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PART 1
Managing within the Dynamic Business Environment

Learning Goals
After you have read and studied this chapter, you should be able to
1 Describe the relationship of businesses profit to risk assumption. 2 Discuss the groups that are considered stakeholders and indicate which stakeholders are most important to a business. 3 Explain the importance of entrepreneurship to the wealth of an economy. 4 Review the six elements that make up the business environment and explain why the business environment is important to organizations. 5 Identify various ways in which businesses can meet and beat competition. 6 Understand how the service sector has replaced manufacturing as the principal provider of jobs, but why manufacturing remains vital for Canada.
Profile
www.ebay.com, www.ebay.ca
Getting to Know Meg Whitman from eBay
oing, going, gone! Meg Whitman, president and chief executive officer (CEO) of eBay Inc., has turned an online auction site into one of the worlds biggest dot-com success stories. When she took over eBay, it had $6 million in revenues. Today, it is closer to $476 million. This is based on trades of about $14 billion a year. How did Whitman get to such a lofty position? She began her career in product management at Procter & Gamble. That experience led to 10 years in consulting with Bain & Company. From there, Whitman went to Disney, where, among her other accomplishments, she opened the first Disney store in Japan. She then moved on to Stride Rite, where she added to her reputation by revising the Keds brand. Her successes led to her becoming the CEO of Florists Transworld Delivery (FTD) and launching FTDs Internet strategy. That experience proved invaluable to her long-term career. In the interim, she went to Hasbros Playskool divisionwhich you may know as the maker of Mr. Potato Head. With such a successful career, not to mention two children, Whitman did not need any new challenges. When eBay asked her to come to California, she hesitated. But the potential was too much to deny, so she moved her family and took up the daunting task of running eBay. eBay began as an Internet auction company that resembled an online garage sale. The process involved bidding for itemsmostly used goodsand waiting to see if others outbid you. It turned out to be a wonderful way of selling stuff that was cluttering up the house. It also became a great way to find collectors items and goods of all kinds. Suddenly people had a way of buying and selling used goods as well as new but unneeded items they received for weddings, birthdays, and other events. Today customers are so devoted to the site that they dont consider themselves bidding for items as much as winning them. But just how did Meg Whitman turn an online auction process into a profitable business? First, because some people wanted to buy items outright and not get involved in a bidding war, Whitman bought a company that bought and sold goods at set prices. Now Whitman can offer all kinds of goods at fixed prices. But what kinds of goods? eBay has more than 50,000 categories of saleable items. They range from garage-sale-type items to more expensive goods such as homes, antiques, and cars. The question becomes, Where does it stop? Should the company get more involved in business-to-business (B2B) sales? How will it expand
overseas? Whitmans goal is to make overseas sales reach half of eBays total sales. eBay has operations in 28 countries, including Canada, which is now its fourth-largest market. Burnaby, B.C., is the site of a new customer support centre; it was chosen because eBay wanted to have a culturally diverse and technologically savvy workforce capable of communicating with users in Canada, Australia, and the United States. The Canadian site, eBay.ca, was launched in April 2000. Since its launch, eBay.ca has continued to show impressive growth. According to comScore Media Metrix, eBay was visited by more than 10.5 million unique Canadian visitors in February 2004. In the same month, eBay.ca was visited by one in two Canadians online. eBay.ca is the most visited Canadian retail site, and also AP Wide World Photos number one for total time spent on any retail site, at an average of 45.2 minutes per user. You can see that eBay faces all kinds of environmental challenges: technological, competitive, economic, social, and political. For example, the technological system can fail, and has. The company was once offline for 20 hours. Whitman immediately responded by refunding fees and making sure customers were satisfied with any adjustments they had to make. Competition is also a major issue. Amazon.com, Yahoo, and Lycos have all tried to capture the same market. Whitman has successfully maintained her leadership position but must constantly adapt her offerings to stay ahead of the competition. The idea is to monitor changes and adapt accordingly. Expanding overseas, as Whitman has been doing, is difficult because eBay has to respond to the political, social, and economic differences in each country. The purpose of this text is to introduce you to the exciting and challenging world of business. Each chapter will begin with a story like this one. You will meet more successful businesspeople like Meg Whitman, and entrepreneurs who have started businesses of all kinds. You will learn about all aspects of business. Let us begin by looking at some key terms.
Sources: Hilary Johnson, Meg Whitman, Worth, June 2002, pp. 6061; Melanie Wells, D-Day for eBay, Business 2.0, June 2002, pp. 6870; Alynda Wheat and Matthew Schuerman, The Power, Fortune, October 14, 2002, p. 107; Annie Groer, Furnishing the eBay Way, The Washington Post, March 27, 2003, pp. H1 & H6; David Kirkpatrick, Tech: Where the Action Is, Fortune, May 12, 2003, pp. 7884; Peter Kennedy, Whitman a Winner with eBay, The Globe and Mail, August 18, 2003, p. B4; and eBay.ca, May 20, 2004.
PART 1
Business Trends: Cultivating a Business in Diverse Global Environments
BUSINESS AND ENTREPRENEURSHIP: REVENUES, PROFITS, AND LOSSES

Many business students are interested in learning how to be successful when they graduate from their program. Part of this process requires that you are aware of what is happening in the business world. Near the end of this chapter, we will explore some of the significant trends that are evident in Canadian business today. During your program, you will learn new terms and skills that will help you in your quest; before proceeding, let us review some of the terms that you will hear throughout this textbook. One of the ways to become a success in Canada, or almost anywhere else in the world, is to start a business. A business is any activity that seeks to provide goods and services to others while operating at a profit. Profit is the amount a business earns above and beyond what it spends for salaries and other expenses. Since not all businesses make a profit, starting a business can be a risky proposition. An entrepreneur is a person who risks time and money to start and manage a business. Once an entrepreneur has started a business, there is usually a need for good managers and other workers to keep the business going. Not all entrepreneurs are skilled at being managers. Businesses provide people with the opportunity to become wealthy. There are about 497 billionaires in the world today, with at least 30 of them in Canada.1 Figure 1.1 lists Canadas top billionaires. Another well-known billionaire is Bill Gates, who started Microsofthe is said to be worth about $36 billion, making him among the richest people in the world. The number of millionaires is also increasing. There are about 11 million millionaires in the world, and that number is expected to be about 30 million in 2025.2 Maybe someday you will be one! Businesses dont make money just for entrepreneurs. Businesses provide us all with necessities such as food, clothing, housing, medical care, and transportation, as well as other goods and services that make our lives easier and better.
business Any activity that seeks to provide goods and services to others while operating at a profit. profit The amount a business earns above and beyond what it spends for salaries and other expenses. entrepreneur A person who risks time and money to start and manage a business.
Matching Risk with Profit

Profit, remember, is the amount of money a business earns above and beyond what it pays out for salaries and other expenses. For example, if you were to start a business selling hot dogs in the summer, you would have to pay for the
FIGURE 1.1
CANADAS WEALTHIEST CITIZENS
RANK
1 2 3 4 5
NAME
Kenneth Thomson and Family Galen Weston Jeff Skoll James, Arthur, and John Irving Bernard Sherman
WORTH ($ BILLIONS CAD)

$21.67 $9.27 $4.63 $3.88 $3.24
COMPANY
Thomson Corp., Woodbridge Co. Ltd. George Weston Ltd., Loblaw Cos. Ltd. eBay Inc. Irving Oil Ltd., J.D. Irving Ltd. Apotex Group
Canadian Business (www.canadianbusiness. com) tracks the fortunes of Canadas wealthiest citizens. This is an excerpt from the Rich 100 20032004 edition that lists those that fall under the first five rankings.
Source: www.canadianbusiness.com/rich100/wholeList.asp August 24, 2004.
CHAPTER 1
Courtesy of Skoll Foundation
cart rental, for the hot dogs and other materials, and for someone to run the cart while you were away. After you paid your employee and yourself, paid for the food and materials you used, paid the rent on the cart, and paid your taxes, any money left over would be profit. Keep in mind that profit is over and above the money you pay yourself in salary. You could use any profit you make to rent or buy a second cart and hire other employees. After a few summers, you might have a dozen carts employing dozens of workers. Revenue is the total amount of money a business takes in during a given period by selling goods and services. A loss occurs when a businesss expenses are more than its revenues. If a business loses money over time, it will likely have to close, putting its employees out of work. Most business failures are due to poor management or problems associated with cash flow (which we discuss later in this book). You will learn more about terms such as revenue and expenses when you read the accounting chapter (Chapter 16). Starting a business involves risk. Risk is the chance an entrepreneur takes of losing time and money on a business that may not prove profitable. Even among companies that do make a profit, not all make the same amount. Those companies that take the most risk may make the most profit. There is a lot of risk involved, for example, in making a movie. Even one James Bond film, Casino Royale, lost money. Of course, some movies make a huge profit. My Big Fat Greek Wedding, for example, cost only $5 million to make and brought in about US$210 million.3 As a potential business owner, you need to do research (e.g., talk to other businesspeople, read business publications) to find the right balance between risk and profit for you. Different people have different tolerances for risk. To decide which is the best choice for you, you have to calculate the risks and the potential rewards of each decision. The more risks you take, the higher the rewards may be. In Chapter 7, you will learn more about the risks and the rewards that come with starting a business.
Responding to the Various Business Stakeholders

Stakeholders are all the people who stand to gain or lose by the policies and activities of a business. As noted in Figure 1.2, stakeholders include customers, employees, shareholders, suppliers, dealers, bankers, people in the surrounding community (e.g., community interest groups), environmentalists, and elected government leaders. All of these groups are affected by the products, policies, and practices of businesses, and their concerns need to be addressed. The challenge of the 21st century will be for organizations to balance, as much as possible, the needs of all stakeholders. For example, the need for the business to make profits may be balanced against the needs of employees for sufficient income. The need to stay competitive may call for moving a business overseas, but that might do great harm to the community because many jobs would be lost. It may be legal to move, but would moving be best for everyone? Business leaders must make a decision based on all factors, including the need to make a profit. As you can see, pleasing all stakeholders is not easy and calls for trade-offs that are not always pleasing to one or another stakeholder. Keep in mind that regardless of temptations, company officials do have a responsibility to their stakeholders. Unfortunately, there are still too many examples of executives who have made decisions that have detrimentally
No occupation in the world is more diverse than entrepreneurship. Opportunities exist for virtually anyone to start and manage a business, from a lawn-mowing service to software training. While Jeff Skoll has founded several companies, you may know him best as eBays first president. In 2001, he left eBay to focus on philanthropic activities. Through the Skoll Foundation, Jeff supports social entrepreneurs and innovative nonprofit organizations around the world. As for eBay, the company continues to follow the business plan that Jeff created.
revenue The total amount of money a business takes in during a given period by selling goods and services. loss When a businesss expenses are more than its revenues. risk The chance an entrepreneur takes of losing time and money on a business that may not prove profitable. stakeholders All the people who stand to gain or lose by the policies and activities of a business.
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FIGURE 1.2
A BUSINESS AND ITS STAKEHOLDERS
PART 1
STAKEHOLDERS
Often the needs of a firms various stakeholders will conflict. For example, paying employees more may cut into shareholders profits. Balancing such demands is a major role of business managers.
Shareholders Bankers Customers
Suppliers TYPICAL CANADIAN BUSINESS Government leaders Environmentalists Employees Dealers Surrounding community
impacted their organizations and stakeholders. Examples of such organizations have included Hollinger, Cinar, and Livent. Such trade-offs are also apparent in the political arena. As will be discussed in Chapter 4, governments make policies that impact many stakeholders. However, budget limitations force governments to make difficult choices, and these decisions often are not popular. Consequently, after years of insufficient funding, any changes in the areas of the environment, health care, and education generate a lot of attention. As a brief example, let us look at post-secondary education funding. Responding to concerns surrounding escalating tuition fees, in 2004 the Ontario provincial government froze college and university tuitions for two years. The provinces of Manitoba, Quebec, and Newfoundland and Labrador have also capped tuition.4 This is the opposite of the British Columbia provincial governments decision: in 2002 the government decided to remove its eight-year-long tuition freeze. This freeze had kept post-secondary tuition at the lowest rates in Canada, and its elimination led to cutbacks in services. As you can see, balancing the demands of stakeholders is not limited to forprofit businesses.
Critical Thinking
Imagine that you are thinking of starting a restaurant in your community. Who would be the various stakeholders of your business? What are some of the things you could do to benefit your community other than providing jobs and tax revenue? How could you establish good relationships with your suppliers? With your employees? Do you see any conflict between your desire to be as profitable as possible and your desire to pay people a living wage?
CHAPTER 1
Using Business Principles in Nonprofit Organizations

Despite their efforts to satisfy all their stakeholders, businesses cannot do everything that is needed to make a community all it can be. Nonprofit organizationssuch as public schools, religious institutions, charities, and groups devoted to social causesalso make a major contribution to the welfare of society. You may prefer to work for a nonprofit organization. There are many opportunities in this sector. Canada has 58,000 nonprofit organizations that employ a total of about 900,000 workersthe equivalent of the Canadian oil and gas and mining industries combined.5 This doesnt mean, however, that you shouldnt study business. If you want to start or work in a nonprofit organization, youll need to learn business skills such as information management, leadership, marketing, and financial management. Therefore, the knowledge and skills you acquire in this and other business courses will be useful for careers in any organization, including a nonprofit one. Businesses, nonprofit organizations, and volunteer groups often strive to accomplish the same objectives.6 All such groups can help feed people, provide them with clothing and housing, educate them on social issues, clean up the environment and keep it clean, and improve the quality of life for all. To accomplish such objectives, however, businesses in Canada must remain competitive with the best businesses in the rest of the world by offering quality goods and services.
nonprofit organization An organization whose goals do not include making a personal profit for its owners or organizers.
Provided Courtesy of Canadian Blood Services
Nonprofit organizations can use business principles to operate effectively. In this ad, advertising is being used to communicate important information to the Canadian public about how Canadian Blood Services would manage the safety and accessibility of the blood supply in light of the emergence of West Nile Virus. Nonprofit organizations need people to handle accounting, finance, human resource management, and other business functions. Would you prefer to work in a for-profit or a nonprofit organization? What do you think would be the key differences?
For more information about nonprofit organizations visit the Charity Village Website at www. charityvillage.com. This site is dedicated to supporting Canadas 200,000 charities and nonprofit organizations as well as the stakeholders who support them.
PART 1
Progress Assessment
What is the difference between revenue and profit? What is risk, and how is it related to profit? What does the term stakeholders mean?
ENTREPRENEURSHIP VERSUS WORKING FOR OTHERS

There are two ways to succeed in business. One way, the way chosen by Meg Whitman, is to rise up through the ranks of large companies like Hasbro or eBay. The advantage of working for others is that somebody else assumes the entrepreneurial risk and provides you with benefits such as paid vacation time and health insurance. Most people choose that option. It is a very good option and can lead to a happy and prosperous life. Businesses need good managers to succeed, and all workers contribute to producing and marketing the goods and services that increase the quality of life and standard of living for others. The other, more risky path is to start your own business. Many small businesses fail each year; thus, it takes a brave person to start a small business. Furthermore, as an entrepreneur you dont receive any benefits such as paid vacation time and health insurance. You have to provide them for yourself! Before you take on the challenge of entrepreneurship it makes sense to study the experiences of those who have succeeded to learn the process. Consider the example of Ron Joyce, who in 1963 purchased a Dairy Queen outlet. Two years later, he invested $10,000 to become a franchisee in the first Tim Hortons. (We will discuss franchising in Chapter 6.) By 1967, he became a full partner with Tim Horton. In the early years, both partners worked on expanding the business. When Horton died in 1974, Joyce became the sole owner of the chain. In the following years he continued to develop the business, spending hundreds of hours piloting his plane in search of new franchise opportunities and doing everything from training new store owners to baking donuts. When Joyce sold the chain to Wendys for US$450 million in 1995, there were more than 1,000 Tim Hortons restaurants. Today, Tim Hortons is Canadas largest national chain in the coffee and fresh baked goods segment, with more than 2,200 stores across Canada and approximately 160 locations in the United States.7 What you can learn from successful entrepreneurs like Ron Joyce is that you need to find something that you love to do. Before he became an entrepreneur, Joyce was a police officer. He started to get experience in business with his Dairy Queen outlet, and from there went on to great success with his Tim Hortons restaurants. While there were many challenges along the way, he was willing to put in the long hours needed to be successful. In addition to the original coffee and donut offerings, he continuously added new products to the restaurants in order to meet his customers needs. The Spotlight on Small Business box highlights another example of what an entrepreneur can create. Consider if such a challenge would appeal to you.
The Importance of Entrepreneurs to the Creation of Wealth

Have you ever wondered why it is that some countries are relatively wealthy and others are poor? Economists have been studying the issue of wealth creation for many years. They began the process by studying potential sources of wealth to determine which are the most important. Over time, they came
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Spotlight on Small Business
www.robeez.com Small Feet Mean Business at Robeez Footwear Ltd.
When Sandra Wilson was downsized out of
her Canadian Airlines job in 1994, she decided that it was the perfect time to turn her idea into a business. This would also allow her to spend more time with her son Robert, the inspiration behind the companys name and designs. Founded in Richmond, British Columbia, Robeez Footwear Ltd. is a childrens shoe manufacturer. Robeez manufactures fun leather shoes for children from newborn up to age four. The biggest selling feature is that the shoes are an easy slip on but never slip off design. This is fantastic for tiny feet; the footwear cannot be easily pulled off, which is a common problem with many baby shoes. Wilson began her business in her basement by making the first 20 pairs of shoes by hand. She took them to the Vancouver Gift Show trade exhibition in 1994, and when she left the show she had 15 new accounts. As the company grew, Wilson was approached to distribute the shoes in the United Kingdom. She turned to Export Development Canada for help in negotiating the distribution deal. Wilson also took advantage of other government programs such as the Program for Export Market Development (PEMD). PEMD allowed Wilson to attend U.S. trade shows and connect with sales professionals interested in representing the companys products. Robeez has been recognized over the years for its success. The shoes are recommended by medical and childcare experts. The company was chosen as one of
Chatelaine magazines Top 40 fabulous gift finds in the December 2002 issue. Robeez was named one of Canadas Fastest Growing Companies by Profit magazine for 2003 (which is no wonder, with revenue growth of 2,309 percent in one year!). In 2003, Robeez generated revenues of $3.1 million. Today, the company has 200 employees and is the leading manufacturer of soft-soled footwear for its target market in North America. The shoes are distributed in thousands of retail stores in Canada and the United States. The company also has a regional office in the United Kingdom as well as a European Website. Customers appreciate this localized service approach because they can speak to someone in the same time zone, use the same currency, and speak the same lingo. Robeez products are sold in the U.K., Ireland, Japan, Singapore, Germany, France, and Australia. What do future plans hold for this small business? Robeez is committed to becoming the market leader in Western Europe. And soon, it will have an exciting new product line to launch!
Sources: Annual ReportProgram for Export Market Development 2000/2001 [2002], Ottawa: Department of Foreign Affairs and International Trade. Retrieved May 19, 2004 from http://www.dfait-maeci.gc.ca/pemd/annual_reports/ PEMD_ar0001-en.pdf; Profit 100 Canadas Fastest Growing Companies [2003], Toronto: PROFITGUIDE.com. Retrieved May 19, 2004 from http://www.profitguide.com/profit100/ 2003/p100.asp; robeez.com; Interview with Sandra Wilson, May 20, 2004.
up with five factors that seemed to contribute to wealth. They called them factors of production. Figure 1.3 describes those five factors. They are: 1. Land (or natural resources). 2. Labour (workers). 3. Capital. (This includes machines, tools, buildings, or whatever else is used in the production of goods. It does not include money; money is used to buy factors of productionit is not a factor itself.) 4. Entrepreneurship. 5. Knowledge. Traditionally, business and economics textbooks have emphasized only four factors of production: land, labour, capital, and entrepreneurship. But management expert and business consultant Peter Drucker says that the most important factor of production in our economy is and will be knowledge. The young workers in the high-tech industries are sometimes called knowledge workers. When high-tech businesses began to fail in the early 2000s, a lot of
factors of production The resources used to create wealth: land, labour, capital, entrepreneurship, and knowledge.
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PART 1
Some of the most successful entrepreneurs are immigrants. Robert Schad (president and CEO of Husky Injection Molding Systems Limited) came from Germany in 1951 with $25 borrowed from an uncle. He founded his company in a Toronto garage in 1953. Today, Husky is the worlds largest brand-name supplier of injection moulding equipment for the plastics industry. Schad is shown here at the 2003 National Plastics Exposition in Chicago. Is this an unusual success story, or typical of Canadian entrepreneurship?
knowledge workers had to find new jobs in other parts of the country, but their education and experience made the transition easier. Such results should motivate todays students to get as much education as possible to prepare themselves for knowledge-oriented jobs and to be prepared to change jobs as the economy demands.8 Note that information is not the same as knowledge. There is often too much information available and information management is critical. We will study the importance of using technology to manage information in Appendix A. If you were to analyze rich countries versus poor countries to see what causes the differences in the levels of wealth, youd have to look at the factors of production in each country. Such analyses have revealed that some relatively poor countries often have plenty of land and natural resources. Russia and China, for example, both have vast areas of land with many resources, but they are not rich countries. In contrast, Japan and Hong Kong are relatively rich countries but are poor in land and other natural resources. Therefore, land isnt the critical element for wealth creation. Most poor countries have many labourers, so its not labour thats the primary source of wealth today. Labourers need to find work to make a contribution; that is, they need entrepreneurs to provide jobs for them. Furthermore, capitalmachinery and toolsis now becoming available in world
FIGURE 1.3
THE FIVE FACTORS OF PRODUCTION
Land: Land and other natural resources are used to make homes, cars, and other products. Labour: People have always been an important resource in producing goods and services, but many people are now being replaced by technology. Capital: Capital includes machines, tools, buildings, and other means of manufacturing. Entrepreneurship: All the resources in the world have little value unless entrepreneurs are willing to take the risk of starting businesses to use those resources. Knowledge: Information technology has revolutionized business, making it possible to quickly determine wants and needs and to respond with desired products.
Courtesy of Husky Injection Molding Systems Ltd.
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11
Reaching Beyond Our Borders
Freedom and Protective Laws Equal Prosperity
Recent studies have found that the freer
a country is, the wealthier its citizens are. Freedom includes freedom from excess taxation, government regulations, and restrictions on trade. The average per capita gross domestic product (GDP)the total value of all final goods and services produced divided by the number of people in the countryfor the freest countries in the early 2000s was over US$21,000. The freest countries are Hong Kong, Singapore, and New Zealand. Canada was considered mostly free and was ranked 18th. For the least free, per capita GDP was under US$3,000. The least free countries include North Korea, Iraq, Libya, Cuba, and Zimbabwe. As a country introduces more freedom, its economy also begins to grow. The economic and legal environment therefore has much to do with a countrys economic prosperity. More freedom equals more prosperity for all. Recently, for
example, the Heritage Foundation (a conservative think tank) prepared an index that measures the impact of laws, regulations, and government policies on the economy. This index classifies the governments of Singapore and the United States as among the least restrictive and those of Russia and Cuba as the most restrictive. It may not be a coincidence, then, that Singapore and the United States are relatively wealthy countries and Russia and Cuba are not. Such figures show why businesses must work closely with government to minimize taxes, maximize economic freedom, and establish laws that protect businesspeople.
Sources: www.heritage.org/index/2001/chapters/execsum.html; Profiles in Prosperity, World, June 15, 2002, pp. 7071; Arch Puddington, The Resilience of Global Freedom, Washington Times, December 27, 2002, p. A21; and Steve Chapman, Hopeful Signs in a Year That Was, The Washington Times, December 29, 2002, p. B1.
markets, so capital isnt the missing ingredient. Capital is not productive without entrepreneurs to put it to use. Clearly, then, what makes countries rich today is a combination of government policies that support business, entrepreneurship, and the effective use of knowledge. Together, lack of entrepreneurship and the absence of knowledge among workers, along with the lack of freedom, contribute to keeping countries poor. The box called Reaching Beyond Our Borders discusses the importance of freedom to economic development. Entrepreneurship also makes some provinces and cities in Canada rich while others remain relatively poor. The business environment either encourages or discourages entrepreneurship. In the following section, well explore what makes up the business environment and how to build an environment that encourages growth and job creation. What are some of the advantages of working for others? What are the five factors of production? Which factor of production is key to wealth? Explain.
Progress Assessment
THE BUSINESS ENVIRONMENT

The business environment consists of the surrounding factors that either help or hinder the development of businesses. Figure 1.4 shows the six elements in the business environment: 1. The legal and regulatory environment. 2. The economic environment.
business environment The surrounding factors that either help or hinder the development of businesses.
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3. 4. 5. 6.
The technological environment. The competitive environment. The social environment. The global environment.
Businesses grow and prosper in a healthy environment. The results are job growth and the wealth that makes it possible to have a high quality of life. Companies should be aware of these elements and make it a practice to continuously assess the business environment for changes in trends. These trends could impact the organizations ability to achieve its objectives, steer clear of threats, or take advantage of new opportunities.
The Legal and Regulatory Environment

People are willing to start new businesses if they believe that the risk of losing their money isnt too great. Part of that decision is affected by how governments work with businesses. Governments can do a lot to lessen the risk of starting and running a business through the laws (also known as acts) that are passed by its elected officials. The Constitution defines the powers that can be exercised by the different levels of government (i.e., federal, provincial, and municipal). In Chapter 4, we will review some of the responsibilities of these different levels.
FIGURE 1.4
TODAYS DYNAMIC BUSINESS ENVIRONMENT
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13
An important piece of legislation is the Competition Act. The purpose of the Competition Act is to: maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy, in order to expand opportunities for Canadian participation in world markets while at the same time recognizing the role of foreign competition in Canada, in order to ensure that small- and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and in order to provide consumers with competitive prices and product choices.9 Other examples of laws include the Canada Small Business Financing Act, the Consumer Packaging and Labelling Act, and the Trade Unions Act. As you can see, these laws are relevant to many businesses. Each legislation authorizes an agency (such as Industry Canada) to write regulations that interpret the law in more detail and indicate how it will be implemented and enforced. Consequently, regulations serve to carry out the purposes of or expand on the general laws.10 These regulations exist to protect consumers as well as businesses. Laws Impact Business Businesses need to be aware of the laws that are in place (or may be passed) that will affect their business. For example, a government can keep taxes and regulations to a minimum, thereby encouraging entrepreneurship and increasing wealth. Entrepreneurs are looking for a high return on investment (ROI), including the investment of their time. If the government takes away much of what the business earns through high taxes, ROI may no longer be worth the risk. Provinces and territories that have high taxes and restrictive regulations tend to drive entrepreneurs out, while areas with low taxes and less restrictive regulations attract entrepreneurs. The government can also lessen the risks of entrepreneurship by passing laws that enable businesspeople to write contracts that are enforceable in court. You can read more about the importance of business law in Canada in Appendix B. There are many laws in Canada that are intended to minimize corruption, and businesses can flourish when these laws are followed. Nonetheless, corrupt and illegal activities do negatively affect the business community and the economy as a whole. For example, confidence in business has been affected as a result of unacceptable practices at companies like CIBC World Markets, YBM Magnex, RT Capital, and Bre-X. In 2004, the Auditor General released a report on the federal sponsorship program. Implicated in the misuse of public funds were 11 companies that included Via Rail and Canada Post.11 Such activities are also evident beyond our borders. Companies that have been highly visible in the news for improper business activities have included Parmalat, Enron and Arthur Andersen, and WorldCom. It is important to note that the effects of business scandals reach beyond our borders. According to the president of the Canadian chapter of Transparency International, Canadas ranking on an international corruption index has fallen due to incidences such as the federal sponsorship scandal, Torontos municipal computer-leasing
regulations Serve to carry out the purposes of or expand on the general laws passed by elected officials.
Starting a business in some countries is much harder than in others. In India, for example, a person has to go through an extraordinary and timeconsuming bureaucratic process to get permission to start a businessand with no certainty of success. For example, more effort may go into getting something as basic as electricity for that business. Nonetheless, those businesses that do get started can become a major source of wealth and employment. This jewellery business is one small example. Can you imagine the opportunities and wealth that might be created with just a little more freedom in this country of more than a billion people?
Dave Bartruff/Stock Boston
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PART 1
Making Ethical Decisions
Ethics Begins With You

Here is your first ethical dilemma: Soon you will be taking exams in this course. Suppose you didnt prepare for one of the tests as thoroughly as you should have. As luck would have it, on exam day you are sitting in the desk right in front of the instructor, who has just happened to leave the answer key sticking out of her book. The instructor is called out of the room and everyone else is concentrating intently on his or her own work. No one will know if your eyes wander toward the answer key. A good grade on this test will certainly help your average. What is the problem in this situation? What are your alternatives? What are the consequences of each alternative? Which alternative will you choose? Is your choice ethical?
Sources: What You Can Do to Help America, Bottom Line Personal, January 1, 2003, p. 2; and Walter B. Wriston, A Code of Your Own, The Wall Street Journal, January 16, 2003, p. A12.
Television, movies, and the print media all

paint a dismal picture of ethics among businesspeople, government officials, and citizens in general. It is easy to criticize the ethics of people whose names appear in the headlines. It is more difficult to see the moral and ethical misbehaviour of your own social group. Do you find some of the behaviours of your friends morally or ethically questionable? One of the major trends in business today is that many companies are creating ethics codes to guide their employees behaviour. We believe that this trend toward improving ethical behaviour is so important that weve made it a major theme of this book. Throughout the text youll see boxes, like this one, called Making Ethical Decisions. The boxes contain short descriptions of situations that pose ethical dilemmas and ask what you would do to resolve them. The idea is for you to think about the moral and ethical dimensions of every decision you make.
affair, private-sector banking lapses, and the extravagant expense accounts of public servants.12 While Canada is still perceived to be one of the worlds less corrupt nations, it recently ranked 11th among the 133 countries surveyed. Lapses in ethical behaviour have placed a new emphasis on laws restraining businesspeople from committing unethical or illegal acts. We will explore business ethics in depth in Chapter 5. In the meantime, the Making Ethical Decisions box highlights the importance of individual ethical decision making.
The Economic Environment

The economic environment impacts businesses as well as consumers. For our discussion, the focus will be on businesses. The economic environment looks at income, expenditures, and resources that affect the cost of running a business. Businesses review the results of major economic indicators such as consumer spending, employment levels, and productivity. This analysis will give them a sense of what is happening in the marketplace and what actions they may need to take. Since Chapter 2 is dedicated to how economic issues affect businesses, the discussion here will be very brief. The movement of a countrys currency relative to other currencies also pertains to this environment. Currency movements are especially critical for countries, such as Canada, that generate a great deal of business activity from exports. For example, a lower Canadian dollar value relative to the U.S. dollar makes our exports cheaper and more attractive to the U.S. market as consumers can buy more products with their higher-valued currency.
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The government can therefore establish a currency that is tradable in world markets (i.e., you can buy and sell goods and services anywhere in the world using that currency). One way for governments to actively promote entrepreneurship is to allow private ownership of businesses. In some countries, the government owns most businesses; thus, theres little incentive for people to work hard or create a profit. All around the world today, various countries in which the government formerly owned most businesses are selling those businesses to private individuals to create more wealth. In Chapter 2, we will discuss the different economic systems around the world. You should soon realize, as we continue with our brief introduction to the other business environments, that the activities occurring in one environment have an impact on the others. In short, all the environments are linked. For example, if a new government regulation decreases business taxes, then the impact will be seen in the economic environment when one considers expenditures. Therefore, as a businessperson you need to scan all the environments in order to make good business decisions.
The Technological Environment

Various tools and machines developed throughout history have changed the business environment tremendously. Few technological changes have had a more comprehensive and lasting impact on businesses than the emergence of information technology (IT): computers, modems, cellular phones, and so on. Chief among these developments is the Internet. Although many Internet firms have failed in recent years, the Internet will prove to be a major force in business in the coming years.13 The Internet is such a major force in business today that we discuss its impact on businesses throughout the text. In addition, we provide Internet exercises at the end of each chapter to give you some hands-on experience with various Internet uses. How Technology Benefits Workers and You One of the advantages of working for others is that the company often provides the tools and technology to make your job more productive. Technology means everything from phones and copiers to computers, medical imaging devices, personal digital assistants, and the various software programs that make business processes more efficient and productive.14 Efficiency means producing items using the least amount of resources. Productivity is the amount of output you generate given the amount of input (e.g., hours worked). The more you can produce in any given period of time, the more money you are worth to companies. Tools and technology greatly improve productivity. Such tools vary from hammers and saws to computer-aided design and computer-aided manufacturing machines and artificial intelligence. CP/New Line Productions/Pierre Vinet
technology Everything from phones and copiers to computers, medical imaging devices, personal digital assistants, and the various software programs that make business processes more efficient and productive. productivity The amount of output that is generated given the amount of input.
Alias is the worlds leading innovator of 3D graphics technology. Its Maya software was the core 3D animation software technology used for the Lord of the Rings trilogy, produced by Weta Digital. In 2003, Weta Digital won Oscars in the categories of Best Visual Effects and Best Picture, and multiple British Academy of Film and Television Arts (BAFTA) awards for The Lord of the Rings: The Return of the King.
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Research In Motion Ltd. produces the BlackBerry product line. For more information on how BlackBerry offers a combined phone and e-mail experience, visit its Website at www.blackberry.com.
Technology affects people in all industries. Take Barry Sonnenfeld, for example. He was the director of the movie Men in Black 2. He also was involved with films like The Addams Family and Get Shorty. Sonnenfeld does a lot of his work on the road. Therefore, he carries three cell phones, a Palm VII, a Palm V with wireless service, an IBM Thinkpad, and a pager that he also uses for e-mail. All these devices keep Sonnenfeld in contact with people all over the world and enable him to do other work whenever there is a break in the production process.15 The Growth of E-Commerce One of the major themes of this text is managing change.16 There are special boxes called Dealing with Change throughout the text that discuss the rapidly changing business environment and the need to adjust to these changes. One of the more important changes of recent years is the growth of e-commerce. There are two major types of e-commerce transactions: business-to-consumer (B2C) and business-to-business (B2B). As important as the Internet has been in the consumer market, it has become even more important in the B2B market, which consists of selling goods and services from one business to another, such as IBM selling consulting services to a local bank. B2B e-commerce is already at least five times as big as B2C e-commerce. While the potential of the B2C e-commerce market is measured in billions, B2B e-commerce is said to be measured in trillions. The rise of Internet marketing came so fast and furious that it drew hundreds of competitors into the fray. Many of the new Internet companies failed. There is no question that some Internet businesses will continue to grow and prosper, but along the way there will continue to be lots of failures, just as there have been in traditional businesses. For example, Grocery Gateway Inc. was founded in 1998 by a group of entrepreneurs who believed that people had better things to do than grocery shop. One of the few surviving e-grocers, with revenues growing at about 30 percent year over year (expected revenues for 2003 were in the $70-million range), it went into voluntary court receivership in 2004.17 Traditional businesses will have to learn how to deal with the new competition from B2B and B2C firms. See the Dealing with Change box for more about how businesses have adapted to e-commerce change. We will be discussing e-commerce throughout the text.
In recent years, many new companies have tried to prosper by combining the time-saving convenience of ordering food and other household products over the Internet with direct delivery. Webvan was one of the first. But Webvan, like many others, failed during the dot-com explosion in 20002002. Its not that the Internet does not provide an excellent opportunity to sell things. It does. But the cost of setting up distribution centres and delivery systems and overcoming customer concerns of not being able to see, touch, and examine products has proven too difficult to overcome for business after business. Do you think most customers will eventually change their preference for shopping in stores?
AP Wide World Photos
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Dealing With Change
www.ecommercetimes.com Adjusting to the E-commerce Era

Larger catalogue. Amazon.ca offers a catalogue of 3 million books on the Internet. Imagine fitting a paper catalogue that size in your mailbox! Flexibility. Successful Websites are not just glorified mail-order catalogues. The Internet offers companies the ability to configure products and build custom orders, to compare prices between multiple vendors easily, and to search large catalogues quickly. Improved customer interactions. Online tools allow businesses to interact with customers in ways unheard of before, and at almost instant speeds. For example, customers can receive automatic e-mails to confirm orders and to notify them when orders are shipped.
One of the more significant changes occurring today is the movement toward doing business on the Internet. Many businesses are finding the new competition overwhelming. That includes, for example, traditional bookstores that now have to compete with eBay and Amazon.ca. Who would have thought that garage sales would be done over the Internet? Or that cars or homes could be sold online? What is this e-commerce revolution and why is it happening now? That is, what are the advantages of e-commerce that other businesses have to accept and incorporate into their long-term strategies? Businesses are lured to e-commerce by a number of factors, including, but not limited to: Less investment in land, buildings, and equipment. E-commerce firms can usually sell things for less because they dont have to invest as much in buildings (bricks), and can reach people inexpensively over the Internet (clicks). Low transaction costs. The automation of customer service lowers costs, which may make it possible for a company to offer products at a lower price. Large purchases per transaction. Online stores like Amazon.ca often make personalized recommendations to customers that increase their order size. Integration of business processes. The Internet offers companies the ability to make more information available to customers than ever before. For example, a computer company that tracks each unit through the manufacturing and shipping process can allow customers to see exactly where the order is at any time. This is what overnight package delivery company Federal Express did when it introduced online package tracking.
Despite these many benefits, Internet-based companies have not captured the retail market as expected. Instead, traditional retail stores have adapted to the changing environment and have used the Internet to supplement their traditional stores. The combination of e-commerce with traditional stores is called click-and-brick retailing, for obvious reasons. The top 20 online sellers are names that are quite familiar to most students. They include Dell, Sears, Staples, and Victorias Secret. Four years after going online, Victorias Secret sold about a third of its goods on the Internet. eBay has done quite well as a Web-only firm. We chose Meg Whitman of eBay for the opening profile in this chapter because of her outstanding success in this field.
Sources: Cornering the Retail Market, Washington Post, June 6, 2002, pp. E1, E6; Don Steinberg, The Ultimate Technology Survival Guide, SmartBusiness, February 2002, pp. 3749; Ruth P. Stevens, On e*Sale Here, 1 to1 Magazine, September 2002, pp. 4346; and Maryanne Murray Buechner, Cruising the Online Mall, Time, April 2003.
Using Technology to Be Responsive to Customers One of the major themes of this text is that businesses succeed or fail largely because of the way they treat their customers. The businesses that are most responsive to customer wants and needs will succeed, and those that do not respond to customers will not be as successful. One way traditional retailers can respond to the Internet revolution is to use technology to become much more responsive to customers. For example, businesses mark goods with Universal Product Codes (bar codes) those series of lines and numbers that you see on most consumer packaged goods. Bar codes can be used to tell retailers what product you bought, in what
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database An electronic storage file where information is kept; one use of databases is to store vast amounts of information about consumers.
size and colour, and at what price. A scanner at the checkout counter can read that information and put it into a database. A database is an electronic storage file where information is kept. One use of databases is to store vast amounts of information about consumers. For example, a retailer may ask for your name, address, and telephone number so that it can put you on its mailing list. The information you give the retailer is added to the database. Because companies routinely trade database information, many retailers know what you buy and from whom you buy it. Using that information, companies can send you catalogues and other direct mail advertising that offers the kind of products you might want, as indicated by your past purchases. The use of databases enables stores to carry only the merchandise that the local population wants. It also enables stores to carry less inventory, saving them money. We will talk more about how technology helps identify and meet the needs of target markets in Chapters 14 and 15.
The Competitive Environment

Competition among businesses has never been greater than it is today. Some companies have found a competitive edge by focusing on quality. The goal for many companies is zero defectsno mistakes in making the product. Some companies, such as Toyota in Japan, have come close to meeting that standard. However, simply making a high-quality product isnt enough to allow a company to stay competitive in world markets. Companies now have to offer both high-quality products and outstanding service at competitive prices (value). That is why General Motors (GM) is building automobile plants in Argentina, Poland, China, and Thailand. The strategies of combining excellence with low-cost labour and minimizing distribution costs have resulted in larger markets and potential long-term growth for GM. Figure 1.5 shows how competition has changed businesses from the traditional model to a new, world-class model. Competing by Exceeding Customer Expectations Manufacturers and service organizations throughout the world have learned that todays customers are very demanding. Not only do they want good quality at low prices, but they want great service as well. In fact, some products in the 21st century will be designed to fascinate and delight customers, exceeding their expectations. Business is becoming customer-driven, not management-driven as in the past. This means that customers wants and needs must come first.
FIGURE 1.5
HOW COMPETITION HAS CHANGED BUSINESS
TRADITIONAL BUSINESSES
Customer satisfaction Customer orientation Profit orientation Reactive ethics Product orientation Managerial focus
1 2
WORLD-CLASS BUSINESSES
Delighting the customer1 Customer and stakeholder orientation2 Profit and social orientation3 Proactive ethics4 Quality and service orientation Customer focus
Delight is a term from total quality management. Bewitch and fascinate are alternative terms. Stakeholders include employees, shareholders, suppliers, dealers, and the community; the goal is to please all stakeholders. A social orientation goes beyond profit to do what is right and good for others. Proactive means doing the right thing before anyone tells you to do it. Reactive means responding to criticism after it happens.
3 4
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Customer-driven organizations include Disney amusement parks (the parks are kept clean and appeal to all ages) and Moto Photo (it does its best to please customers with fast, friendly service). Such companies can successfully compete against Internet firms if they continue to offer better and friendlier service. Successful organizations must now listen more closely to customers to determine their wants and needs, then adjust the firms products, policies, and practices to meet those demands. We will explore these concepts in more depth in Chapter 14. Competing with Speed Have you noticed how everyone seems to be in more of a hurry today? Well, the truth is that most people do live at a fast pace, and businesses need to respond or risk losing their business. For example, companies used to say, Allow six weeks for delivery. Today, many customers want things delivered in two days or less. Thats why FedEx and other high-speed delivery firms are doing so well. Most of todays consumers want fast food, fast delivery, fast responses to Internet searches, and so on. Usually, the companies that provide speedy service are those that are winning. Speed isnt everything, however. It has to be accompanied by good quality and reasonable prices, for example. Some consumers may prefer less speed and more helpful service, or less speed and lower prices. Businesses are demanding fast service from other businesses. The old saying Time is money has taken on new importance. The Harvard Business Review reports that not since the Industrial Revolution have the stakes of dealing with change been so high. In a marketplace that wants things to happen faster every day, the battle more often than not is going to the swiftest competitor, not necessarily the biggest, strongest, or even the shrewdest. Some small companies have made speedy response the core of their business. That means coming up with new products faster than before and producing those products faster as well. It also means speedy service. Well explore production and operations management further in Chapter 10. Competing by Restructuring and Empowerment To meet the needs of customers, firms must give their frontline workers (office clerks, front-desk people at hotels, salespeople, etc.) the responsibility, authority, freedom, training, and equipment they need to respond quickly to customer requests and to make other decisions essential to producing quality goods and providing good service. This is called empowerment, and well be talking about that process throughout this book. To implement a policy of empowerment, managers must train frontline people to make decisions within certain limits, without the need to consult managers. The new role of supervisors, then, is to support frontline people with training and the technology to do their jobs well, including handling customer complaints quickly and satisfactorily. In this chapter, we simply want to acknowledge that many businesses must reorganize to make their employees more effective than they are now. Many firms have done so by forming cross-functional teamsthat is, teams made up of people from various departments, such as design, production, and marketing. These teams have learned to work without close supervision; thus, they are often called self-managed cross-functional teams. One aspect of empowerment has been the elimination of managers. Companies that have implemented self-managed teams expect a lot more from their lower-level workers than they did in the past and can therefore do without various levels of managers. Because they have less management oversight, such workers need more education. Increasingly, managers jobs will be to train, support, coach, and motivate lower-level employees.
empowerment Giving frontline workers the responsibility, authority, and freedom to respond quickly to customer requests.
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Employees with increased responsibility are likely to demand increased compensation based on performance. Often, in larger firms, that may mean giving employees not only higher pay but partial ownership of the firm as well. It will also mean developing entirely new organizational structures to meet the changing needs of customers and employees. Well discuss such organizational changes and models in Chapter 9.
Progress Assessment
What are four ways the government can foster entrepreneurship? What is productivity and how does technology enhance it? How can companies compete with speed?
The Social Environment

demography The statistical study of the human population with regard to its size, density, and other characteristics such as age, race, gender, and income.
Demography is the statistical study of the human population with regard to its size, density, and other characteristics such as age, race, gender, and income. In this book, were particularly interested in the demographic trends that most affect businesses and career choices. The Canadian population is going through major changes that are dramatically affecting how people live, where they live, what they buy, and how they spend their time. Furthermore, tremendous population shifts are leading to new opportunities for some firms and to declining opportunities for others. The Aging Population The Canadian population has been aging for several decades. More people are living longer due to better medical knowledge and technology and better health habits, including proper nutrition, more exercise, and a reduction in the number of people who smoke. Figure 1.6 shows past and future population trends over a 40-year period: the youngest age groups have been declining steadily, from 40 percent to 22 percent, while the two oldest age groups are increasing steadily, from 38 to 58 percent. At the same time, the portion of the population that is very young continues to decrease because of declining birth rates since the mid-1960s. Although the rate is low, the actual number of children being born is still large because
FIGURE 1.6
POPULATION DISTRIBUTION BY AGE GROUP
YEAR
2011 2006 2001 1996 1991 1981 1971
04
5% 5 6 7 7 7 9
519
17% 19 20 20 21 25 31
2034
20% 20 21 23 26 27 22
3564
43% 42 41 38 34 31 30
65 AND OVER
15% 13 13 12 12 10 8
Percentages for 2001, 2006, and 2011 are projected, and the earlier years are actual percentages. If you compare 1971 and 2011 you will note a pronounced shift to a heavier weighting of older persons and a decline in the proportion of the youngest groups.
Adapted from: Statistics Canada, Population Projections for Canada, Provinces and Territories, 19932016, Cat. No. 91-520, 1985 and from Statistics Canada http://www.statcan.ca/english/Pgdb/demo23a.htm, CANSIM table 0520001, September 2003.
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of the baby-boom echo. The baby-boom echo (those born in the period from 1980 to 1995) represents the children of the large number of baby boomers (those born in the period from 1947 to 1966).18 Most students are part of this echo generation. What do such demographics mean for you and for businesses in the future? In his book Boom Bust & Echo 2000: Profiting from the Demographic Shift in the New Millennium, economist and demographer David Foot writes that demographics play a pivotal role in the economic and social life of our country. According to Foot, demographics explain about two-thirds of everything including which products will be in demand in five years.19 Think of the goods and services the middle-aged and elderly will need anything from travel and recreation to medicine, assisted-living facilities, and smaller apartments. Dont forget the baby boomers. More grandparents with more money in their pockets will be buying more gifts for their grandchildren. In Ontario, the baby-boom echo was clearly felt in September 2003, when the double cohort (resulting from the elimination of Grade 13) arrived on college and university campuses. While this dramatic increase in demand for education led to more instructors being hired and more residences being built, there still were larger class sizes and more cramped residence rooms as these institutions tried to meet the demand. It is clear that there should be many opportunities for existing and new businesses to explore in the 21st century. Managing Diversity Canada has a strong multicultural population. It has seen a steady increase in immigration since the 1960s; in the 1980s, more than one million immigrants entered Canada. More than half of these were under 30, so many had children. During the 1990s, this number increased to over 1.8 million immigrants. In the 2001 census, more than 18 percent of the population indicated that it was foreign-born. Companies have responded to this diverse customer base by hiring a more diversified workforce to serve them. Today, more than 75 percent of Fortune 1000 companies have some sort of diversity initiative. Some, like Kodak, have a chief diversity office (CDO) in the executive suite. In short, companies are taking diversity management seriously.20 The management of diverse groupswhether they be different because of race, sex, age, sexual orientation, country of origin, religion, or some other classificationcan be difficult. It gets even more difficult as managers go overseas and must respond to all the cultural, political, and social issues that are particular to each country. Nonetheless, companies such as IBM and Ford all believe that they are more successful and more profitable because of their diversity initiatives. Two-Income Families Approximately 54 percent of all families in Canada are made up of dual-income earners.21 Several factors have led to growth in twoincome families. The high costs of housing and of maintaining a comfortable lifestyle, the high level of taxes, and the cultural emphasis on having it all have made it difficult if not impossible for many households to live on just one income. Furthermore, many women today simply want a career outside the home. One result of this trend is a host of programs that companies have implemented in response to the demands of busy two-income families. Scotiabank and Procter & Gamble, for example, each offer employees pregnancy benefits, parental leave, and flexible work schedules. Some companies offer referral services that provide counselling to parents in search of child care or elder care. Many companies are also increasing the number of part-time workers. This enables mothers and fathers to stay home part of the day with children and still earn income. Some companies allow workers to telecommute, which means they work from home and keep in touch with the company through
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One of Canadas strengths is its ability to welcome and help prosper people from all over the world. This photo shows a diversity conference. Such conferences often help people with different backgrounds and opinions to be heard and to listen to and learn from others. These interactions also help to clarify and resolve issues among various ethnic groups. What are some of the diversity issues in your community?
Mike Greeniar/The Image Works
telecommunications (telephone, fax, e-mail, etc.). This lowers the companys cost for office space and also makes it possible for parents to meet the demands of both job and family. Workplace changes due to the rise of two-income families create many job opportunities in day care, counselling, and other related fields. Youll learn more about whats happening in human resource management in Chapter 12. Single Parents The growth of single-parent households (from 8 percent of all families in 1966 to almost 16 percent in 2001) has had a major effect on businesses as well.22 It is a tremendous task to work full-time and raise a family. Single parents have encouraged businesses to implement programs such as family leave (where workers can take time off to attend to a sick child) and flextime (where workers can come in or leave at selected times). You will be able to read about such programs in more detail in Chapter 12.
The Global Environment

The global environment of business is so important that we show it as surrounding all other environmental influences (refer to Figure 1.4). Two important environmental changes in recent years have been the growth of international competition and the increase of free trade among nations. Japanese manufacturers like Honda, Mitsubishi, and Sony won much of the market for automobiles, videocassette recorders, digital video disk players, television sets, and other products by offering global consumers products of higher quality than those made by domestic manufacturers. This competition hurt many industries, and many jobs were lost. As a result, more businesses have become more competitive. Today, manufacturers in countries such as China, India, South Korea, and Mexico can produce high-quality goods at low prices because their workers are paid less money than Canadian workers and because theyve learned quality concepts from Japanese, German, and U.S. producers. Late in the 1990s, however, Thailand, Malaysia, Hong Kong, Japan, South Korea, and other Asian countries had banking problems that caused a major upheaval in global markets. These problems affected all nations, showing the interdependence of countries around the world today.
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2002 SAS Institute Inc. All Rights Reserved
Better technology, machinery, tools, education, and training enable each worker to be more productive. It is the primary responsibility of businesses to focus on these areas to ensure success. However, the federal government also recognizes that it can play an important role. In 2002, it launched its 10-year innovation strategy (www.innovationstrategy.gc.ca), which aims to move Canada to the front ranks of the worlds most innovative countries. The government plans to do this by moving to build on the investments already made in research and innovation, to make essential research and technological expertise available to firms of all sizes, and to facilitate access to venture capital financing.23 While the innovation strategy will be discussed in more detail in Chapter 4, one should note that political support also contributes to domestic and global success. Companies such as Bombardier, Nortel, Magna, and Pratt & Whitney, as well as many smaller companies, are as good as or better than competing organizations anywhere in the world. But some businesses have gone beyond simply competing with organizations in other countries by learning to cooperate with international firms. Cooperation among businesses has the potential to create rapidly growing world markets that can generate prosperity beyond most peoples expectations. The challenge is tremendous, but so is the will to achieve. Youll read much more about the importance of trade agreements (such as NAFTA), understanding cultural differences, and global business in general in Chapter 3.
Entrepreneurship is an exciting way to make a living, but working for a big company can be equally rewarding. These employees of SAS, a software design firm, are enjoying the company swimming pooljust one of the many employee benefits the company sponsors. Other firms provide indoor tracks, weight rooms, employee cafeterias, and corporate retreats with golf and other facilities. Which would you prefer: the challenge of starting your own business and being your own boss, or working for a larger firm and taking advantage of its employee benefits program?
THE EVOLUTION OF CANADIAN BUSINESS

Many managers and workers are losing their jobs in major manufacturing firms. Businesses in Canada have become so productive that, compared to the past, fewer workers are needed in industries that produce goods. Goods are tangible products such as computers, food, clothing, cars, and appliances. Due to the increasing impact of technology and global competition, shouldnt we be concerned about the prospect of high unemployment rates and low incomes? Where will the jobs be when you graduate? These important questions prompt us to look briefly at the manufacturing and service sectors.
goods Tangible products such as computers, food, clothing, cars, and appliances.
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Progress in the Agricultural and Manufacturing Industries

Canada has seen strong economic development since the 1800s. The agricultural industry led the way, providing food for Canadians and people in other parts of the world. Inventions such as the harvester and cotton gin did much to make farming successful, as did ongoing improvements on such equipment. The modern farming industry has become so efficient through the use of technology that the number of farms has dropped. Due to increased competition, many of the farms that existed even 50 years ago have been replaced by some huge farms, some merely large farms, and some small but highly specialized farms. The loss of farm workers over the past century is not a negative sign. It is instead an indication that Canadian agricultural workers are more productive. Most farmers who lost their jobs went to work in factories. The manufacturing industry, much like agriculture, used technology to become more productive. The consequence, as in farming, was the elimination of many jobs. Again, the loss to society is minimal if the wealth created by increased productivity and efficiency creates new jobs elsewhere. This is exactly what has happened over the past 50 years. Many workers in the industrial sector found jobs in the service sector. Most of those who cant find work today are people who need retraining and education to become qualified for jobs that now exist. Canadas Manufacturing Industry The goods-producing sector includes the manufacturing, construction, agriculture, forestry, fishing, and mining industries. Of this sector, manufacturing employs approximately 15 percent of Canadas working population, as noted in Figure 1.7. Canadian Manufacturers & Exporters is a network that represents many small- and medium-sized manufacturers. Here are some of the networks suggested reasons why this sector is important to Canada:
Agriculture is an important industry in Canada. The entire process of growing food and getting it to our tables is so smooth that its easy to take for granted. But behind those well-stocked supermarkets is an army of farmers and distributors who supply our needs. Use of technology has led to increased productivity and made farmers more efficient, resulting in larger farms. This trend has meant less expensive food for us, but a continual reduction in the number of small, family-run farms. Is it still possible for small farms to be successful, and if so, how?
FIGURE 1.7
THE IMPORTANCE OF THE GOODS-PRODUCING AND SERVICES-PRODUCING SECTORS IN CANADA
Directly, manufacturing accounts for 21 percent of economic activity. But when you consider spin-offs (such as the purchase of products), manufacturers drive 55 percent of the economy; Every $1 of manufacturing in Canada generates $3 in total economic activity; and Nearly 70 percent of all goods manufactured in Canada are exported, accounting for more than $400 billion of Canadas merchandise exports.24
Canada is a service economy, where the majority of jobs are generated in the services-producing sector. This excerpt from Statistics Canadas Employment by Industry for 2003 also reflects the importance of manufacturing and agriculture to Canadians.
NUMBER OF EMPLOYED
Total employed in Canada Goods-producing sector Agriculture Manufacturing Services-producing sector 15,746,000 3,986,100 339,500 2,294,000 11,759,900
TOTAL WORKFORCE (%)

100.0 25.3 2.2 14.6 74.7
Adapted from: Statistics Canada, CANSIM table 282-0008, March 11, 2004. Retrieved from http://www.statcan.ca/english/Pgdb/labor10a.htm on May 18, 2004.
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While the manufacturing sector is much smaller today than it was 25 years ago, it is still clearly an integral part of our business economy. We will discuss the manufacturing sector and production in more detail in Chapter 10.
Progress in Service Industries

The service sector is distinct from the goods-producing sector. Services are intangible products (i.e., products that cannot be held in your hand) such as education, health care, insurance, recreation, and travel and tourism. In the past, the dominant industries in Canada produced goods such as steel, railroads, and machine tools. Over the last 25 years, the service sector in Canada and around the world has grown dramatically. The shift in Canadas employment makeup began slowly early in the 20th century, and has accelerated rapidly since the 1950s. Today, the leading firms are in services (such as legal, health, telecommunications, entertainment, financial services, etc.). As noted in Figure 1.7, the services-producing sector employs almost 75 percent of the working population. There are several reasons why there has been growth in this sector. First, technological improvements have enabled businesses to reduce their payrolls while increasing their output. Since staffing has been downsized by many companies, business has become more complex and specialized companies have relied more heavily on outside services firms. Secondly, as large manufacturing companies seek to become more efficient, they contract out an increasing number of services, creating more opportunities for businesspeople. Other service firms have risen or expanded rapidly to provide traditional services that used to be performed by women at home. Since many women have entered the workforce, there is increased demand for food preparation, child care, and household maintenance, to name just a few. Keep in mind that service-sector jobs are also impacted by environmental factors. For example, the outbreak of SARS (severe acute respiratory syndrome) first reported in March 2003 impacted the desire of foreigners (and Canadians) to travel throughout our country. Canadas tourism continued to falter when the World Health Organization issued an advisory recommending only essential travel. Among other initiatives, the federal government earmarked $20 million to promote Canada and to assist the recovery of the tourism industry.25 While many businesses recognized the governments attempt to increase demand for tourism dollars, such initiatives could not fully replace the losses in revenue that were experienced by businesses and workers.
services Intangible products (i.e., products that cant be held in your hand) such as education, health care, insurance, recreation, and travel and tourism.
Your Future in Business

Despite the growth in the service sector described above, the service era now seems to be coming to a close as a new era is beginning. Were now in the midst of an information-based global revolution that will alter all sectors of the economy. Its exciting to think about the role youll play in that revolution. You may be a leader; that is, you may be one of the people who will implement the changes and accept the challenges of world competition based on world quality standards. This book will introduce you to some of the concepts that will make such leadership possible. Remember that most of the concepts and principles that make businesses more effective and efficient are also applicable to government agencies and nonprofit organizations. This is an introductory business text, so we will focus on business. Business cannot prosper in the future without the cooperation of government and social leaders throughout the world.
Visit jobfutures.ca to find out what the futures most prom ising jobs will bethe site provides projections for the next five years by province, territory, and profession.
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Critical Thinking
Can you think of any type of service or good not currently on the market that would appeal to the growing number of seniors? Would you be interested in trying to develop that item? Why or why not? Should Canadians strengthen the manufacturing sector? What can they do? Is there a role for government in this effort? Have any of the trends discussed in the chapter given you any ideas for a career? Explain. Are you thinking about whether the rest of your education should be broader or more specialized? Should it be both broader and more specialized? Given the globalization of business, should you be acquiring the ability to speak more languages? You will have to think seriously about these optionsdont hesitate to consult people whose opinions you respect, both inside and outside your school.
Progress Assessment
What are some of the diverse groups of people that managers must manage? What are the factors that have led to two-income families? What accounts for the growth in service-sector jobs? Why is it so essential for the economy?
Summary
1. Describe the relationship of businesses profit to risk assumption.
1. A business is any activity that seeks to provide goods and services to others while operating at a profit. What are the relationships between risk, profit, and loss? Profit is money a business earns above and beyond the money that it spends for salaries and other expenses. Businesspeople make profits by taking risks. Risk is the chance an entrepreneur takes of losing time and money on a business that may not prove profitable. A loss occurs when a businesss costs and expenses are more than its revenues. 2. Stakeholders include customers, employees, shareholders, suppliers, dealers, bankers, people in the local community, environmentalists, and elected government leaders. Which stakeholders are most important to a business? The goal of business leaders is to try to balance the needs of all stakeholders and still make a profit. Some businesses put the needs of shareholders above the other interests, but most businesses today seek a balance among the needs of the various stakeholders. 3. Entrepreneurs are people who risk time and money to start and manage a business. What importance does entrepreneurship hold in the list of the five factors of production? Businesses use five factors of production: land (natural resources), labour (workers), capital (buildings and machinery), entrepreneurship, and knowledge. Of these, the most important are entrepreneurship and knowledge (managed information), because without them land, labour, and capital are not of much use.
2. Discuss the groups that are considered stakeholders and indicate which stakeholders are most important to a business.
3. Explain the importance of entrepreneurship to the wealth of an economy.
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4. The business environment consists of the surrounding factors that either help or hinder the development of businesses. The six elements are the legal and regulatory environment, the economic environment, the technological environment, the competitive environment, the social environment, and the global environment. Explain why the business environment is important to organizations. Scanning the business environment on a continual basis is important to organizations so that they can take advantage of trends. These trends could impact the organizations ability to achieve its objectives, steer clear of threats, or take advantage of new opportunities. 5. Competition among businesses has never been greater than it is today. What are some ways in which businesses meet and beat competition? Some companies found a competitive edge in the 1980s by focusing on making high-quality products. By the early 1990s, meeting the challenge of making a quality product was not enough to stay competitive in world markets. Companies had to offer quality goods and outstanding service at competitive prices (value). The speed of new product development, production, delivery, and service is also critical. Companies aim to exceed customer expectations. Often that means empowering frontline workers by giving them more training and more responsibility and authority. It also means restructuring the firm to create more teams. 6. Canada has evolved from an economy based on manufacturing to one based on services. Why is manufacturing still a vital industry for Canada? While the services-producing sector employs almost 75 percent of the working population, the manufacturing industry employs almost 15 percent of workers. Every $1 of manufacturing in Canada generates $3 in total economic activity. Directly, manufacturing accounts for 21 percent of economic activity, but when you consider spin-offs, manufacturers drive 55 percent of the economy.
4. Review the six elements that make up the business environment and explain why the business environment is important to organizations.
5. Identify various ways in which businesses can meet and beat competition.
6. Understand how the service sector has replaced manufacturing as the principal provider of jobs, but why manufacturing remains vital for Canada.
business 4 business environment 11 database 18 demography 20 empowerment 19 entrepreneur 4 factors of production 9
goods 23 loss 5 nonprofit organization 7 productivity 15 profit 4 regulations 13 revenue 5
risk 5 services 25 stakeholders 5 technology 15
Key Terms
1. Make a list of nonprofit organizations in your community that might offer you a chance to learn some of the skills youll need in the job you hope to have when you graduate. How could you make time in your schedule to volunteer or work at one or more of those organizations? Write a letter to a nonprofit organization to inquire about such opportunities.
Developing Workplace Skills
28
PART 1
2. In this chapter, Hollinger, Cinar, and Livent were mentioned as examples of companies where some top executives had disregarded their stakeholders. Research why this statement is correct. Present your findings to the class. 3. Use a computer word processing program to write a one-page report on how technology will change society in the next 10 years. Use a computer graphics program to create a chart (or draw a chart by hand) that illustrates the increased use of personal computers in Canadian homes since 1980. 4. Form teams of four or five and discuss the technological and e-commerce revolutions. How many students now shop for goods and services online? What have been their experiences? What other high-tech equipment do they use (e.g., cell phones, pagers, laptop computers, desktop computers, personal digital assistants, portable music players)? 5. This text describes the growth trend in the numbers of businesses in the service sector. Look through your local Yellow Pages or go on the Internet to find and list five businesses that provide services in your area. This text also describes how certain demographic and social changes affect businesses. For each of the local service businesses on your list, describe how social trends might affect it. Include both negative effects and positive effects. Be prepared to explain your answers.
Taking It To The Net
This exercise requires using the Internet. If you do not know how to navigate this powerful computer network, you need to read Surfing the Internet, on the Online Learning Centre. Purpose To gather data about the size of global corporations and the level of profitability of the various global industries. Exercise Businesses seek to earn profits by providing goods and services to other businesses and individual consumers. Ever wonder just how much profit the largest companies earn and which companies earn the highest profits? Try to answer the first two questions on the following list before you search for the answers on the Web. Then go to the Fortune magazine Website at www.fortune.com. Enter the Global 500 section. You may be surprised by what you find. 1. List the top 10 revenue-producing global corporations. How many small businesses with average revenues of $100,000 a year would it take to match the revenue of the largest global corporation? 2. List the top 10 profit-producing global corporations. How many companies are on both of your lists? 3. How much revenue per employee does the trading industry generate? The tobacco industry? The airline industry? The mail, package, and freight delivery industry? 4. KNOW YOUR BUSINESS: Mitsui is one of the highest revenue-producing companies in the world. What industry is the Mitsui company a part of? Where is its home office? What are Mitsuis primary products?
CHAPTER 1
29
Practising Management Decisions

Case
very year, Profit magazine publishes a list of Canadas 100 fastest-growing companies. The 2003 issue reported in detail on the 2002 selection. The importance of many of the points we discussed in this chapter was quite evident, especially when one considers the breakdown among the types of companies. Manufacturers are back on top, but retailers rebound. Here is a sector breakdown of some of the top 100:
Business services Software developers IT services Consumer services Distribution Retail Pharmaceutical Publishing Construction 25 13 8 6 6 4 5 2 2
Canadas 100 Fastest-Growing Companies
expected job growth in fiscal 2003 was 3,333 jobs. Clearly, great teams start with great people. Interesting statistics about the top 100 company presidents include: 1. 2. 3. 4. Average age: 43 years Average hours worked per week: 57 Average annual compensation: $285,415 Highest level of school completed: 13 completed high school, 7 completed community college, 11 completed some college or university, 45 completed university, and 24 completed post-graduate work. 5. Number of CEOs that have previously founded a business: 48 Keeping employees engaged, challenged, and motivated is the next step. This topic will be discussed later on in this book.
While the companies were located across Canada, Ontario and British Columbia represented the majority of these companies:
British Columbia Alberta Ontario Quebec Newfoundland New Brunswick 24 15 52 7 1 1
Source: Adapted from www.profitguide.com (retrieved on May 21, 2004).
What makes these companies leaders is that they grew rapidly and continue to do so, regardless of what field they are in. It did not matter whether they are high-tech or old-economy companies, manufacturing or service companies. In 2002 these companies created 3,158 jobs, and the
Decision Questions 1. Which of these data support the information discussed in the chapter? Explain your answer. 2. Can you see how the lines between service and manufacturing companies are getting blurred? Is there a clear distinction between a good and a service? 3. What does all this mean for your career choices? Will you concentrate on high-tech or traditional industries? Do you look for companies that are globally oriented? 4. Visit www.profitguide.com to see the latest information on the Top 100. How much has changed since these results were posted?
Video Case
Toying with Success: The McFarlane Companies

every day; he wanted to do something he enjoyed. As a teen, he liked to draw superheroes. He developed his drawing skill throughout high school and college and began to send out samples of his work, lots of samples. Alas, he got lots of rejections until finally someone offered him a job.
n his school days, Todd McFarlane had dreams of playing major league baseball. Unfortunately, his dream didnt come true. So like most of us, he put his dreams aside and decided that he had to get a job and make a living. But McFarlane did not want to just go to work
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PART 1
McFarlanes first job was working freelance on obscure comic books for Marvel Comics, the biggest name in the comic book industry. By working relentlessly and turning his high-quality work in on time, McFarlane earned a reputation as a good worker. That reputation earned him the right to work a little on well-known comics like Batman, the Hulk, and Spiderman. He brought Spiderman from relative obscurity to the numberone book with record sales. Over time, he became the highest paid comic book artist at Marvel. McFarlane began to feel a bit cramped and held back by the way things were done at Marvel. He had many ideas he wanted to try, but was discouraged by the lack of excitement at the company. He decided it was time to quit and start his own comic book business. He was able to persuade several of his best co-workers to come with him. Many insiders in the comic book industry gave his new company one year at best. McFarlane believed failure was out of the question and he did anything but fail. His first comic, Spawn, sold l.7 million copiesthe rest was history. Today, when it comes to creating comics, producing movies, directing music videos, and running one of the most successful toy companies in the world, McFarlane has done it all. His path to success was similar to other entrepreneurs who learned about their business working for a large company. Chapter 1 shows that the energy and the risk-taking these entrepreneurs apply to the task is what creates jobs and wealth. Entrepreneurs like McFarlane, however, face many challenges in the business environment: legal and regulatory, economic, technological, competitive, social, and global. For example, the legal system protects his intellectual property and allows him to make contracts that are enforceable. He also takes advantage of the latest in technology to push creativity forward in making toys, movies, and video games. The Internet provides a means to reach the young people who are his key customers. Competitively, McFarlane loves to see
competitors turn out shoddy goods because it provides an opportunity for him to make highquality toys and other products that may cost more, but are well worth the extra few cents. Its impossible to avoid social issues like strikes and global problems like diseases that hold up production. The key is to keep focused and keep business going. What about his major league dreams? Part of McFarlanes dream started coming true when he bought Mark McGuires record-breaking 70th home run ball. It cost him a cool $3 million! To his chagrin the record was broken the next year by Barry Bonds. But McFarlane did not give up. Combining it with other McGuire and Sammy Sosa balls he had purchased, he formed the McFarlane Collection and sent it on a tour of every major league stadium. The payoff was good public relations for his firm and the development of a relationship with people in professional sports and management that led to licensing rights to produce major league toys. The $3-million ball may lead to $20 million in profit. Did his dreams come true? He doesnt have a baseball career, but every toy contract with a major league team includes what you might call a signing bonus: the right for McFarlane to hit batting practice in every ballpark that shows his collection. Thats not the same as being a player, but McFarlanes not complaining. Discussion Questions 1. What lessons can you take from Todd McFarlane about how to be a success in life? 2. What dreams do you have, and where could you work where you may be able to fulfill at least a major part of your dream? 3. What skills can you develop working for a larger firm before you go out on your own to become a successful entrepreneur? 4. What are some of the challenges you see in todays dynamic business environment and what are some of the opportunities?

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PART 1

Managing within the Dynamic Business Environment

Getting to Know Meg Whitman from eBay

Business Trends: Cultivating a Business in Diverse Global Environments

BUSINESS AND ENTREPRENEURSHIP: REVENUES, PROFITS, AND LOSSES

Matching Risk with Profit

WORTH ($ BILLIONS CAD)

Source: www.canadianbusiness.com/rich100/wholeList.asp August 24, 2004.

Managing within the Dynamic Business Environment

Courtesy of Skoll Foundation

Responding to the Various Business Stakeholders

Business Trends: Cultivating a Business in Diverse Global Environments

Shareholders Bankers Customers

Managing within the Dynamic Business Environment

Using Business Principles in Nonprofit Organizations

Provided Courtesy of Canadian Blood Services

Business Trends: Cultivating a Business in Diverse Global Environments

ENTREPRENEURSHIP VERSUS WORKING FOR OTHERS

The Importance of Entrepreneurs to the Creation of Wealth

Managing within the Dynamic Business Environment

Spotlight on Small Business

www.robeez.com Small Feet Mean Business at Robeez Footwear Ltd.

When Sandra Wilson was downsized out of

Business Trends: Cultivating a Business in Diverse Global Environments

Courtesy of Husky Injection Molding Systems Ltd.

Managing within the Dynamic Business Environment

Reaching Beyond Our Borders

Freedom and Protective Laws Equal Prosperity

Recent studies have found that the freer

THE BUSINESS ENVIRONMENT

Business Trends: Cultivating a Business in Diverse Global Environments

The Legal and Regulatory Environment

Managing within the Dynamic Business Environment

Dave Bartruff/Stock Boston

Business Trends: Cultivating a Business in Diverse Global Environments

Making Ethical Decisions

Ethics Begins With You

Television, movies, and the print media all

The Economic Environment

Managing within the Dynamic Business Environment

The Technological Environment

Business Trends: Cultivating a Business in Diverse Global Environments

AP Wide World Photos

Managing within the Dynamic Business Environment

Dealing With Change

www.ecommercetimes.com Adjusting to the E-commerce Era

Business Trends: Cultivating a Business in Diverse Global Environments

The Competitive Environment

Managing within the Dynamic Business Environment

Business Trends: Cultivating a Business in Diverse Global Environments

The Social Environment

Managing within the Dynamic Business Environment

Business Trends: Cultivating a Business in Diverse Global Environments

Mike Greeniar/The Image Works

The Global Environment

Managing within the Dynamic Business Environment

2002 SAS Institute Inc. All Rights Reserved

THE EVOLUTION OF CANADIAN BUSINESS

Business Trends: Cultivating a Business in Diverse Global Environments

Progress in the Agricultural and Manufacturing Industries

TOTAL WORKFORCE (%)

Managing within the Dynamic Business Environment

Progress in Service Industries

Your Future in Business