The Contemporary BusinessWorld

Business 9: Unit 1
The Global Business Environment

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What is a business? What is its goal?
 Is an organization that provides goods or services
that are then sold to make or earn profits.
What is profit?
 Is the difference between a business’s revenues (sales
turnover) and its expenses (costs)
 Is the reward owners get for risking their money and
time
 Organizations such as universities, hospitals, and
government agencies do not usually seek profits
Consumer Choice and Demand
 An owner is free to set up, expand or grow, sell, or
shut down (close) his/her business.
 Businesses must always consider what consumers
want or need.
 A business won’t survive if there is no demand for its
goods and services.
Learning
Objectives
 Define the nature of global business
 Describe the external environments of business
 Discuss how external environments affect the
success or failure of an organization
 Describe the different types of global economic
systems according to the means by which they
control the factors of production
 Show how markets, demand and supply affect
resource distribution in the global market
 Identify the elements of private enterprise
 Explain the various degrees of competition in
the global economic system
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Opportunity and Enterprise
 If enterprising businesspeople can spot a promising
opportunity and then develop a good plan for
capitalizing on it, they can succeed.
Examples:
• When businesses close down, it will give opportunity for other
businesses to profit by handling the inventory liquidations of these
failed companies.
• When oil prices drop, gasoline producers will have a decline in their
profits, but businesses relying on transporting goods and logistic
services will have an increase in their profits because their expenses
will drop.

Business opportunity involves goods and services that

consumers need and want-especially if no one else is
supplying them or if existing businesses are doing so
inefficiently and incompletely.
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What are the benefits of Business?
 Businesses produce most of the goods and services we
consume
 Businesses employ most working people
 Businesses create most innovations and provide a vast range
of opportunities for other businesses, which serve as their
The
suppliers
 A healthy business contributes to the quality of life and
Benefits
standard of living of people
 Business profits enhance personal incomes of business
of
owners and shareholders
 Business taxes help support governments
Business
 Many businesses support charities and provide community
leadership

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Disadvantages of Business
Some businesses harm the
environment
Other businesses could make
unacceptable practices for
their own personal benefit.

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 The External Environments of Business
 All businesses, regardless of their size, location, or mission, operate in a
larger external environment which consists of everything outside an
organization’s boundaries that might affect it.
 The external environment plays a major role in determining the success
or failure of any organization.
 Businesses can also influence their environments.

Major Dimensions and Elements of the

External Environment
 Domestic Business Environment
 Global Business Environment
 Technological Environment
 Political-Legal Environment
 Sociocultural Environment
 Economic Environment TREY 6
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 The External Environments of Business
1. Domestic Business Environment: refers to the environment in
which a firm conducts its operations and derives its revenues. In
general, businesses seek to be close to their customer, to establish
strong relationships with their suppliers, and to distinguish
themselves from their competitors.
2. Global Business Environment: refers to the international forces or
factors that affect a business.
 Factors in the general level include international trade
agreements, international economic conditions, and political
unrests (protests)
 Factors in the immediate level include international market
opportunities, suppliers, cultures, competitors, and currency
values

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 The External Environments of Business
3. Technological Environment: generally includes all the ways by
which firms create value for their constituents such as human
knowledge, work methods, physical equipment, electronics and
telecommunications, and various processing systems that are used to
perform business activities.
4. Political-Legal Environment: reflects the relationship between
business and government, usually in the form of government
regulation of business. Businesses must adhere to different political
and legal forces such as the product identification laws, employment
laws, tax policies, and competition regulation.
Importance of the Political-Legal Environment
 The legal system defines in part what an organization can and cannot do.
 Various government agencies regulate important activities like
advertising practices, safety and health considerations, and acceptable
standards of business conduct.
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 The External Environments of Business
5. Sociocultural Environment: includes the customs, mores, values,
and demographic characteristics of the society in which an
organization functions. Sociocultural processes also determine the
goods and services , as well as the standards of business conduct,
that the society is likely to value and accept.
4. Political-Legal Environment: reflects the relationship between
business and government, usually in the form of government
regulation of business. Businesses must adhere to different political
and legal forces such as the product identification laws, employment
laws, tax policies, and competition regulation.
5. Economic Environment: refers to the relevant conditions that
exist in the economic system in which a company operates. A good
economy means most people have jobs and are paid well.

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Economic Systems
 An economic system is a nation’s system for allocating its resources among its
citizens, both individuals and organizations.
Factors of Production
 Are the resources that a country’s businesses use to produce good and services
What are the different factors of production?
 Labor: includes the physical and intellectual contributions people make while engaged in economic
production. It is also called human resources or human capital.
 Capital: is the financial resources or funds needed to operate a business enterprise.
 Entrepreneurs: are individuals who accept the risks and opportunities entailed in creating and
operating new business ventures. Most economic systems encourage entrepreneurs, both to start
new businesses and to make decisions that allow them to create new jobs and make more profits for
their owners.
 Physical Resources: are tangible items that organizations use in the conduct of their businesses
including natural resources and raw materials, offices, storage and production facilities, parts and
supplies, computers and peripherals, and other equipment.
 Information Resources: are data and other information used by businesses such as market forecasts,
the specialized knowledge of people, and economic data which in turn are used in the creation
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Types of Economic Systems
 In some systems, the ownership of both the factors of production and the actual businesses is private
(ownership is held by entrepreneurs, individual investors, and other businesses. (market economy or private
sector businesses)
 In other systems, the factors of production and all businesses are owned or controlled by the government.
(planned economy or public sector businesses)
Planned Economy: economy that relies on a centralized government to control all or most factors of
production and to make all or most production and allocation decisions. It rejects capitalism.
2 types of Planned Economy
 Communism- a political system in which the government owns and operates all factors of production.
The government decides what to make, who will make it, how much to charge and so on. Examples:
North Korea, Vietnam, Laos, Cuba
 Socialism- a planned economic system in which the government owns and operates only selected
major sources of production. Example: China

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Types of Economic Systems
Market Economy: economy in which individuals control production and allocation decisions through
supply and demand.
 It relies on capitalism and free enterprise to create an environment in which producers and consumers
are free to sell and buy what they choose.
 Individuals are free to buy what they want, work where they want, and invest, save, or spend their
money in whatever manner they choose.
 Businesses are free to decide what products to make, where to sell them, and what prices to charge.
 Capitalism is the system’s political basis of market processes, which allows the private ownership of
the factors of production and encourages entrepreneurship by offering profits and incentive.
 The operation of demand and supply is the economic basis of market processes.
 Market: a mechanism for exchange between buyers and sellers of a particular good or service.

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Types of Economic Systems
Mixed Market Economy: economic system featuring characteristics of both planned and market
economies.
 It is the economic system most countries in the world follow or apply.

 When a government is making a change from a planned economy to a market economy, it usually
begins to adopt market mechanisms through Privatization (a process of converting government
enterprises into privately owned companies).
Examples of countries practicing Privatization:
 Poland, Netherlands, Canada
 Privatization can reduce payroll, boost efficiency and productivity, and quickly become profitable.
Countries adopting Free Market Economy
 USA
 China (most important planned economy)
 England
 France
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 ThankYou
Business 9

cecili.capili@nis-Jeddah.com

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