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CHAPTER 1

BUSINESS: 2005 AND BEYOND

BUSINESS

All profit seeking activities and enterprises that provide goods and services
necessary to an economic system.

PROFITS

• Profits represents for businesspeople who take the risks involved in blending people,
technology and information to create and market want-satisfying goods and services.

• Profits rewards for businesspeople who take the risk involved to offer goods and
services to customers.

• According to Accountants PROFITS is the difference between a firm’s revenue and

expenses it incurs in generating this revenue.

FACTORS OF PRODUCTION

There are four basic factors of production:

1. Natural Resources
2. Capital
3. Human Resources
4. Entrepreneurship

Factors of Production – four basic inputs required for effective operation.

1. Natural Resources – all product inputs that are useful in their natural state, such as:

a. agricultural land

b. building sites

c. forests
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d. mineral deposits

2. Capital
a. technology – machinery and equipment as production lines, telecommunications
and basic inventions.

b. tools

c. information

d. physical facilities

e. money

3. Human Resources – anyone who works, encompassing both physical labor and
intellectual contributions.

4. Entrepreneurship – the willingness to take risks to create and operate a business.

Factors of Production and their Factors of Payment:

Factor of Production Corresponding Factor Payments

Natural resources Rent

Capital Invest

Human resources Wages

Entrepreneurship Profits

NON-PROFIT ORGANIZATIONS
Primary objectives other than returning profits to owners, such as public
service
1. Private sector, such as museums, libraries, business associations, charitable and
religious organizations, and most college and universities
2. Government agencies, political parties and labor unions
3. Revenues come from a wide array of sources, including:
a. individual donations
b. memberships
c. government grants
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d. gift-shop sales (profit centers within the non-profit)

e. special fund-raising events, which also increase public awareness of the
non-profit organization.
4. Require work in all the business functions, such as marketing and human
resources, as do for-profit organizations, and face many of the same business
challenges, including determining methods to increase revenue

ENTREPRENEURSHIP
 Entrepreneurship is the willingness to take the risks to create and operate a business.

 An ENTREPRENEUR is someone who sees a potentially profitable opportunity and then

devises a plan to achieve success in the market place and earn those profits.

 He is the RISK TAKER in private enterprise system.

THE PRIVATE ENTERPRISE SYSTEM

 Private Enterprise System is an economic system that rewards businesses for their
ability to indentify and serve the needs and demands of customers.

 Another name of the Private Enterprise System is CAPITALISM.

 The conceptual meaning of CAPITALISM is “HANDS OFF”.

 But in today’s world CAPITALISM means minimizing Government interference in

economic activity.

 Adam Smith indentified as the father of CAPITALISM believed that an economic

system can be best regulated by the invisible hand of COPETITION not of the
Government.

COMPETITION means the battle among business for consumer acceptance.

 Competition among firms would lead to consumers receiving the best possible products
and prices because less efficient products would gradually be driven from the
marketplace.

EXAMPLE: The decrease of mobile phone’s call rate in our country.

 The Invisible Hand concept is a basic premise of the PRIVATE ENTERPRISE SYSTEM.
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 To compete successfully each firm must find a basis for Competitive Differentiation,
the unique combination of organizational abilities and approaches that sets a company
apart from competitors in the mind of consumers.

BASIC RIGHTS IN THE PRIVATE ENTERPRISE SYSTEM

 Right of Private Property: The Right of Private Property is the most basic freedom
under the Private Enterprise System. Every participant enjoys the right to own, use,
buy, sell and bequeath most form of property including land, building, machinery,
patents of inventions and various intangible properties.

 Right of All Profits: Private

Enterprise System guarantees
business owners to Right of All
Profits – after taxes-they earn
through their activities.

 Freedom of Choice: Freedom of

Choice means that a Private
Enterprise System relies on the
potential for citizen to choose
their own employment, purchases,
and investments. They can change
jobs, negotiate wages, join labor
unions and choose among any
different brands of goods and
services.

 Competition: Private Enterprise System permits fair Competition by allowing the public
to set rules for competitive activity.

BUSINESS ETHICS

 Business Ethics refers to the standards of conduct and moral values involving right and
wrong actions arising in the work environment.

 Business Ethics is the principal and standard that determines acceptable conduct in
business.
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SOCIAL RESPONSIBILITY

 Working hand-in-hand with business ethics is Social Responsibility, a management

philosophy that highlights the social and economic effects of managerial decision.

 Social Responsibility is business obligation to maximize its positive image and minimize
its negative impacts on society.

Companies enhance their image and relationship with society by participating in

social responsibility programs.

Three meanings of Social Responsibility:

1. Socially responsible as Obligation

2. Socially Responsible as Reaction

3. Socially responsible as Responsiveness

 Socially responsible as Obligation: If a business organization is earning profit within

rules and regulation.

 Socially Responsible as Reaction: Profit + Responsibility

Reactive in nature

 Socially responsible as Responsiveness: Profit + Responsibility + Good Citizenship

Proactive in nature

What Makes a Company Admired?

 Solid profits?

 Stable growth?

 Safe and challenging work environment?

 Commitment to social responsibility?

 You decide!
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