Chapter 1: Taking Risks and Making Profits Within the Dynamic Biz EnvironmentBusiness: any activity that seeks to provide goods and services to others while operating at a profitRevenue – Expenses = ProfitHow Much Profit?Automobile Manufacturer % Profit .9Grocery Chain % 1.1Airline % 5.4Computer Company % 6.4What do company’s do with their profits?- Reinvest in the company- Research and development- Grow: expand into new markets and different product linesStarting a Business- Entrepreneur Risks:- Time - Money - Opportunity Cost- Risk-Profit Tradeoff- Social Entrepreneur Ex: Bill and Melinda Gate’s FoundationThe Business EnvironmentEconomic and Legal Environment- DE good place to have biz- Laws and regulations advantageous to Biz- The Current state of the economyThe Technology Environment- The Internet- Increased efficiency and effectiveness The Social Environment- Changes in diversity- Changes in Age- Changes in social trendsThe Competitive Environment- Customer expectations- need to exceed this- Restructure/EmpowerThe Global EnvironmentChapter 2: Understanding How Economics Affects BusinessCircular Flow Model: flow of money, process of free market economy (US)- Product market is lower halfEconomics: Study of how society chooses to employ resources to produce goods and services and distribute them among competing groups/individuals- Macro vs Micro- Resources DevelopmentTypes of EconomicsCapitalism = Free Market Economy- Regulated by the Invisible HandAdvantages of Capitalism- Built in Incentives to Work Hard- People can own their own business- Business owners can keep the profit- Quantity, Quality, and Variety of Products Offered is Market Driven- If consumers want a product, business are likely to provide it- Freedom of competitionPitfalls of Capitalism- Greed- Invisible hand is undermined by greed- Huge Disparity in wealth- Not all worthwhile business are profitable- Arts and culture, education, social causes- Bc of this – the US is not full capitalist economy Socialism- Private and public ownership- Some choices are limited- Create social equality- Those very smart and talented leave for less taxes - Reduces individual incentivesCommunism- Government ownership and control- Hard for gov to determine what and how much to produce- Assume people are motivated to work for common goodMixed EconomiesTrend Results in blend/mix, rare for pure economy Capitalism > SocialismSocialism > CapitalismUS Economy- In a capitalist economy, assuming perfect competition, the market dictates the amount of goods produced and the price of goods. - The market is self correcting Business (Supply) and Customers (Demand) are balancedSupply and Demand CurveY axis (vertical) –price X axis (horizontal) – quantity- Supply curves up to right, demand curves down to leftForms of CompetitionPure Competition No choice of price Many firms Monopolistic Competition Firm’s control over price Number of firmsOligopoly Firm’s control over price A few large firms dominateMonopoly High choice over price OneOur Economy: How to stable it- Government Fiscal PolicyTaxes – what the gov takes in- Increase to slow economy, Lower taxes to raise economySpending – what the gov spendsTaxes – Spending = National Debt- The debt has reached about $16- Each US citizen’s > $50,000- Usually the higher our debt, the weaker the dollar is- Federal ReserveMonetary PolicyMoney Supply- raise to speed up economyInterest Rates- lower interest rates to speed up economyKey Economic Indicators- Gross Domestic Product (GDP): total amount of goods and services produced - Unemployment Rate: number of ppl who are over 16, looking for a job- Consumer Price Index (CPI): charts the cost of goods and services over time to see how prices have changedOther Price Indexes- Inflation- Disinflation- DeflationThe Business Cycle- Recession- Depression- RecoveryChapter 3: Doing Business in Global MarketsSmall Business Trade Gap: many small biz don’t trade international- Only 13% of small biz- Obstacles for Selling Abroad- Difficulty identifying customers- Unreliable sales reps- Lack of their own managerial experience- Tariffs and other regulationsWhy Trade With Other Nations?- No nation can produce all it needs- Exchange of natural resources or other factors of production can be mutually beneficial- Market ExpansionComparative and Absolute AdvantageGlobal Trade- Goods and Services- Importing- Exporting- Measuring Trade- Balance of Trade/Payments- Trade DeficitTrade Between Countries- Importing: the purchase of goods and services from foreign sources- Exporting: the sale of goods and services to foreign marketsBalance of Trade: amount of money paid to import vs export- Trade deficit = more exports then importsBalance of Payments: balance of imports, exports, and all other flows of money into andout of the country (Tourism, Foreign Aid, Military expenditures)Other Strategies for Reaching Global Markets- Licensing: a firm grants permission for a foreign company to use their brand or trademark for some compensation (royalty check)- Franchising: specialized type of licensing that requires the franchisee to take over the identity of the franchisor. Ex: mcdonalds in india - Identity, management help, restrictions- Shared profit- Has to adherer to all of mcdonalds rules - Contract Manufacturing: type of outsourcing where a domestic firm contracts with a foreign business to do some or all of their production services - Supporters say it makes them more efficient - Non supporters say it takes away jobs from home- Joint Ventures & Strategic Alliance- Foreign Direct InvestmentForces Affecting Trading in Global Markets- Socio-cultural- Language- Religion- Values & Attitudes- Personal Communication- Social Structure- Aesthetics- Economic & Financial- No worldwide currency- Currency fluctuations- Floating exchange rates- Strength of currency- Physical & Environmental- Legal & Regulatory- US businesses are required to operate by US laws when conducting business in other countriesFree Trade vs Protection- Free Trade- NAFTA: our free trade agreement with Canada and mexico- Trade Protectionism: the use of gov regulation for trading- Tariffs- Import Quota- EmbargoChapter 4: Demanding Ethical and Socially Responsible Behavior- What is ethically right may be situation-dependent- Perhaps a behavior is only unethical in extreme cases Morality- fact of matterEthics- ControversialNormative Ethics: philosophies for arriving at standards or guidelines for