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CHAPTER 2

The firm and its environment


DEFINITION OF BUSINESS

• Business – is any activity involved in the production and distribution


of goods and services, aimed to meet the economic needs of
consumers with an objective of eventually earning profits.

– aims to satisfy the consumer’s basic and secondary


needs.
Relationship
between Business
and the Economy
ELEMENTS OF A BUSINESS SYSTEM
Economics – the study of how a society produces and distributes its
desired goods and services.

Four factors of production:

a. Land – natural resources


b. Labor - people
c. Capital - wealth
d. Entrepreneur - businessman
PROFIT MOTIVE
• It is the difference between income and expenses.

• It is the prime motivator why people engage in


business.

Management perspective: Profit keeps the


business viable.

Employees perspective: profit give employees a


fair share in the form of just wages and incentives.
Why People Engage in
Business?
Why people engage in Business?

• Reasons
1. Profit
2. Power
3. Service to the community
4. Prestige
5. Livelihood
6. Social Approval
Hierarchy of Needs
• Abraham W. Maslow
1. Physiological or Biological

2. Safety

3. Social

4. Ego or self – esteem

5. Self - fulfillment
KINDS OF BUSINESS
• Industries – conversion of raw materials into finished
products with the application of labor.
• Manufacturing industries
• Commerce – involves the process of buying and
selling where the goods are move from the point of
production to the point of consumption.
• Ex. NCCC mall, SM, Abreeza. etc.
• Service Enterprises - primarily concerned with the
satisfaction of the needs and wants of customers in
the form of service.
• Public and Community Service – Transportation
Companies & Meralco
• Professional Service – Lawyers, Accountant, etc.
KINDS OF ECONOMIC SYSTEM
• Capitalism – owned and operated by private individuals (capitalist or
provider of capitals)

• Socialism – a free enterprise system with government control and


supervision. (mixed economy)
• Promotes equality and balance in the society
• Communism – the state owns and controls all economic activities.
PHASES OF ECONOMIC DEVELOPMENT

• CRITERIA

• Means of Livelihood

• Extent of economic activity

• Medium of exchange
MEANS OF LIVELIHOOD:
1. Hunting & Fishing Phase – bounties of nature

2. Pastoral Phase – raising of livestock

3. Handicraft Phase – skills creation of


items/object

4. Agricultural Phase - farming

5. Industrial Phase - manufacturing


EXTENT OF ECONOMIC ACTIVITY
1. Household Economy – family needs

2. Village Economy – organized village

3. National Economy – bigger & broader social


units

4. International Economy – Global trade


MEDIUM OF EXCHANGE
1. Barter Economy – Exchange of goods-goods, services-services, goods-
services/services-goods
- No money involved

2. Money Economy – payments for objects standardized in value and


regular in appearance (acceptable in general public)

3. Money & Credit Economy – payments of goods & services to be paid at


some future date
LEGAL FORMS OF BUSINESS OWNERSHIP
• Single / Sole Proprietorship –organized and managed by only one person.

• Partnership - two or more persons combine to operate a business.

• Corporation - is a type of business entity which


has a legal entity separate and distinct from its
owners. (stockholders or shareholders)
• Cooperative
Project Feasibility Study

• Aspects
1. Marketing
2. Organization and Management
3. Technical
4. Financial
5. Socio - economic
BUSINESS

Start a new or buy an existing one?


It depends:

1. On the nature and kind of business


2. The availability of opportunities for acquisition
3. On personal biases
Business Registration

• Purposes
1. to establish the legal personality of the business
2. to obtain a Permit to operate
3. to comply with the requirements of special regulatory or
promotional programs of government
Business Registration

• Security and Exchange Commission (SEC)


- Partnership
- Corporation
* Bureau of Trade Regulation and Consumer Protection (BTRCP)
- Single or Sole Proprietorship
THE ENTREPRENEUR AND THE MANAGER

Entrepreneur – a person who organize and operate a business, willing


to face greater financial risks to start a business.

Manager- a person responsible in controlling or running the business.


Positive values of a Filipino Entrepreneur

• Pakikipagkapwa tao-human relation


• Bahala na/malakas ang loob – strong-hearted
• Pakikipagsapalaran – risk-taker
• Gaya-gaya - imitations
• Utang na loob, hiya, awa, bayanihan
• Kasipagan -industriousness
• Pagtitipid - thrifty
• Pagtitiis - enduring
• Pagtitimpi – self-control
• Katapatan - honesty
International Business Environment

Exporting – the selling of an organization’s


goods in another country

Importing – the purchasing of goods and


services from a foreign
company/another country.
Exporting
Reasons:
1. if the production process requires high volume
to reduce cost per unit, the home market may be
too small to absorb the output.
2. the demand for the firms product may be
seasonal and irregular.
3. product life cycle
4. Established goods in new overseas markets
Importing
Reasons:
1. the goods may be needed but not available in
the importing country.
2. many foreign – made products have prestige
value and are demanded by the home market.
3. some foreign goods are less expensive due to
lower production costs.