*Topic One

*
Taking Risks
and Making
Profits within
the Dynamic
Business
Environment

McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
 *Entrepreneurship
GOODS and SERVICES and
Wealth Building
LG1
*
• Goods -- Tangible products such as computers,
food, clothing, cars and appliances.

• Services -- Intangible products that can’t be held

in your hand like, education, healthcare, insurance,
recreation, and travel and tourism.
 What about Goodwill?
• Success in business is often based on the
strategy of finding a need and filling it.
Example: Pathao Limited

1-2
 *
BUSINESS and Entrepreneurship
and
ENTREPRENEURSHIP Wealth Building
LG1
*
• Business -- Any activity that seeks to provide
goods and services to others while operating at a
profit.

• Entrepreneur -- A person who risks time and

money to start and manage a business.

• Successfully filling a market need means you

could make money for yourself and provide jobs
for others. Example: Sam Walton - Walmart

1-3
 *Revenues,
REVENUE, PROFIT AND LOSS Profits
and Losses

• Revenue -- The total amount of LG1

*
money a business takes in during a
given period by selling goods and
services.
• Profit -- The amount of money a
business earns above and beyond
what it spends for salaries and other
expenses needed to run the
operation.
 Profit = Revenue-Expenses
• Loss -- Occurs when a business’
expenses are more than its
revenues.
 Loss= Revenue<Expenses 1-4
 *Revenues,
Profits
REVENUE, PROFIT AND LOSS (CONT’D) and Losses
LG1
 If a business loses money over time, it will likely *
have to close, putting its employees out of work.
About 80,000 businesses in the US close each
year.

 The business environment is constantly

changing. What seems like a great opportunity
one day may become a huge failure when the
economy changes (Agriculture vs RMG). Starting a
business may thus come with huge risks. But
huge risks often result in huge profits.

1-5
NAME THE CURRENCY
NAME THE CURRENCY (CONT’D)
NAME THE CURRENCY (CONT’D)
NAME THE CURRENCY (CONT’D)
 *
Matching Risk
RISK with Profit

LG1
*
• Risk -- The chance an entrepreneur takes of losing
time and money on a business that may not prove
profitable. Example: Import software from China and sells in
Bangladesh

•Businesses take risks, but with great risks could

come great profit.

 Risk = Return

• Big risk can mean big profits

1-10
 *
Businesses Add
QUALITY of LIFE & STANDARD of to the Standard of
Living and Quality
LIVING of Life

• Quality of Life -- The general

LG1
*
well-being of a society in
terms of its political freedom,
natural environment,
education, healthcare, safety,
amount of leisure and
rewards that add to personal
satisfaction.

• Standard of Living – The

amount of goods and
services people can buy with
the money they have.
1-11
 *Businesses Add
QUALITY of LIFE & STANDARD of to the Standard of
Living and Quality
LIVING (CONT’D) of Life
LG1
*
 Sam Walton (Walmart) and Bill Gates (Microsoft) not only
became wealthy themselves; they also provided
employment for many other people. Walmart is currently the
United States largest private employer.

 Businesses and their employees pay taxes that the federal

government and local communities use to build hospitals,
schools, libraries, playgrounds, roads, and other public
facilities. Thus, the wealth businesses generate, and the taxes
they pay, help everyone in their communities.

 For example, the United States has one of the highest

standards of living in the world, even though workers in
some other countries, such as Germany and Japan, may on
average make more money per hour. How can that be? 1-12
 *Businesses Add
QUALITY of LIFE & STANDARD of to the Standard of
Living and Quality
LIVING (CONT’D) of Life
LG1
*
 Often, goods cost more in one country than in
another because of higher taxes and stricter
government regulations.

 At this point, it is enough to understand that the

United States enjoys a high standard of living largely
because of the wealth created by its businesses.

 Maintaining a high quality of life requires the

combined efforts of businesses, nonprofit
organizations, and government agencies.

1-13
 * Businesses Add
QUALITY of LIFE & STANDARD of to the Standard of
Living and Quality

LIVING (CONT’D) of Life

LG1
*
Businesses add to Quality of Life and Standard of
Living by:
• fulfilling a need for the community
• providing jobs to the citizens
• paying tax to government.
- Taxes are used to provide: Hospitals,
schools, libraries, roads, police protection etc.

1-14
 * Responding to the
STAKEHOLDERS Various Business
Stakeholders

LG1
*
• Stakeholders -- All the people who stand to gain or
lose by the policies and activities of a business and
whose concerns the businesses need to address.
• Who are Stakeholders?
- Customers - Community Members
- Employees - Media
- Stockholders - Elected Officials
- Suppliers - Environmentalists
- Dealers
 Outsourcing means contracting with other
companies (often in other countries) to do some or all
of the functions of a firm, like its production or
accounting tasks. Example: Walmart, Levi’s and Apple Inc
1-15
 * Using Business
Principles in
NONPROFIT ORGANIZATIONS Nonprofit
Organizations
LG1
*
• Nonprofit Organization -- An organization whose
goals are for the betterment of the community, not
financial gains.

• An organization whose goals do not include making

a personal profit for its owners or organizers.

 Example: CARE, Save the Children, UNESCO,

Aparajeyo Bangladesh, Bangladesh Red Crescent
Society, faith Bangladesh, Teach For Bangladesh etc.

1-16
 * Using Business
Principles in
Nonprofit
NONPROFIT ORGANIZATIONS (CONT’D) Organizations
LG1
*
• Groups devoted to social causes—also make a
major contribution to the welfare of society

• Nonprofit organizations often do strive for

financial gains, but they use them to meet their
social or educational goals rather than for
personal profit.

1-17
 * The Importance

FIVE FACTORS of PRODUCTION of Entrepreneurs

to the Creation
of Wealth
1. Land (or natural resources).: Land and other LG2
*
natural resources are used to make homes, cars
and other products

2. Labor (workers): People have always been an

important resource in producing goods and
services. Many people are being replaced by
technology nowadays

3. Capital: This includes machines, tools, buildings,

or whatever else is used in the production of
goods. It may not include money; money is used
to buy factors of production but is not always
considered a factor by itself.
1-18
 * The Importance
FIVE FACTORS of PRODUCTION of Entrepreneurs
to the Creation
(CONT’D) of Wealth
LG2
*
4. Entrepreneurship: All resources in the world
have little value unless entrepreneurs are willing to
take the risk of starting a business to use them

5. Knowledge: Information technology makes it

possible to quickly determine wants and needs
and to respond with desired goods and services.

Peter Drucker said the most important factor of

production in our economy is and always will be
knowledge

1-19
 * The Importance
FIVE FACTORS of PRODUCTION of Entrepreneurs
to the Creation
(CONT’D) of Wealth
LG2
*
 What do we find when we compare the
factors of production in rich and poor
countries?

Answer: What makes rich countries rich

today is a combination of
entrepreneurship and the effective use
of knowledge. Entrepreneurs use what
they’ve learned (knowledge) to grow their
businesses and increase wealth.
1-20
 *
TODAY’S DYNAMIC The Business
Environment
BUSINESS ENVIRONMENT LG2
*

The surrounding factors that

either help or hinder the
development of businesses.

1-21
 *
ECONOMIC and LEGAL The Economic
and Legal
ENVIRONMENT Environment

A government can promote business by…

LG3
*
1.Minimizing spending and keeping taxes and
regulations to a minimum.
2.Allowing private ownership of businesses.
3.Minimizing interference with the free exchange of
goods and services.
4.Passing laws that enable businesspeople to write
enforceable contracts.
5.Establishing a currency that’s tradable in world
markets. Example: $
6.Minimizing corruption.
1-22
 *
The Economic
CORRUPTION WORLDWIDE and Legal
Environment
LG3
*
Least Corrupt
1.New Zealand
2.Denmark
3.Finland/Norway/Switzerland (joint)
4. Singapore/Sweden (joint)
Most Corrupt
1.Somalia
2.North Korea
3.Myanmar
4.Afghanistan
Sources: Forbes.com and msn.com

1-23
 *How Technology
Benefits Workers
TECHNOLOGICAL ENVIRONMENT and You

LG4
*
• Technology -- Everything from phones to copiers
and the various software programs that make
businesses more effective, efficient and productive.
• Effectiveness -- Producing the desired result.
• Efficiency -- Producing goods and services using
the least amount of resources. Example:
An example of efficiency is a reduction in the number of
workers needed to make a car.

• Productivity -- The amount of output you

generate given the amount of input (example:
hours you work). (Productivity = Output/ Input) 1-24
 *
The Growth of
TECHNOLOGICAL ENVIRONMENT E-
Commerce
LG4
*
• The more you can produce in any given period,
the more money you are worth to companies.

• E-Commerce -- The buying and selling of goods

on the Internet.
- B2C: Business to Consumer (Daraz.com)
- B2B: Business to Business (Sindabad.com)

1-25
 * Using
Technology to
TECHNOLOGICAL ENVIRONMENT Be Responsive
LG4
*
• Databases -- An electronic storage file that
enables stores to monitor what you buy and helps
them know what to carry in stock.
• Identity Theft -- Gathering of individuals’ personal
information, such as Social Security and credit card
numbers, for illegal purposes.

1-26
 *
The Competitive
COMPETITIVE ENVIRONMENT Environment

LG5
• Customers want and expect quality products at a good price
*
with excellent customer service. Business tries to compete
with each other by exceeding customer expectation
(customer is king).

• Because business is more customer-driven, some managers

give frontline employees more decision-making power.

• The goal for many companies is zero defects—no mistakes

in making the product

• Empowerment -- Giving frontline workers the responsibility,

authority, and freedom to respond quickly to customer
requests.
1-27
 * The Social
Environment
SOCIAL ENVIRONMENT and Managing
Diversity
LG6
*
• Demography -- The statistical study of the
population in terms of size, density and
characteristics like, age, race, gender and income.

• Managing Diversity – Dealing sensitively with

workers of different gender, race, religion, beliefs,
culture etc.

• Societal Changes – Increase in the number of older

citizens and single-parent in the workforce.

1-28
 *The Global
GLOBAL ENVIRONMENT Environment

LG7
*
1. Growth of global competition
2. Increase of free trade among nations
3. More efficient distribution systems and
communication advances.

1-29
 *The Global
GLOBAL ENVIRONMENT Environment

LG7
*
• Wars, like those in Iraq and
Afghanistan, cost billions of
dollars.
• Tax money is diverted.
• Cost of security goes up.
• Cost of insurance goes up.

1-30
 *The Ecological
GLOBAL ENVIRONMENT Environment

LG7
*
• Climate Change -- Movement of the temperature of
the planet over time.
• Many companies like GE, Coca Cola, British
Airways and Shell are shifting their practices to
save energy and produce products that cause less
harm to the environment. This process is called
greening.

1-31