Management - Chapter 1 notes

Factors of production

Labour - The people who work for the company

- The mental and physical capacities of people

Capital - The funds needed to start a business and to keep it operating/growing

Entrepreneurs - are people that create and operate businesses and accept the
risks/opportunities that come along with them

Natural Resources - ex. Land, water, trees, oil, mineral deposits

Information - Expertise of people

- Info found in the market, forecasts, etc

Economic systems

Command economy
- relies on the government to control all or most of the factors of production
Market Economy
- individuals (producers and consumers) make productions/decisions through supply and
demand

Mixed Market Economies

- Features characteristics of both Market and Command economies
How the Government Influences Businesses

Government as a customer
-Buys products from businesses

Government as a competitor
-Ex. Canada post

Government as regulator
-Canada regulates many aspects of business activity through administrative boards,
tribunals, and commissions

Government as a taxation agent

- Taxes are imposed and collected by the government

Government as a provider of incentives and financial assistance

-Ex. Provinces to BC and notary have given hundreds of millions of dollars in subsidies
to film companies to motivate them to make major films in those provinces

Government as a provider of essential services

-facilitate businesses activity through the services that they supply (ex. Roads, sewage,
postal service, etc)
How Businesses Influences the Government

Lobbyist
- A person hired by a company or an industry to represent its interest with government
officials

Demand and Supply in a Market Economy

The Laws of Supply and Demand

Demand - The willingness and ability of buyers to purchase a product or service

Law of Demand - buyers will purchase more of a product as the price drops

Supply - The willingness and ability of producers to offer a good or service for sale

Law of Supply - Producers will offer (supply) more for sale as the price rises

Demand and Supply Schedule - Assessment of the relationship between different levels of
demand and supply at different price levels

Private Enterprise and Competition

Private Enterprise
- An economic system characterized by private property rights, freedom of choice, profits, and
competition

Degrees of Competition

Perfect Competition
-Number of firms is large
- Identical product
- Ex. Canadian Agriculture
Monopolistic Competition
- Few sellers
- Many buyers
- Ex. Clothing companies
Oligopoly
- Few number of Very large companies
- Lots of Competition
- Ex. Cereal companies (Quaker, General Mills, etc)
Monopoly
- Only ONE producer
- Ex. Canada Post
Chapter 2 -Textboook

External Environment - Everything outside an organizationn’s boundaries that might

affect it

The Economic Environment

-Refers to the conditions of an economic system in which an organization

operates

Economic Growth

Aggregate Output - total quantity of goods and services produced by an economic

system during a given period

Business Cycle- pattern of short-term up and downs in an economy

1. Peak
2. Recession - two concequactive quarters the the economy shrinks
3. Trough - (Depression starts when the economy has been in “trough” for 2 or
more years)
4. Recovery

Gross Domestic Product (GDP) -

Total value of all goods and services produced within a given period by a national
economy for domestic factors of production

Gross National Product (GNP) -

Total value of all goods and services produced by a national economy within a given
period regardless of where the factors of production are located

Real Growth Rates -

The real growth rate of GDP adjusted for inflation and changes in the value of the
country’s currency (growth depends on output increasing at a faster rate than
population.

GDP per Capita -

GDP per person

Real GDP -

GDP calculated to account for changes in currency values and price changes

Purchasing Power Parity-

Principle that exchange rates are set so that the prices of similar products in different
countries are about the same

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

The Balance of National Debt and Trade

Balance of Trade-

The total of countries exports (sales to other countries) minus its imports (purchases
from other countries)

National Debt-

The total amount of money that a country owes its creditors

Economic Stability

Inflation -

Occurrence of widespread price increases throughout an economic system

-During Inflation people have more money to spend, but there is the same quantity of
products to buy

Measuring Inflation: The CPI

Consumer Price Index- of the prices of typical products purchased by consumers living
in urban areas

Deflation- a period of generally falling prices

Unemployment - The level of joblessness among people actively seeking work in an

economic system

Managing the Canadian Economy

Fiscal Policies - policies whereby governments collect and spend revenues (for example
when the growth rate of the economy is decreasing tax cuts will normally stimulate
renewed economic growth)

Monetary Policies- policies whereby the government controls the size of the nation's
money supply

The Technological Environment

Research and Development- those activities that are necessary to provide new products
services and processes.

- Increasing technology makes companies able to work with more efficiently

The Political and Legal Environment

Political- Legal Environment - Conditions reflecting the relationship between business

and government usually in the form of government regulation

-The legal system defines what an organization can and cannot do

- Canada is a free market economy

The Social- Cultural Environment

- Customer Preferences and Tastes

- Ethical Compliance and Responsible Business Behaviour
- The Business Environment
- The Industry Environment

Micheal Porter’s five force model

- Rivalry Among Existing Competitors

- Threat of Potential Entrants
- Bargaining Power of Suppliers
- Bargaining Power of Consumers
- Threat of Substitutes

Emerging Challenges and Opportunities in the Business Environment

Outsourcing - of paying suppliers and distributors to perform certain business processes

or to provide needed materials or services

The Growing Role of Social Media- New way to interact with costumers
Business Process Management- approach by which firms move away from department-
orientated organizations and towards process-orientated team structures that cut across
all departments boundaries

Redrawing Corporate Boundaries

Acquisition - the purchase of a company by another, larger firm, which absorbs the
smaller company into its operations

Merger- the union of two companies to form a single new business

- Horizontal merger: Companies are in the same industry
- Vertical merger: when one of the companies is the supplier or customer
to the other

Divestitures and Spinoffs-

Divestiture - Occurs when a company sells part of its existing business operations to
another company

Spinoffs- strategy of setting up one or more corporate units as new independent

corporations

Employee-Owned Corporations- when employees enter into what is called “employee

stock ownership plans”. A corporation might do this to increase employee motivation or
to fight a hostile takeover

Strategic Alliance- an enterprise in which two or more persons or companies temporarily

join forces to undertake a particular project

Subsidiary Corporation- is one that is owned by another company