MANAGEMENT 131 Textbook: Business [8 th edition] by Pride, Hughes and Kapoor, Houghton Mifflin Company Instructor: Dr JoAnn Long Office: 2-90 Business Bldg Phone:

What is a ‘ Business ’ ? A business is the organized effort of individuals to produce and sell, for a profit, the products and/or services that satisfy society ’ s needs.

SUCCESSFUL BUSINESSES To be successful, a business must perform 3 activities:  Must be organized  Must satisfy needs  Must make a profit

Activity 1: MUST BE ORGANIZED To be organized, a business must have 4 kinds of resources:  Material – raw materials used in the manufacturing process  Human – people who use their special skills in exchange for being paid  Financial – money used to pay employees, buy materials, and keep the business running  Informational – reports that tell the manager how the other three resources are working together and what, if any changes need to be made

Types of Businesses Business are usually organized into 3 specific types:  Manufacturing businesses  Service businesses  Marketing intermediaries

BAHRAIN BUSINESSES Aluminium Bahrain (ALBA) Bahrain Petroleum Company (BAPCO) Gulf Aluminium Rolling Mill Company (GARMCO) Gulf Petrochemical Industries Company (GPIC) Arab Ship Repair Yard (ASRY) Bahrain Telecommunications Company (BATELCO) Gulf Air, Emirates Air, British Airways National Bank of Bahrain (NBB), Bank of Bahrain & Kuwait (BBK), etc. Al Abraj, McDonalds, Dairy Queen, etc. Debenhams, British Home Stores, Y K Almoayyed, etc.

Activity 2: Satisfying Needs  The ultimate objective of any business is to satisfy the needs of its customers.  Customers buy goods or services to satisfy their own particular needs.

Activity 3: Making a Profit Profit is what remains after all business Expenses have been deducted from Sales Revenue Sales Revenue (Money Rec ’ d from Customers) - Expenses (Costs of Making the Product/Service) = Business Profit (Money Going to the Owners)

Making a Profit (continued)  Profit could be considered the salary paid to the owners for producing goods or services that consumers want.  It could also be considered the reward owners receive for taking the risks involved in owning a business.  However, everyone else – employees, suppliers and lenders – must be paid before the owners.

Business Profit (continued)  If the Expenses are greater than the Sales Revenue, a Loss occurs.  If a business cannot earn a profit, it will fail to remain in business and the owner(s) will lose any money, effort and time that was invested. .com companies in the 1990s are good examples of how and why businesses may fail. They expanded too early based on anticipated Sales Revenue.

Types of Economic Systems  Economics is the study of how wealth is created and distributed.  Wealth is ‘ anything of value ’. How wealth is distributed means ‘ who gets what ’.  Economy is described as the way people deal with the creation and distribution of wealth. This determines the kind of economic system that a nation has.

Economic Systems (continued) Economic systems around the world are different in two ways:  Who owns the means of production?  How they answer four basic economic questions.

Factors of Production Factors of Production include: 1.Land and Natural Resources – elements in their natural state that can be used in the production process. Examples: crude oil, forests, minerals, land, water, air, etc. 2.Labor – human resources such as managers and employees. 3.Capital – Money, facilities, equipment, and machines used in the operation of organizations. 4.Entrepreneurship – the willingness to take risks and the knowledge and ability to use the other factors of production efficiently. An entrepreneur risks time, effort and money to start and operate a business.

Four Basic Economic Questions A country ’ s economic system provides answers to four basic economic questions: 1.What goods and services – and how much of each – will be produced? 2.How will these goods and services be produced? 3.For whom will these goods and services be produced? 4.Who owns and who controls the major factors of production?

CAPITALISM Capitalism is an economic system in which individuals own and operate the majority of businesses that provide goods and services. Based on the beliefs of Adam Smith in his book, Wealth of Nations, in According to Smith, society ’ s interests are best served when the individuals are allowed to satisfy their own self-interests.

CAPITALISM (continued) Based on four fundamental issues: 1.Creation of wealth is the concern of private individuals, not of government. 2.Private individuals must own and determine how these resources are used to create wealth. They should also enjoy the income, profits and other benefits that come from owning these resources.

CAPITALISM (continued) 3.Both sellers and buyers should be able to enter and exit the competitive market as they choose. This freedom to enter and exit a market is referred to as market economy. A market economy (free-market economy) is an economic system in which businesses and individuals make the decisions about what to produce and what to buy, while the market determines how much is sold and at what prices.

CAPITALISM (continued) 4.The role of government should be limited to providing defense against foreign enemies, ensuring internal order, and furnishing public works and education. In other words, with regards to the economy, the government should act only as rule maker and umpire. Laissez faire – ‘ let them do as they see fit ’

MIXED ECONOMY A mixed economy is one which exhibits elements of capitalism and socialism. Households and businesses exchange resources for goods and services, using money as the medium of exchange. Governments collect fees (taxes) from businesses and households and purchase products and resources with which to provide services.

COMMAND ECONOMY A command economy is an economic system in which the government decides what will be produced, how it will be produced, who gets what is produced and who owns and control the major factors or production. The answers to all four basic economic questions are determined, at least to some degree, through centralized government planning.

Command Economy - Socialism  Key industries are owned and controlled by the government (i.e., transportation, utilities, communications, banking and industries producing important materials such as steel).  Land, buildings and raw materials also may be state property.  Private ownership of smaller businesses is permitted to some degree in some countries.  People may choose their occupations, but many work in state-owned industries.

Socialism (continued)  What to produce and how to produce it are determined in accordance with national goals which are based on projected needs and the availability of resources – at least in government-owned industries.  The distribution of goods and services – who gets what – is controlled by the state by controlling wages and rents.

Socialism (continued)  Socialist countries aim to distribute income equitably, eliminate poverty, distribute social services (i.e., medical care) to all who need them, and eliminate economic waste.  Examples: UK, France, Sweden, India, etc.

Command Economy: Communism  Based on the beliefs of Karl Marx.  Aims for a classless society (no upper class or lower class) whose citizens together own all economic resources.  All workers would then contribute to this communist society according to their abilities and would receive benefits according to their needs.  Examples: North Korea and Cuba

Communism (continued)  Almost all economic resources are owned by the government.  Basic economic questions are answered through centralized state planning, which sets prices and wages.  Goods are produced to meet the needs of the government rather than on products that consumers might want – this creates frequent shortages of consumer goods.  Workers have little choice of jobs, but special skills or talents seem to be rewarded with special privileges.  Bureaucrats, university professors and athletes are treated better than factory workers.