Chapter ~ntrodition to Business and Globalization Introduction to Business and Globalization Learning Outcomes: ‘At the end of the chapter, the student shall be able to « Discuss what business is all about, its nature, concepts and structure, including the different forms of business organization, types of business and its activities. ‘« Discuss the life cycle of a business and the corresponding challenges and how the business environment impact business operations. + Differentiate domestic business from intemational business ‘» Explain what is meant by the term | globalization ‘* Describe the main drivers of globalization | and explore the changing nature of the global economy « Explain the main arguments in the debate over the impact of globalization |» Appreciate how the process of globalization |" is creating opportunities and challenges for | business managers Timeframe: 9.0hours Definition of Bu: ‘According to B. O. Wheeler, “Business is an institution organized and operated to provide goods and ‘services to society under the incentive of private gain.” ‘A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities. - Investopedia.com As Davis and Blomstorm observed, business is ‘social institution, performing a social mission and having a broad influence on the way people live and work together’. As Calkins remarks ~ It is now recognized that the direction of business is important to the public welfare, that businessmen perform a social function “Business is that complex field of commerce and industry in which goods and services are created and distributed in the hope of profit with in a framework of laws and regulations”, -Arthur M. Weimer Business may be defined as human activity directed towards producing or acquiring wealth through buying and selling goods”. - Lewis H. Haney(Chopter— Introduction to Business and Globalization “Business is the sum total of those processes which are engaged in the removal of hindrances of persons (trade), place (transport and insurance) and time (warehousing) in the exchange (banking) of commodities”. ~ James Stephenson ‘Stephenson defines business as, "The regular production or purchase and sale of goods undertaken with an objective of earning profit and acquiring wealth through the satisfaction of human wants.” According to Dicksee, "Business refers to a form of activity conducted with an objective of eaming Profits for the benefit of those on whose behalf the activity is conducted." Lewis Henry defines business as, "Human activity directed towards producing or acquiring wealth through buying and selling of goods." ‘Thus, the term business means continuous production and distribution of goods and services carried ‘out to eam profits under uncertain market conditions. The Nature of Business Take a moment to think about the many different types of businesses you come into contact with on a typical day. As you drive to class, you may stop at a gas station that is part of a major national company and grab lunch from a fast food chain such as Taco Bell or McDonald's or the neighborhood pizza place. Need more cash? You can do your banking on a smartphone or other device via mobile apps. You don't even have to visit the store anymore: online shopping brings the stores to you, offering everything from clothes to food, furniture, and concert tickets. A business is an organization that strives for a profit by providing goods and services desired by its customers. Businesses meet the needs of consumers by providing medical care, autos, and countless other goods and services. Goods are tangible items manufactured by businesses, such as laptops. Services are intangible offerings of businesses that can't be held, touched, or stored. Physicians, lawyers, hairstylists, car washes, and airlines all provide services. Businesses also serve other organizations, such as hospitals, retailers, and governments, by providing machinery, goods for resale, computers, and thousands of other items. Thus, businesses create the goods and services that are the basis of our standard of living. The ‘standard of living of any country is measured by the output of goods and services people can buy with the money they have. The United States has one of the highest standards of living in the world. Although several countries, such as Switzerland and Germany, have higher average wages than the United States, their standards of living aren't higher, because prices are so much higher. As a result, the same amount of money buys less in those countries. Businesses play a key role in determining our quality of life by providing jobs and goods and services to society. Quality of life refers to the general level of human happiness based on such things as life expectancy, educational standards, health, sanitation, and leisure time. Building a high quality of life is a combined effort of businesses, govemment, and not-for-profit organizations. In 2017, Vienna, Austria, ranked highest in quailty of life, followed by Zurich, Switzerland: Auckland, New Zealand; and Munich, Germany. It may come as a surprise that not one of the world's top cities is in the United States: seven ofthe top 10 locations are in westem Europe, two are in Australia/ New Zealand, and one is in Canada. At the other end of the scale, Baghdad, Iraq, is the city scoring the lowest on the annual survey. Creating a quality of life is not without risks, however. Risk is the potential to lose time and money or otherwise not be able to accomplish an organization's goals. Without enough blood donors, for ‘example, the American Red Cross faces the risk of not meeting the demand for blood by victims of disaster. Businesses such as Microsoft face the risk of falling short of their revenue and profit goals. 2Choptr|~ troduction to Business ond Globalization Revenue is the money a company receives by providing services or selling goods to customers. Costs are expenses for rent, salaries, supplies, transportation, and many other items that a company incurs from creating and selling goods and services. For example, some of the costs incurred by Microsoft in developing its software include expenses for salaries, facilities, and advertising. If Microsoft has money left over after it pays all costs, it has a profit. A company whose costs are greater than revenues shows a loss. Features of Business Characteristics or features of the business are discussed in the following points:- 1, Exchange of goods and services - All business activities are directly or indirectly concemed with the exchange of goods or services for money or money's worth 2. Deals in numerous transactions — In business, the exchange of goods and services is a regular feature. A businessman regularly deals in several transactions and not just one or two transactions. 3. Profit is the main objective - The business is carried on with a motive to eam a profit. The profit is a reward for the services of a businessman. 4, Business skills for economic success - Anyone cannot run a business. To be a good businessman, one needs to have good business qualities and skills. A businessman needs experience and skill to run a business. 6, Risks and Uncertainties - Business is subject to risks and uncertainties. Some risks, such as risks of loss due to fire and theft can be insured. There are also uncertainties, such as loss due to ‘change in demand or fall in price cannot be insured and must be bome by the businessman. 6. Buyer and Seller ~ Every business transaction has a minimum of two parties that is a buyer and a seller. Business is nothing but a contract or an agreement between buyer and seller. 7. Connected with production — The business activity may be connected with the production of goods or services. In this case, it is called as industrial activity. The industry may be primary or ‘secondary. 8. Marketing and Distribution of goods - The business activity may be concemed with marketing or distribution of goods in which case it is called a commercial activity. 9. Deals in goods and servic ~ In business there has to be dealings in goods and service. Goods may be divided into following two categories: ‘+ Consumer goods: Goods which are used by final consumer for consumption are called ‘consumer goods e.g. T.V., Soaps, etc. ‘* Producer goods: Goods used by producer for further production are called producers goods e.g. Machinery, equipment, etc, Services are intangible but can be exchanged for value like providing transport, warehousing and insurance services, etc. 10. To satisfy human wants - The businessman also desires to satisfy human wants through the conduct of business. By producing and supplying various commodities, businessmen try to promote consumer's satisfaction. 11. Social obligations ~ Modem business is service-oriented. Modem businessmen are conscious of their social responsibility. Today's business is service-oriented rather than profit-oriented.Chapter |~introducton to Business and Globalizetion Understanding a Business Generally, a business begins with a business concept (the idea) and a name. Depending on the nature of the business, extensive market research may be necessary to determine whether tuming the idea to a business is feasible and if the business can deliver value to consumers. The business name can be one of the most valuable assets of a firm; careful consideration should thus be given when choosing it. Businesses operating under fictitious names must be registered with the state, Businesses most often form after the development of a business plan, which is a formal document detailing a business's goals and objectives, and its strategies of how it will achieve the goals and objectives, Business plans are almost essential when borrowing capital to begin operations. Itis also important to determine the legal structure of the business. Depending on the type of business, it may need to secure permits, adhere to registration requirements, and obtain licenses to legally operate. In many countries, corporations are considered to be juridical persons, meaning that the business can own property, take on debt, and be sued in court Business Structures Many businesses organize themselves around some sort of hierarchy or bureaucracy, where positions in a company have established roles and responsibilities. The most common structures include sole proprietorships, partnerships, corporations, and limited liability companies (LLC), with sole proprietorships being the most prevalent. FORMS OF BUSINESS ORGANIZATION, ADVANTAGES AND DISADVANTAGES, REQUIREMENTS FOR FORMATION AND APPLICABLE PHILIPPINE LAWS ‘Ownership and structural forms of business organization, applicable laws, requirements for their formations, and advantages and disadvantages. 1. Single or Sole Proprietorship. It isa form of business organization which is owned by one person. The owner personally manages his business. Most of businesses in the Philippines (including those which are not registered) belong to single proprietorship. Examples are retailers, market vendors, barbers, tailors, and so forth. a) Advantages of Single or Sole Proprietorship ‘Its easy to organize. Financial capital is small, and registration requirements are not difficult to comply with. In fact, in the remote rural areas small businesses do not even bother to apply for license. ‘+ The single proprietor is the boss. He makes the decisions and enjoys substantial freedom of action. Possibilities of conflicts or quarrels are minimized. ‘+ The owner acquires all the profits from his business. This gives him more incentives to make his business grow. b) Disadvantages of Single or Sole Proprietorship ‘+ In general, the financial resources of a single proprietorship are not enough to transform the business into a large-scale enterprise. Considering its small assets and high mortality rate, banks are reluctant to grant big loans to single proprietorship type of business organizations, ‘+ Benefits of specialization in business management are not present in small scale proprietorship. ‘There is only one manager. In not a few cases, the owner is the only employee.Chapter |~ Introduction to Busines and Globolzetion ‘The owner has unlimited liability. This means that the owner of the business risks not only the assets of his small enterprise, but also his other personal assets like his piece of land, bank deposits, and other personal properties which are not part of his business. In case of loss, such assets are subject to financial claims by creditors c) Requirements for formation - Since it is the simplest form of business itis the easiest to register. It is registered through the Bureau of Trade Regulation and Consumer Protection (BTRCP) of the Department of Trade and Industry (DT). d) Applicable Laws - Republic Act No. 9178 Barangay Micro Business Enterprises (BMBEs) Act of 2002 2. Partnership. It is a form of business organization in which two or more persons agree to own and operate a business. The partners agree to combine their resources (money, materials, and management). They also share their profits and losses. However, there are “silent” partners. They only provide the financial capital but they do not participate in the management. There is also the “industrial” partner. He does not contribute money to the business organization but he is responsible for its management. a) Advantages of Partnership It is also easy to organize like single proprietorship. Legal red tape in connection with its registration is not much. + Better management because of the presence or more participants in the operations of the business. ‘© Possibility of bigger resources than in the single proprietorship exists. Financial institutions may ‘extend bigger loans to such business organization considering the combined resources of the partners b) Disadvantages of Partnership ‘* Conflicts or quarrels between or among the partners regarding the management or policies of the business are likely to crop up. In fact, under Filipino style, some partners cheat their other partners in matters of profits or expenses. « Itlacks stability. The death or withdrawal of one partner dissolves the partnership. To continue its operation, a complete reorganization is needed «Like the single proprietor, the partners are also subject to unlimited liability, except the limited partners. Such partners, liabilities are only confined to their share of capital contributions in the form of cash or property. c) Requirements for formation - A partnership is consisting of two or more persons who bind themselves to contribute money or industry to a common fund, with the intention of dividing the profits among themselves. The most common example of partnerships is professional partnerships, like in the case of law firms and accounting firms. Just like a corporation, itis registered with the Securities and Exchange Commission (SEC). A partnership, just like a corporation, is a juridical entity, which means that it has a personality distinct and separate from that of its members. A partnership may be general or limited. In a general partnership, the partners have unlimited liability for the debts and obligation of the partnership, pretty much like a sole proprietorship. In a limited partnership, one or more general partners have unlimited liability and the limited partners have liability only up to the amount of their capital contributions. Unlike 5Chopter !~ Introduction to Business ond Globalization 2 corporation, which survives even when a member/stockholder dies or gets out, a partnership is dissolved upon the death of a partner or whenever a partner bolts out. 4) Applicable Laws - Unlike corporations whose governing law is a special law - the Corporation Code of the Philippines, partnerships in the Philippines are governed by and covered under Articles 4767 to 1867 of the Civil Code of the Philippines [circa 1950]. These are the provisions of law which govem all aspects of partnerships - from their creation, formation, existence, operation and management to their dissolution and liquidation, including the obligations of the partners to one another, to the public or third persons and to the government. 3. Corporation - A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. Corporations are, for tax purposes, separate entities and are considered a legal person. This means, ‘among other things, that the profits generated by a corporation are taxed as the “personal income” of the company. Then, any income distributed to the shareholders as dividends or profits are taxed again as the personal income of the owners. Classes of corporations. - Corporations formed or organized under this Code may be stock or non- ‘stock corporations. Corporations which have capital stock divided into shares and are authorized to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of the shares held are stock corporations. All other corporations are non-stock corporations. Corporators and incorporators, stockholders and members. - Corporators are those who compose a corporation, whether as stockholders or as members. Incorporators are those stockholders ‘or members mentioned in the articles of incorporation as originally forming and composing the corporation and who are signatories thereof. a) Advantages of a Corporation + Limited liability. The shareholders of a corporation are only liable up to the amount of their investments. The corporate entity shields them from any further liability, so their personal assets are protected ‘* Source of capital. A publicly-held corporation in particular can raise substantial amounts by selling shares or issuing bonds. + Ownership transfers. It is not especially difficult for a shareholder to sell shares in a corporation, though this is more difficult when the entity is privately-held. ‘Perpetual fe. There is no limit to the life of a corporation, since ownership of it can pass through many generations of investors. ‘* Pass through. If the corporation is structured as an S corporation, profits and losses are passed through to the shareholders, so that the corporation does not pay income taxes. b) Disadvantages Corporation ‘* Double taxation. Depending on the type of corporation, it may pay taxes on its income, after which shareholders pay taxes on any dividends received, so income can be taxed twice. ‘* Excessive tax filings. Depending on the kind of corporation, the various types of income and other taxes that must be paid can require a substantial amount of paperwork. The exception to this scenario is the S corporation, as noted earlier.Chapter I~ introsuction to Business and Globozotion * Independent management. ff there are many investors having no cfear mayonty interest, tne management team of a corporation can operate the business without any real oversight from the owners. c) Requirements for Formation - Local and foreign entities seeking to establish a business in the Philippines are required to submit documents to the Securities and Exchange Commission (SEC) to secure a Certificate of Incorporation, a document that grants juridical existence to an enterprise and allows it to legally engage in business in the Philippines. The documentary requirements for incorporation should be filed with the SEC — the processing timeline of which depends on the nature of business, list of proposed business activities, ownership structure (percentage of Filipino and foreign ownership), paid-up capital, licenses and permits from special government units (if looking to engage in a regulated industry), and other such purposes. Provided that all documents are submitted and all supporting information are placed in order, applications for registration of new corporations/partnerships with the SEC are usually processed within seven (7) days from the date of filing, d) Applicable Laws - REPUBLIC ACT No. 11232- An Act providing for Revised Corporation Code of the Philippines. 4. Cooperative. It is an organization composed primarily of small producers and consumers who voluntarily join together to form business enterprises which they themselves own, control and patronize. ‘A cooperative is also defined as a duly registered association of persons, with a common bond of interest and have voluntarily joined together to achieve a lawful common social or economic end, and making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles. a) Advantages of a Cooperative ‘* Elimination of middlemen. The management of the consumer cooperative society directly purchases the finished goods from the manufacturer and producer. Producer cooperative society procures the raw material from the producer. Thus, they try to free themselves from the grip of the middlemen and make the goods available to consumers at lower prices. * Saving in management expenses. Cooperative society enjoys some economies in the field of management due to voluntary services performed by the members themselves. Thus, it is possible to minimize the expenses of management and supervision. ‘© Minimum stock. Society purchases the same goods which are actually demanded by its members. Thus, there is need to have minimum stock at hand due to constant and regular demands. «Economy in distribution and production expenditure. Society is saved from any distribution and production expenses. It has got its regular customers; therefore, society has not to face any trouble for marketing its goods. Thus, it has not to incur any expenditure for publicity and advertisement, which is a big item in the budget of the capitalist producer. * Integration. Under this type of organization, complete integration between producers, wholesalers and retailers is always possible. This is thus a clear advantage over capitalist economy.