Lecture 1 INTRODUCTION - Virtual University of MGT211 - UpIntroduction to Business –MGT 211

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  • IntroductiontoBusinessMGT211VU

    CopyrightVirtualUniversityofPakistan

    1

    Lecture1

    INTRODUCTION CONCEPTOFBUSINESSLiterally,thewordbusinessmeansthestateofbeingbusy.Generally,thetermbusinessincludesallhumanactivitiesconcernedwithearningmoney.Inotherwords,businessisanactivity inwhich various persons regularly produce or exchange goods and services formutualgainorprofit.Thegoodsandservicesproducedorpurchasedforpersonalusearenotincludedinbusiness.DEFINITION1. AccordingtoL.H.Haney

    Businessmaybedefinedashumanactivitiesdirectedtowardprovidingoracquiringwealththroughbuyingandsellingofgoods.

    2. JamesStephensonsaysthat:

    Every human activitywhich is engaged in for the sake of earning profitmay becalledbusiness.

    3. InthewordsofB.W.Wheeler

    Aninstitutionorganizedandoperatedtoprovidegoodsandservicestothesociety,undertheincentiveofprivategainisbusiness.

    StructuralDiagram

    Business

    BuyingandSelling

    BuyingandSelling

    Wealth

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    CHARACTERISTICSFollowingaretheessentialcharacteristicsofagoodbusiness:1. CapitalCapitalisthelifebloodofeverybusiness.Itisthemostessentialandimportantelementofbusiness.Incaseofdeficiency,loanscanbetakenfromvariousfinancialinstitutions.2. CreationofUtilityUtility isaneconomic term referring to thatcharacteristicofacertaincommodity,whichcan satisfy any human need. Business creates utility,which gives benefit to the entiresocietyaswellasthebusinessmen.3. DealinginGoodsandServicesEverybusinessdealswithsale,purchase,productionandexchangeofgoodsandservicesforsomeconsideration.4. Employment Business is a good sourceofemployment for itsowners aswell as forotherpeople, forexample,employees,agents,transportersetc.5. IslamicProcessBusinessisanIslamicwayofearningliving.Incomefrombusinessisknownasprofit,whichisRizqeHalal.TheHolyProphetMuhammad(SAWW)himselfdidprosperousbusiness.6. MotiveThemotiveofbusinessistoearnprofit.Otherwiseitwillnotbetermedasbusiness.7. OrganizationEverybusinessneedsanorganization for its successfulworking. Aproperorganization ishelpfulinthesmoothrunningofbusinessandachievingtheobjectives.8. ProductionsorPurchaseofGoodsAbusinessmandealsinproductionorpurchaseofgoods.Thesegoodsaresuppliedtothepeople.So,itisnecessarythatmoregoodsshouldbeproducedsothatdemandofpeoplemaybefulfilled.

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    9. RegularTransactionBusinesshasanatureof regulardealingsandseriesof transactions. So, inbusiness,onlythosetransactionsincludedwhichhaveregularityandcontinuity.10. RisksandUncertaintyBusinessinvolvesalargevolumeofriskanduncertainty.Theriskelementinbusinesskeepsapersonvigilantandhetriestowardoffhisriskbyexecutinghispoliciesproperly.11. SaleorTransferforvalueAnothercharacteristicofbusinessisthesaleortransferofgoodsforvalue.12. SocialWelfareBusiness does not only satisfy the producer, but also the consumerwhen products areofferedforsaleatlowpricesinmarkets.NATUREOFBUSINESSThefollowingpointsstatethenatureofbusinessinbrief:1. EconomicActivityBusiness is an economic activity as it is concernedwith creation ofwealth through thesatisfactionofhumanwants.2. HumanActivityBusiness is an economic activity and every economic activity is done by human beings.Thus,businessisoneofthemostimportanthumanactivities.3. SocialProcessBusiness is runbyowners and employeeswith thehelpofprofessionals and customers.Thus,businessisasocialprocess.4. SystemBusinessisasystematicarrangementofvariouselements,whichleadstotheattainmentofparticularobjective,accordingtoawellestablishedplan.

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    COMPONENTSANDSCOPEOFBUSINESSBUSINESSThewordBusinessincludesallhumanactivitiesconcernedwithearningmoney.Inotherwords,businessisanactivityinwhichvariouspersonsregularlyproduceorexchangegoodsandservicesformutualgainorprofit.COMPONENTSOFBUSINESSBusinessbearsthefollowingcomponents:

    Industry Commerce

    Business

    Industry CommerceINDUSTRYIndustry is connectedwith theproductionandpreparationofgoodsand services. It isaplacewhererawmaterialisconvertedintofinishedorsemifinishedgoods,whichhavetheability to satisfyhumanneedsor canbeused inanother industryasabasematerial. Inotherwords, industrymeans that part of business activity,which is concernedwith theextraction,productionandfabricationofproducts.KINDSOFINDSTRY

    1. PrimaryIndustry2. SecondaryIndustry

    Industry PrimaryIndustry SecondaryIndustry (a)Extractive (a)Construction (b)Genetic (b)Manufacturing (c)Services

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    1. PRIMARYINDUSTRYPrimaryindustryisengagedintheproductionorextractionofrawmaterials,whichareusedinthesecondaryindustry.Primaryindustrycanbedividedintotwoparts: (a) ExtractiveIndustry (b) GeneticIndustry(a) ExtractiveIndustryExtractiveindustriesarethoseindustries,whichextract,raiseorproducerawmaterialfrombeloworaboveorabovethesurfaceoftheearth. Forexample, fishery,extractionofoil,gasandcoaletc.(b) GeneticIndustryGenetic industries are those,which are engaged in reproducing andmultiplying certainspeciesofanimalsandplants. Forexample,poultry farm, fishing farm,diary farm,plantnurseriesetc.2. SECONDARYINDUSTRYTheseindustriesuserawmaterialsandmakeusefulgoods.Rawmaterialoftheseindustriesisobtainedfromprimaryindustry.Secondaryindustrycanbedividedintothreeparts: (a) ConstructiveIndustry (b) ManufacturingIndustry (c) ServicesIndustrya) ConstructiveIndustryAllkindsofconstructionsareincludedinthisindustry.Forexample,buildings,canals,roads,bridgesetc.b) ManufacturingIndustryInthisindustry,materialisconvertedintosomefinishedgoodsorsemifinishedgoods.Forexample,textilemills,sugarmillsetc.c) ServicesIndustryThese industries include those industries, which are engaged in providing services ofprofessionalssuchaslawyers,doctors,teacheretc.

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    COMMERCECommerce is the second component of business. The term commerce includes allactivities,functionsand institutions,whichare involved intransferringgoods,produced invariousindustries,fromtheirplaceofproductiontoultimateconsumers. InthewordsofEvelynThomas:

    Commercialoccupationsdealwiththebuyingandsellingofgoods,theexchangeofcommoditiesanddistributionofthefinishedgoods.

    Insimplewords,tradeandaidstotradeiscalledcommerce.SCOPEOFCOMMERCEThescopeofcommercecanbeexplainedas:

    1. Trade2. AidstoTrade

    Commerce

    Trade Aidstotrade

    1. TRADETradeisthewholeprocedureoftransferringordistributingthegoodsproducedbydifferentpersonsor industriestotheirultimateconsumers. Inotherwords,thesystemorchannel,whichhelpstheexchangeofgoods,iscalledtrade.TYPESOFTRADETherearetwotypesoftrade: (a) Hometrade (b) ForeignTrade

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    Trade

    HomeTrade ForeignTrade (i)WholesaleTrade (i)ImportTrade (ii)RetailTrade (ii)ExportTrade(a) HomeTradeThepurchaseandsaleofgoodsinsidethecountryiscalledhometrade.Itisalsoknownasdomestic,localorinternaltrade.Hometradehastwotypes: (i) WholesaleTrade (ii) RetailTrade(i) WholesaleTradeItinvolvessellingofgoodsinlargequantitiestoshopkeepers,inordertoresalethemtotheconsumers.Awholesalerislikeabridgebetweentheproducersandretailers.(ii) RetailTradeRetailingmeanssellingthegoodsinsmallquantitiestotheultimateconsumers.Retailerisamiddleman,who purchase goods frommanufacturers orwholesalers and provide thesegoodstotheconsumersneartheirhouses.(b) ForeignTradeTradeorexchangeofgoodsandservicesbetweentwoormore independentcountriesfortheirmutualadvantagesiscalledforeigntrade.Itisalsocalledinternationaltrade.Foreigntradehastwotypes: (i) ImportTrade (ii) ExportTrade(i) ImportTradeWhengoodsorservicesarepurchasedfromothercountryitiscalledimporttrade.(ii) ExportTradeWhengoodsorservicesaresoldtoanyothercountryitiscalledexporttrade.

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    2. AIDSTOTRADETrademansbitingandsellingofgoods,whereas,aidstotrademeanallthosethingswhicharehelpfulintrade.

    a) Bankingb) Transportationc) Insuranced) Warehousinge) Agentsf) Financeg) Advertisingh) Communication

    (a) Banking

    Indailybusinessroutine,commercialbanksandother financial institutionshelp thesellerandthebuyerinreceivingandthebuyerinreceivingandmakingpayments.(b) Transportation

    Thegoodswhicharemanufacturedinmillsandfactories,reachtheconsumersbydifferentmeansoftransportationlikeair,roads,rails,seasetc.(c) Insurance

    Thetransferofgoodsfromoneplacetoanotherisnotfreefromriskofloss.Thereisariskof lossduetoaccident,fire,theftetc. The insurancecompanieshelpoutthetraderswiththisproblemthroughinsurancepolicy.(d) Warehousing

    The manufacturers today, produce goods in large quantity. Therefore, a need forwarehousesarisesinordertostorethemanufacturedgoods.(e) Agents

    Theyarethepersonswhoactastheagentsofeitherbuyerorseller. Theyperformtheseactivitiesforcommission.(f) Finance

    A largeamount isneeded to setupan industry. Financial institutionsprovide longtermfinance to theproducers. Theproducersaloneareunable tomanufacturegoodswithoutfinancialhelp.

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    (g) AdvertisingTheconsumermaysometimes,notknowabouttheavailabilityofgoodsinthemarket.Theproducermustsellhisgoodsinordertoremaininbusiness.Advertisementisaneasywayto informthe largenumberofcustomersaboutthegoods. ThiscanbedonethroughTV,newspapers,radioetc.(h) Communication

    Theproducers,wholesalers,retailers, transporters,banks,warehousekeepers,advertisersandconsumersliveatdifferentplace.Thispostoffice,telephoneandothersimilarmediaisveryusefulforpromotionoftradeandindustry.FACTORSOFPRODUCTION: Factorsofproductionare the resourcesor inputs thatare required for theproductionofgoodsorservices.Thecomponentsoffactorsofproductionare:

    i. Laborii. Capitaliii. Entrepreneurshipiv. Physicalresources

    i. Labor

    Labor is themost important factorof production. Labor are the peoplewhowork in anorganizationandprovidephysicalandmentaleffortsinproductionprocess.ii. Capital

    Capitalistheamountorpropertywhichisinvestedbyinvestor(s)inthebusinesstoproducegoodsandservices.iii. Entrepreneurship

    Entrepreneurshipisthemanagementabilityofthepeopletorunthebusiness.Itinvolves:(a)Identificationofopportunity(b)Allocationofresources(c)Creationofwealthbyassumingthenecessaryriskiv. Physicalresources

    Physicalresourcesincludeland,naturalresources,building,vehiclesandmachinerythatareusedintheproductionprocess.

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    ECONOMICSYSTEMEconomicsystemisdefinedasystemforallocationofresources.Commonly,ithasfollowingtwotypesasbelow:

    a) Plannedeconomyb) Freemarketeconomy

    a) PlannedeconomyInplannedeconomythegovernmentdecidesthathowmanyresourcesaretobegeneratedandhowtheseresourceswillbeallocated. Inthissystemgovernmentdeterminesthekeyeconomicfunctions.Howthefactorofproductionwillbeutilizedandhowmuchwillbetheeconomysoutputisdecidedbythegovernment.b) FreemarketeconomyIn freemarketeconomydemandand supply in themarketdetermines theallocation forresourceswith littleorno government intervention. In this economymarketmechanismdecides the keyeconomic functions (what, forwhom andhow toproduce). Freemarketeconomy increases the efficiency and productivity, firms and organizations with betterqualityproductsandlowcosts(producedefficiently)willsurviveinthemarket.ENVIRONMENTALFORCESForcesthat influencetheperformanceoforganizationscanbedivided intotwocategoriesasunder:

    1) ExternalFactors(ExternalEnvironment)2) InternalFactors(InternalEnvironment)

    ExternalFactors:Externalfactorsarethefactorswhicharefoundoutsidetheorganization.Thesefactorsarenotcontrollablebytheorganization.Externalfactorsbringtheopportunityorthreatfortheorganization. External factors include technological factors, economy of the country,politicalandlegalfactors,socioculturalfactorsanddemographicfactors.InternalFactors:Internal factors are the factors within the organization that affect the performance ofbusiness. Strengthsorweaknessesof theorganization are the internal factors. Strengthsmay include experienced and trained workers, strong financial resources, strong brandname,goodreputationandorganizationalcultureandweaknessesofanorganizationmay

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    include lack of sufficient capital,weak brand name, poor reputation, inexperienced anduntrainedworkers.SWOTAnalysis:SWOTanalysisisananalysisofanorganizationsstrengths,weaknesses,opportunities,andthreats.Strengthsandweaknessesarethepartof internalenvironmentandopportunitiesand threatsare thepartofexternalenvironment.SWOTanalysishelpsanorganization tofocuson strengths, to reduceweaknesses, toexploit theopportunities and toneutralizethreats. Strengths:Strengths are the capabilities of an organization that enable it to perform efficiently.Strengthsmay include skilledmanpower, strong financial resources, strong brand name,goodreputationandorganizationalculture,wellestablisheddistributionnetworketc.Weaknesses:Weaknessesare the internal characteristicsofanorganization thatprohibit it toperformwell.Organizationsweaknessmayincludelackofsufficientcapital,weakbrandname,poorreputation,unskilledmanpower,inefficientmanagement,poordistributionchannelsetc. Opportunities:Opportunities are the external environmental factors thatmay bring the prospects forgrowth and higher performance. For example: technological advancement, marketdevelopments, changes in lifestyle, changes in government regulation related to yourbusiness.Threats:Threats are the external environmental factors that may undermine the organizationsperformance. For example, new regulation that may affect the business, changes inconsumertastes,ifanorganizationdoesnotadoptnewdevelopedandmoderntechnologyitwillbebecomeathreatfortheorganization.QUALITIESOFAGOODBUSINESSMANThemodernbusiness is very complex. Due to scientific and technologicaldevelopment,changesaretakingplaceveryfastineverybusinessfield.Followingarethebasicpersonalskillsorqualitieswhichagoodbusinessmanmustpossess:

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    1. AbilitytoPlanAbusinessman,ifhewantstoshineinbusiness,musthavetheabilitytoplanandorganizeit.2. ActivatorHehadtoactivatehisworkers.Ifheactivateshisworkersthenthisisgoodforbusiness.3. BoldorCourageCourageisagreatassetofabusinessman.Agoodbusinessmanshouldbeacourageousandboldperson. Maybehis some angrydecisions gavehim loss in future, sohehas tobecourageousandbebold.4. CooperationA good businessman should have to cooperate with his workers. With the help ofcooperationwithhisworkershecanrunhisbusinesswell.5. CourtesyCourtesyistobusinesswhatoilistomachinery.Itcostsnothingbutwinsareputation.Sobusinessmanhastowintheheartofeveryonewithhispolitemanners.6. DecisionMakingA good businessman should be a good and quick decisionmaker. Quick decision of abusinessmanisanimportantassetofbusinessman.Andbusinessmanhastoknowthathisquickdecisionwillgivehimbenefitornot.7. DisciplineAgoodbusinessmanshouldhavetocareaboutthedisciplineoftheb...