  • Partnerships

Business and Stakeholder Objectives

• Stakeholder: Anyone interested or affected by a business
  • Examples: Workers, managers, customers, governments, banks
• Objectives:
  • Public Sector: Financial survival, social objectives
  • Business: Survival, profit, growth, market share, societal service
• Conflicts: E.g., higher worker salaries vs. shareholder profits

Motivation of Workers

• Factors:
  • Financial: Salary, commission, wages, bonus, profit sharing
  • Non-financial: Job satisfaction
• Motivation Theories:
  • Herzberg
  • Maslow
  • F.W. Taylor

Organization and Management

• Organizational Structure: Levels of management and responsibilities
• Leadership Styles: Autocratic, Democratic, Laissez-faire
• Management Functions: Planning, organizing, coordinating, communicating, controlling, commanding
• Delegation: Advantages for managers and subordinates
• Trade Unions: Know advantages and disadvantages

Recruitment, Selection, and Training

• Recruitment Types: External and internal
• Training Types: Induction, on-the-job, off-the-job
• Selection Criteria: Ability, personal qualities, character
• Human Resource Department Roles: Recruitment, wages, industrial relations, training, health and safety, redundancy, dismissal
• Recruitment Process: Job analysis, description, specification

Internal and External Communications

• Types: Internal and external
• Methods: Verbal, written, visual
• Effective Communication: Two-way and one-way, upward and downward
• Communication Barriers: Problems with feedback, receiver, medium, sender

Marketing, Competition, and Customer

• Types of Marketing: Mass and niche
• Objectives and Roles:
  • Identify and satisfy customer needs
  • Maintain customer loyalty
  • Raise product awareness
  • Increase sales and market share
• Competitive Markets: Improved transport, globalization, internet, e-commerce
• Business Responses: Improve products, introduce new ones, reduce costs

Market Research

• Types: Primary and secondary
• Primary Research Methods: Observation, focus groups, interviews, questionnaires
• Secondary Research Types: Internal and external

Marketing Mix

• Price: Price elasticity, penetration pricing, competitive pricing, cost-plus pricing, loss leader
• Promotion: Sales promotions, personal selling, direct mail, advertising; factors affecting promotion
• Place: Distribution channels (manufacturer to consumer, retailer, wholesaler); factors affecting place
• Technology: E-commerce

Marketing Strategy

• Factors Affecting: Product, price, place, promotion
• Problems Entering Foreign Markets: Lack of knowledge, legal differences, language, economic differences, transport costs, social differences

Production of Goods and Services

• Methods: Job production, batch production, flow production
• Lean Production: Self-production, inventory control
• Productivity: Improve motivation, automation, training, quality control

Costs, Scale of Production, Break-even Analysis

• Economies of Scale: Technical, managerial, financial, marketing, purchasing
• Dis-economies of Scale: Poor communication, low morale, slow decision-making
• Break-even Analysis: Fixed cost divided by contribution per input

Quality Production

• Importance: Brand image, loyalty, reputation, sales
• Quality Control: Quality assurance, total quality management

Location Decisions

• Factors Affecting: Retailing, service, manufacturing

Business Finance: Needs and Sources

• Factors Affecting Finance Choice: Time period, purpose, amount, form, size, control, risk
• Finance Sources: Short-term, long-term, internal, external

Cash Flow and Working Capital

• Cash Flow: Inflows and outflows, manage problems with loans, payment delays, etc.
• Working Capital: Cash for expenses and debtors/creditors
• Net Cash Flow: Total inflow minus total outflow

Financial Statements

• Income Statements and Balance Sheets: Liabilities and assets, shareholder equity

Government Economic Policies and Business Cycle

• Policies: Supply-side
• Objectives: Reduce inequality, maintain growth, stability, reduce unemployment
• Business Cycle: Growth, boom, recession, slump

Environmental and Ethical Issues

• Environmental Friendliness: Reasons for and against
• Externalities: Private costs/benefits, external costs/benefits
• Ethical Decisions: Based on moral code
• Sustainable Development: Recycling, resource use

Business and the Global Economy

• Protectionism: Import quotas, tariffs
• Multinationals: Reasons for becoming multinational
• Globalization: Free trade agreements, transport, industrialization
• Exchange Rates: Appreciation and depreciation