CHAPTER 2

The Business Environment

A. Entrepreneurship

1. Business in General

2. Types of Businesses

3. Types of Business Ownership

4. Other Classifications/Activities regarding Ownership

5. Who are Entrepreneurs?

a. Characteristics of Entrepreneurs

6. Socio – Economic Contributions of Entrepreneurship

7. Why Small Businesses Fail

B. Organizational Culture and the Environment

1. The General Environment

2. The Economy

a. Definition of Economy

b. Kinds of Economic Systems:

3. Relationship between Business and the Economy

a. Responsibility of a Business Enterprise

4. Organizational Culture

a. Definition

b. Guide questions used for reading an Organization’s Culture

c. The Two Levels of Organizational Culture:

C. Management: Global Dimensions

1. International Trade

a. Importing

b. Exporting

2. Reasons for Importing and Exporting

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CHAPTER 2

The Business Environment

A. Entrepreneurship

1. Business in General

Business – is any legal activity that involves the production and/or distribution of goods
and/or services, aimed to meet the economic needs and wants of consumers with an
objective of eventually earning profit. One of the major concerns of businesses is to have a
Competitive Advantage.

2. Types of Businesses

1. Industry
2. Commerce
3. Services

3. Types of Business Ownership

1. Sole or Single Proprietorship

2. Partnership
There are two general types of partners:
a. Limited Partner
b. Unlimited Partner
3. Corporation
4. Cooperatives

4. Other Classifications/Activities regarding Ownership

a. Mergers
b. Acquisition
c. Franchising

5. Who are Entrepreneurs?

Characteristics of Entrepreneurs
a. High level of Creativity
b. Internal Locus of Control
c. High energy Level
d. High need for Achievement
e. Tolerance for ambiguity
f. Self-Confidence
g. Passion and Action Orientation
h. Self-reliance
i. Flexibility

6. Socio – Economic Contributions of Entrepreneurship

1. Entrepreneurship generates employment
2. Entrepreneurship improves the quality of life
3. Entrepreneurship contributes to more equitable distribution of income taxes and
thereto eases social unrest
4. Entrepreneurship utilizes and mobilizes resources for greater national productivity
5. Entrepreneurship brings social benefits through the government

7. Why Small Businesses Fail

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 1. Lack of Experience
2. Lack of Expertise
3. Lack of Sound Strategies
4. Poor Financial Control
5. Lack of Preparation
6. Insufficient Commitment
7. Ethical Failure

B. Organizational Culture and the Environment

1. The General Environment

The general environment consists of all conditions in the external environment that forms a
background context for managerial decision – making. Typical environmental issues include:

a. Economic Conditions
b. Socio-cultural Conditions
c. Legal – political Conditions
d. Technological Conditions
e. Natural Environment Conditions

2. The Economy

Economics – is the study of how a society or country produces and distributes its desired
goods and services.

The Economy – is the system itself, of how the nation manages their available resources to
produce the country’s goods or services, considering exporting and importing, how they
distribute these goods and services in reasonable costs to satisfy the needs and wants of the
people, while raising the people’s standard of living.

Kinds of Economic Systems:

1. Capitalism
2. Socialism
3. Communism

3. Relationship between Business and the Economy

Responsibility of a Business Enterprise

The Business community is just a part of a larger economic system. It is an

interdependent structure of entities which involves the following groups:

1. The Business Firm itself

2. Owners – the business manager has the responsibility of carefully executing intelligent
decisions to ensure that the owners are earning from their investment.

(for the next groups, what is the management’s responsibility?)

3. Workers – the employees of the business firm

4. Customers – the people buying the firm’s products and/or availing the firm’s services
5. Suppliers – the business firm’s source of materials
6. Business Association – other businesses that the firm works with, is in the same
community or is in the same area of specialty, including competitors
7. Labor Unions – labor groups formed to protect the rights of workers
8. Community – the area in which the firm operates
9. Government – the political system of the area where the business operates.

4. Organizational Culture
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 Organizational Culture refers to the system of shared beliefs and values that guides behavior in
organizations. It is also referred to as Corporate Culture. Principles and philosophy of the
founders and top management is often a strong indicator of its organizational culture.

Guide questions used for reading an Organization’s Culture

a. How tight or loose is the structure?

b. Are decisions change-oriented or driven by the status quo?
c. What outcomes or results are most highly valued?
d. What is the climate for risk – taking and innovation?
e. How widespread is empowerment and/or worker involvement?
f. What is the competitive style, internal and external?

The Two Levels of Organizational Culture:

1. Observable Culture
2. Core Values

C. Management: Global Dimensions

1. International Trade

a. Importing
b. Exporting

2. Reasons for Importing and Exporting

Reasons for Exporting include:

a. If the production process requires a high volume of units to reduce cost per output, the
local market may be too small to absorb the total output. In this case, the firm increases the
buying population by opening up to foreign countries.

b. The demand for the product may be seasonal. Here, proper scheduling involves long-term
preparations with the large output to be distributed to other countries.

c. All products undergo what is called a “product life cycle”. From introduction to growth,
growth to its peak of popularity, then comes the decline. Here, when a product is already
obsolete or unpopular, it is reintroduced to another country as a new product.

d. Competition may not be as stiff in other countries.

e. To create awareness of the country’s product.

Reasons for Importing include:

a. The goods may be needed but not available in the local market, such as oil or gasoline
products

b. Many foreign products have prestige value and are demanded by the local market

c. Some foreign goods are less expensive due to lower production costs