Com 100 Midterm #1

Misrepresentation of finances

- companies must conform to accounting guidelines and principles •failure to follow GAAP in order to inflate expected profit figures can mislead investors -lying on income statement to say you are making more than you are in order to get people to buy shares/ invest in your company

Political- Legal Environment

- impacts what businesses can and cannot do/sell/start-up, usually in the form of government regulation Reflects the relationship between business and government (e.g., regulations) • pro- or anti-business sentiment • political stability is important, as this is a reflection of if trade will be stable and well-defined. • how have changes in the political-legal environment impacted cigarette companies? Marijuana dispensaries?

Information Resources

- includes specialized knowledge and expertise of people who work in business, as well as information that is found in market forecasts and various other forms of economic data. -Information is a key aspect of production, because unlike land, labour or capital, information can be shared without being diminished.

Responsibility toward Investors (3)

-Improper financial management (Example: Never looking at bank statements to see if anyone has hacked/stolen money, Never following up on owed money- never collecting the cash) -Insider trading -Misrepresentation of finances

What are some examples of what companies can do to act in a socially responsible way toward the environment? Toward customers? Toward employees?

-Patagonia: changed to organic cotton because it was giving their employees headaches, then tried to be sustainable in everything they do -ensuring that standard operating procedures are followed -safe working environment for employees

Whistle blowers

-whistle-blowers: an employee who discovers and tries to put an end to a companies unethical, illegal, and/or socially irresponsible actions by publicizing them. -would like to move towards a place where whistle blowers are safe and do not get fired when reporting unethical behaviour

What are the Rights of Consumers?

1. Right to safe products (swallowable childrens' toys, e.g.) 2. Right to be informed about all relevant aspects of a product 3. Right to be heard 4. Right to choose what they buy (key aspect of a market economy) 5. Right to be educated about purchases (nutri facts, e.g.) 6. Right to courteous service

lobbyist

A lobbyist is a person hired by a company or industry to represent that company's interest with government officials. For example, regular lobbies the federal and provincial governments to make use of the skills possessed by private- sector consulting engineers on projects like city water systems. The Federal Lobbying Act requires lobbyists to register with the Commissioner of Lobbying so it is clear which individuals are being paid for their lobbying activity. Employees and owners of small businesses who cannot afford a lobbyist join trade associations which may act as an industry lobby to influence legislation.

Private Enterprise and Competition

A private enterprise occurs in a market economy and allows individuals to pursue their own interests with little government restriction. Private enterprise is GOOD for increased competition. Under this system, individuals: • Can own property • Have the freedom of choice (you can sell your labour to any employer you choose, etc) • Have the freedom to earn profits • Have the freedom to compete

How do we know whether an economic system is growing?

Aggregate output: the total quantity of goods and services produced by an economic system during a given period. An increase in aggregate output is economic growth. When output grows more quickly than population, people experience a "higher standard of living"

The role of government in the Canadian economic system: In what ways does the government interact with business?

As a(n)... 1. Customer 2. Competitor 3. Regulator 4. Provider of Incentives 5. Provider of Essential Services

What stance does Fjallraven appear to be taking?

Proactive Stance- focused on human rights, using sustainable and organic products for building their backpacks and clothing, giving back to society by helping individuals get outside in nature

(add in) Non- Profit Organizations

Provide goods and services but do not seek profit (Examples: Schools and Hospitals)

3. Regulator

Regulate through administrative boards, tribunals, and commissions Taxation Agent- Implement Revenue Taxes (income taxes), Regressive Revenue Taxes (Sales Tax) and Restrictive Taxes (taxes on alcohol, tobacco, and gasoline) The reasons for regulating business activity include protecting competition, protecting customers, achieving business goals, and protecting the environment.

Business Process Management

moving away from department- oriented organizations toward process-oriented teams all of the functional areas of business are interrelated- so this makes sense to work together to achieve the corporate goal

Strategic Alliance

or joint venture, involves two or more enterprises cooperating in the research, development, manufacturing or marketing of a product.

Outsourcing

paying suppliers and distributors to perform certain business processes

Entrepreneurs

people who accept the opportunities and risk involved in creating and operating a business.

If U2 is playing to a sold-out concert this Friday night but tickets are still in high demand, concert-goers are likely to buy tickets from 'scalpers' at prices considerably higher than the original price. This situation can be described as a...

shortage; in which quantity demanded exceeds quantity supplied.

Simon would like to buy a Valentines gift for his girlfriend as a sign of his affection. To his disappointment he discovers that roses cost $75 a dozen. Luckily, he can buy chocolates for $20. According to Porter's Five Forces Model, chocolates are a less costly _________.

substitute

Organizational Boundaries

that which separates the organization from its environment. Consider the simple case of a neighborhood grocery store that includes a retail customer area, a storage room, and the owner/manager's office.

Friendly Takeover

the acquired company welcomes the acquisition, (needs cash or other benefits) in class example- ebay and terapeak- both find mutual benefit

Hostile Takeover

the acquiring company buys enough of the other company's stock to take control even though the other company is opposed to the takeover

The federal government manages the Canadian economic system through two sets of policies: fiscal and monetary. Fiscal Policy refers to:

the government's approach to its spending and taxation

The most important difference between command economies and market economies is...

who controls the factors of production

Areas of Social Responsibility: The environment

• Air pollution • Water pollution • Land pollution • toxic waste disposal • recycling

Social Responsibility: Responsibility towards Employees

• Legal and social commitments • human resource management issues • privacy issues • encouraging ethical behaviour (Example: whistle-blowers, firing these people off) • Wrongful dismissal, statutory holidays, safe working conditions

Monopoly

• One producer and source of supply • Unique product • Complete control over price • No competitors Example: BC Ferries

Step 4: The Social Audit

• a systematic analysis of how the firm is using funds • addresses the effectiveness of the money spent • Triple bottom line reporting = financial results, impact on society, and impact on environment

Step 1: Top Management Support

• develop a policy statement outlining their commitment to ethical behaviour

Improper Financial Management

• doing a poor job of managing the financial resources of a company • may not be legally punishable because no law has been broken • it may be difficult to replace management because unrest in the firm may devalue its stock

Step 3: Appoint a Director

• executive-level administrator is appointed to oversee the program • this may be a partial time work commitment on the part of existing top managers

Step 2: Strategic Planning

• top managers develop a plan of the level of support • percentage of sales revenues to go to social causes • promise to train chronically unemployed people Have to be SMART goals (specific, measurable, attainable, relevant, time-based) How much are we going to donate to these organizations?

Insider trading

• using confidential(non-public) information to gain from the sale of stock • involves gaining knowledge of inside information about the company prior to making the purchase •can involve the collusion of investors buying and selling stock at the appropriate time to make huge profits -Selling all your shares before the share price falls to save money- illegal

Oligopoly

•A few large suppliers (sellers) dominate •High barriers to entry, high competition •Products are seen as similar •Prices gravitate toward a common "market price" (avoid price competition because it reduces profits) •Rather than compete on a price, they emphasize advertising. •Companies in this Oligopoly get together and set price- the sellers have the power in the relationship. Competition is decreasing, as companies work together at the disadvantage of the customer (price is higher)

The Industry Environment

Porter's five forces model is used to analyze the competitive situation in an industry.

Written Codes of Ethics- how does this impact the functionality of a company?

Can increase public confidence in a firm Can help stem the tide of government regulation (government will be less likely to take powers away from company) Can improve internal operations by providing consistent standards of both ethical and legal conduct Can help managers respond to problems as a result of unethical or illegal behaviour (gives managers a roadmap essentially to help manage employees/ also restricts employees from behaving unethically)

The political basis for the free market economy is called.... which allows private ownership of the factors of production and encourages entrepreneurship by offering profits as an incentive.

Capitalism

What is the political basis of market economies?

Capitalism: •Encourages entrepreneurship and the private ownership of the factors of production •Encourages profit making as an incentive •Operates under the concept of supply and demand

The socio-cultural environment-

Changing consumer preferences- go-go dresses are out of style Ethical compliance- many people do not wear fur coats anymore Customs, values, attitudes and demographic characteristics of the society in which an organization functions • Customer preferences and tastes vary tremendously across and within national boundaries (In China, consumers are willing and able to pay premium prices for designer clothing, but some clothes are virtually no market in other countries. • Ethical compliance and responsible business behaviour (unfair labour practices with Walmart- $300 million dollar lawsuit)

What is the political basis of command economies?

Communism

Areas of Social Responsibility: Responsibility toward Customers

Consumerism: • The Rights of consumers Collusion: Unfair pricing ** companies (like bread) getting together to "fix prices" - this is illegal Ethics in advertising • truth in advertising (counterfeit brands) • morally objectionable advertising

What are the Areas of Social Responsibility? Who are the stakeholders?

Corporate Social Responsibility (CSR): The study of how to balance your commitments to every stakeholder group. Responsibility Towards all Stakeholders, including: -Environment -Customers -Employees -Investors Who else? Suppliers.. Local communities..

2. Competitor

Crown corporations like Hydro- Quebec, Canada Post and BC Transit generate billions of dollars of revenue and account for significant economic activity in Canada.

The definitions of Supply and Demand

Dealing with a shortage: A shortage drives prices up Dealing with a surplus: A surplus drives prices down Demand is the willingness and ability of buyers to purchase a product or service. Demand will increase as price decreases. Supply is the willingness and ability of producers to offer a good or service for sale. Supply will increase as the price increases. The Law of Demand states that buyers will purchase (demand) more of a product as its price drops. The Law of Supply states that producers will offer (supply) more for sale as the price rises.

Divestitures and Spinoffs

Divestitures: When a company decides to sell part of existing business operations to another cooperation. Spinoff: Company setting up one or more corporate units as a new, independent business because a business unit might be more valuable as a separate company. For example: Pepsico spun off Pizza Hut, KFC, and Tacobell into a new, separate cooperation known as Yum!Brands Inc.

Dimensions of the external environment, and how they impact business

Economic environment Technological environment Political-legal environment Socio-cultural environment Business environment Global environment

Ethics and legality

Ethics: • standards or moral values that dictate what is right and wrong • culturally based • formed upon society's expectations • vary by person, and by situation

4. Provider of Incentives

Federal, provincials and municipal governments offer incentive programs that attempt to stimulate economic development. Example: give multi-million dollar subsides to film companies to motivate them to make major films in the BC area/ if firms locate in the area. There are many other government incentive programs, including municipal tax rebates for companies that locate in certain areas. These programs may or may not have the desired affect of stimulating the economy.

Triple bottom line reporting

Financial results, impact on society, and impact on environment • 3Ps---> People, Planet, and Profit Sustainable Development: • activities that meet current needs that do not put future generations at a disadvantage

Fiscal policy

Policies whereby governments collect and spent revenues; the collection and spending of government revenues. For example, when the growth rate of the economy is decreasing, tax cuts will normally stimulate the economy. Government spending/ income- can stimulate the economy (ie. Military, taxes, investment in software development)

Monetary policy

Focus on controlling the size of the nation's money supply. Working primarily through the Bank of Canada, the government can influence the ability and the willingness of banks throughout the country to lend money. Supply of money in economy by (increasing/ decreasing through the sale/ purchase of government bonds) *When the bank of Canada restricts the money supply, we call it "tight" monetary policy. Higher interest rates make money more expensive to borrow and thereby reduce spending by companies that produce goods and services and consumers who buy them. When BOC loosens money supply, we call it "easy" monetary policy. Lower interest rates makes money less expensive to borrow and thereby increase spending by both consumers and companies. DURING A FINANCIAL CRISIS, BANKS TEND TO CUT THEIR INTEREST RATES IN AN ATTEMPT TO STIMULATE THEIR COUNTRIES ECONOMIES.

GDP AND GNP

Gross Domestic Product: total value of goods and services produced within a given period of time by a nation economy through DOMESTIC factors of production. (this is the key measure of economic growth) Gross National Product: total value of goods and services produced within a given period of time regardless of where the factors of production are located. Essentially Replaced by GDP

Inflation

If supply of money goes up, but supply of goods and services stays the same- each good and service will now cost more. When inflation occurs, people have more money to spend, and begin competing with products to buy, eventually resulting in price increases. Eventually, high prices will erase the increase in money supply. Purchasing power, therefor, declines. Government has to work to make sure supply of money and supply of goods and services goes up and down at same time.

Market economies versus command economies

In a Market Economy... individual producers and consumers- make production and allocation decisions through the mechanism of supply and demand. •Economic basis is supply and demand •Political basis is Capitalism •Ownership of the factors of production is open •Buyers and sellers have freedom of choice •The Market is the mechanism for the exchange of goods and services In a Command Economy... relies on a centralized government to control all or most factors of productions and to make all or most production and allocation decisions.

Porter's Five Forces model, and how it impacts industry competitiveness

Industry Rivalry: Threats of New Entrants Bargaining Power of Suppliers Threat of Substitutes Bargaining Power of Consumers Example: The whale watching industry in Victoria (Orca Spirit) Before people believed profit was completely determined solely by competitors. BUT... there are other forces that impact profitability. (Porter's 5 Forces) Orca Spirit must take these forces into consideration when thinking of their business plan: Prince of Whales- Competitor Tourists- Buyers BC Museum- Substitute Zodiac Producers -Suppliers Capital intensity - New Entrants

Threats to economic stability

Inflation, Deflation, Unemployment

Input/output markets

Input Market: Firms buy resources (labour, capital, entrepreneurs, natural resources and information resources) from households Output Market: Households buy goods and services from firms in response to demand on the part of the households. The activities of these two markets create a CIRCULAR flow. For example, Ford uses consumer buying patterns to decide which models to produce and which to discontinue. In turn, Ford uses these inputs in various ways when it designs and produces various kinds of vehicles, and offers them for sale to consumers.

Mergers

Is a consolidation of two firms, and the arrangement is more collaborative than an acquisition. Horizontal Merger: when both the companies are in the same industry Vertical Merger: When one of the companies in the merger is the supplier or customer to the other Conglomerate Merger: When the companies are in unrelated fields.

Economic Environment Example

Key example of how economic environment affects business- not many people in restaurants in January- after Christmas spending and visa bills

What is also identified under market economies?

Mixed Economies (some combination of market and command economies- no country is purely one or the other) Even countries that claim to be communist (China, Vietnam, and Cuba) now contain elements of a market- based economy.

The markets for laundry detergents, soft drinks and cars are all dominated by just a few producers. In terms of competition these markets are described by the term...

Oligopoly

Acquisitions

One firm simply buys another firm. The transaction is similar to buying a car that becomes your property.

Defensive Stance

Organization behaves legally, but the minimum of ethics (companies that sell fur clothing)

Obstructionist Stance

Organization does as little as possible to be socially responsible - if they are caught doing something illegal, they will try to cover it up

Accommodative Stance

Organization will accommodate for society's needs. They aren't proactive, but they will accommodate. Sea World is a great example... Black Fish movie came out, and Sea World's revenues fell 84%... so they accommodated and stopped having whale shows and Killer Whales. Donate millions of dollars to marine mammal research. Stock is now higher than ever. Example #2: Toyota- started to sell electric cars from society pressures for environmentally friendly vehicles

Proactive Stance: (only reasonable stance for proper ethics)

Organization will try to get ahead on where societies' ethics are going. Example: Patagonia, LUSH, Tesla Cars

Four Degrees of competition

Perfect Competition, Monopolistic Competition, Oligopoly, and Monopoly

The Technological Environment

Research & Development (R&D) • provides new ideas for products services and processes • there is often government funding available for R&D in Canada •Basic R&D: improving knowledge in an area without a primary focus on whenever any discoveries are immediately marketable. •Applied R&D: focusing specifically on a technological innovation that can be put to use in the making of a product or service that can be sold in the marketplace

What is also identified under command economies? Why is this declining?

Socialism: -large proportion of workers generally work for the government and many government- operated enterprises are inefficient, since management positions are frequently filled on the basis of political considerations, rather than ability. Extensive public welfare systems have also resulted in very high taxes. Because of this factors, socialism is generally declining.

Implementing a social responsibility program

Step 1: Top Management Support Step 2: Strategic Planning Step 3: Appoint a Director Step 4: The Social Audit

Balance of trade

The economic value of all the products that a country exports minus the economic value of its imported products. Canada traditionally has a positive balance of trade.

Labour (human resources)

The first factor of production. Labour is the mental and physical capabilities of people.

Capital

The funds needed to start a business and keep it operating and growing. For example, Imperial Oil needs capital to pay for annual drilling costs. Major sources of capital for businesses are personal investments by owners, the sale of stock to shareholders, profits from the sale of products and services, and funds borrowed from banks and other lending institutions

(Five) Factors of Production

The resources used by firms to create goods and services. 1. Human Resources (labour) 2. Capital 3. Entrepreneurs 4. Natural Resources 5. Information Resources

An organization's core competencies refers to:

The skills and resources with which they compete best and create the most value for owners.

Economic environment : The Business Cycle

The typical pattern of short-term ups and downs in an economy (peak, recession, trough and recovery) Depression, Recovery, Peak (Expansionary) Recession, Trough, Recovery (Contradictory)

What is the relationship between the legality of a practice and whether or not it is ethical?

There are legal- unethical practices: (Example: wrongful dismissal- Reducing employees pay to $10 an hour for $20; not illegal, but unethical)

Assessing Ethical Behaviour (4 steps)

Utility • Does the act epitomize what is best for those who are affected by it? Rights • Does it respect the rights of the individuals involved? Justice • Is it consistent with what we regard as fair? Caring • Is it consistent with people's responsibilities to others? In chart, if no on more than one or two of these questions... it is not ethical!

Economic systems, and the way they allocate resources among its citizens

What is an economic system? The way in which a nation allocates its resources among its citizens. This is an expansion of market, command economies and mixed market economies (types of economic systems) they do this through input and output markets, as well as government allocations.

What effect does competition have on business?

While profits motivate people to start businesses, competition motivates them to operate their businesses effectively. Competition forces businesses to make products better and/ or cheaper.

Profit

Why do business produce and sell goods? To make a profit. Profit is what remains after a business's expenses have been subtracted from it's revenues. Profits reward the owners of businesses for taking the risks involved in investing their time and money. Profit Equation: Profit= Revenues- Expenses

Poison pills

a poison pill is a defense tactic that management can adopt to make a firm less attractive Example: Air Canada announced plans that would give all Class A and Class B shareholders the right to purchase stocks, at a discounted price, the moment any group or person announced the intention to buy more than 20% of the outstanding shares.

Natural Resources

all physical resources including land, water, mineral deposits, and trees.

Economic Environment: Economic Stability

condition when the amount of money available and the quantity of goods and services produced are growing at about the same rate Threats to economic stability: Inflation, Deflation, Unemployment

Environmental protection laws, interest rates, societal values, and the emergence of new technologies can significantly impact the profitability of a firm. These types of issues can not be controlled by a business as they are considered to exist in the ________.

external environment

External Environment

factors beyond an organization's boundaries that cannot be controlled; everything outside an organization that might affect it. (i.e. competition)

1. Customer

government buys thousands of different products and services from business firms, including office supplies, office buildings, computers, battleships, highways, water treatment plants, etc. Many businesses depend on government purchasing.

5. Provider of Essential Services

highways, postal service, minting of money, armed forces, hospitals, transit lines, etc. The Federal Government also tries to maintain stability through fiscal and monetary policy. Provincial and municipal governments provide streets, sewage and sanitation systems, police and fire departments, hospitals, etc.

When Henry Ford adopted the assembly line to mass produce the Model- T in 1913, he decided to pay his workers a relatively high wage because he believed that workers should be able to afford to buy what they make. This is consistent with the idea of...

input and output markets

Perfect Competition

•All firms in the industry are small, but the number of firms in the industry is large •Many sellers; product is basically identical •Relatively easy to enter the industry •Individuals firms have no control over price- no single firm is powerful enough to influence prices Examples: wheat production/ Canadian agriculture

Mixed Market Economies

•Combination of both command and market economies •No country has a pure communist, socialist, or capitalist system

Monopolistic Competition

•Few to many sellers(fewer sellers than perfect competition); product is seen as unique by some buyers (not all) •Many buyers •Differentiated brands have some (minor) control over pricing (Example: If you sell "organic" olive oil, you could increase your price a bit) •Sellers try to make their products at least seem different from their competitors to have some control over pricing •Other examples: toothpaste, cold tablets, detergents, soft drinks, canned goods Example: Olive Oil

Communism:

•Government owns and operates all industries •Government makes all resource distribution decisions

Socialism

•Government owns and operates critical industries (utilities and major institutions) •Individuals own non-critical businesses

Emerging Challenges and Opportunities in the Business Environment

•The most successful firms are getting leaner by focusing on their core competencies • the skills and resources with which an organization competes best and creates the most value for owners