Chapter 01

Taking Risks and

Making Profits
within the Dynamic
Business Environment

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter One

LEARNING GOALS
1. Describe the relationship between profit and risk, and show how businesses and
nonprofits can raise the standard of living for all.

2. Compare and contrast being an entrepreneur and working for others.

3. Analyze the effects of the economic environment and taxes on businesses.

4. Describe the effects of technology on businesses.

5. Demonstrate how businesses can meet and beat competition.

6. Analyze the social changes affecting businesses.

7. Identify what businesses must do to meet global challenges, including war and
terrorism.

8. Review how past trends are being repeated in the present and what those
trends mean for tomorrow’s college graduates.
Entrepreneurship
and
Wealth Building
LG1 GOODS and SERVICES
• Goods -- Tangible products such as computers,
food, clothing, cars and appliances.

• Services -- Intangible products (that can’t be held

in your hand) like education, healthcare, insurance,
recreation and travel.

• Successfully filling a market need means you

could make money for yourself and provide jobs
for others.
Entrepreneurship
and
BUSINESS and
Wealth Building

ENTREPRENEURSHIP
LG1

• Business -- Any activity that seeks to provide

goods and services to others while operating at a
profit.

• Entrepreneur -- A person who risks time and

money to start and manage a business.

• Success in business is often based on the

strategy of finding a need and filling it.
Revenues,
Profits
and Losses
LG1 REVENUE, PROFIT AND LOSS
• Revenue -- The total amount of money a
business takes in during a given period
by selling goods and services.

• Profit -- The amount of money a

business earns above and beyond what it
spends for salaries and other expenses.

• Loss -- Occurs when a business’s

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.
Types of Risk
 Types of Tax

Direct Indirect
Taxes Taxes
 Direct Taxes
Direct tax is referred to as the tax, levied on
person's income and wealth and is paid directly
to the government.

Wealth Tax, Income Tax,

Property Tax, Corporate Tax.
Wealth Tax
Property
Tax
Income
Tax
 Indirect Taxes
Indirect Tax is referred to as the tax, levied on a
person who consumes the goods and services
and is paid indirectly to the government.

Central Sales tax, VAT (Value Added

Tax), Service Tax, STT (Security
Transaction Tax), Excise Duty, Custom
Duty.
Valued-Added Tax
(VAT)
Excise
Duty
Custom Duty
a tax paid on goods that are imported
Businesses Add
to the Standard of
Living and Quality
of Life
HOW is TAX MONEY USED?
LG1

Taxes are used to provide:

•Hospitals
•Schools
•Libraries
•Playgrounds
•Roads
•Fire Protection
•Police Protection
•Environmental Programs
•Support for People in Need
TAX
Business and their employees pay taxes that the federal government
and local communities use to build hospitals, schools, libraries,
playgrounds, roads, and other public facilities
Taxes also help to keep the environment clean, support people in
need, and provide police and fire protection.
Businesses Add
to the Standard of
Living and Quality
of Life
STANDARD of LIVING
LG1

• Standard of Living -- The amount of

goods and services people can buy with
the money they have.

• The U.S. has one of the highest

standards of living in the world.

• Workers in other countries may make

more money, but prices for products are
higher.

• Quality of Life -- The general well-being

of a society in terms of its political
freedom, natural environment, education,
healthcare, safety, amount of leisure and Photo courtesy of Walmart Stores

rewards that add to personal satisfaction

STAKEHOLDERS
Responding to the
Various Business
Stakeholders

LG1 STAKEHOLDERS
• Stakeholders -- All the people who stand to gain
or lose by the policies and activities of a business
and whose concerns the businesses need to
address.

• Who are Stakeholders?

- Customers - Community Members
- Employees - Media
- Stockholders - Elected Officials
- Suppliers - Bankers
- Dealers - Environmentalists
Responding to the
Various Business

OUTSOURCING
Stakeholders

and
LG1
INSOURCING

• Outsourcing -- Contracting with other companies

(often in other countries) to do some of the firm’s
functions, like production or accounting.

• Insourcing -- Foreign companies opening offices

and factories in the United States.
Using Business
Principles in
Nonprofit
Organizations
LG1 NONPROFIT ORGANIZATIONS
• Nonprofit Organization -- An organization whose
goals do not include making a personal profit for its
owners or organizers.
Using Business
Principles in
Nonprofit
Organizations
LG1 SOCIAL ENTREPRENEURS
• Social entrepreneurs use
business principles to
start and manage not-for-
profit organizations to
address social issues.

• Muhammad Yunus won

the Nobel Prize for
starting Grameen Bank.
Learning goal 2
ENTREPRENEURSHIP
VERSUS WORKING FOR
OTHERS
1. What benefits do you lose by being an entrepreneur, and what do you
gain?

2. What are some of the advantages of working for the others?

ENTREPRENEURSHIP
VERSUS WORKING FOR OTHERS
• Working for others • Entrepreneur:
Ups:
Salary • Freedom to make your own decisions
Paid vacation time • Opportunity and possible wealth – is often
worth the effort
Health insurance • Freedom to hire employees, use their ability.
Freedom Downs:
• No paid vacation time
• Day care
• A company car
• Health insurance
The Importance
of Entrepreneurs
to the Creation
of Wealth
LG2 FIVE FACTORS of PRODUCTION

1. Land
2. Labor
3. Capital
4. Entrepreneurship
5. Knowledge

• Entrepreneurs use what they’ve learned to

grow their businesses and increase wealth.
The importance of Entrepreneurs to
the creation of wealth
5 factors of production:
[Link] or natural resources are used to make homes, cars, and other
[Link] - people have always been an important resource in producing
goods and services but many people are now being replaced by
technology
[Link] – it includes machines, tools, buildings, and other means of
manufacturing.
[Link] – all the resources in the world have little value
unless entrepreneurs are willing to take the risk of starting businesses to
use those resources.
[Link] – information technology has revolutionized business,
making it possible to quickly determine wants and needs and to respond
with desired goods and services.
Opportunities for
Entrepreneurs
WHO TAKES the
LG2 ENTREPRENEURIAL CHALLENGE?
• Millions of people have
started businesses and
succeeded.

• The number of Hispanic-

owned businesses in the
U.S. has grown
dramatically.

• Women now own one-third

of all businesses.
The Business
Environment
WHAT is the
LG3
BUSINESS ENVIRONMENT?
The Economic
and Legal
GOVERNMENT’S ROLE
Environment

in
LG3
BUSINESS
Government can promote business by…
[Link] spending and keeping taxes and
regulations to a minimum.
[Link] private ownership of businesses.
[Link] interference with the free exchange of
goods and services.
[Link] laws that enable businesspeople to write
enforceable contracts.
[Link] a currency that’s tradable in world
markets.
[Link] corruption.
The Growth of
E-
Commerce
E-COMMERCE
LG4

• E-Commerce -- The buying

and selling of goods on the
Internet.
- B2C: Business to Consumer
- B2B: Business to Business
Using
Technology to
DATABASES
Be Responsive

and IDENTITY THEFT

LG4

• Database -- An electronic
storage file for information.

• Identity Theft -- The

obtaining of individuals’
personal information, such as
Social Security and credit card
numbers, for illegal purposes.
Photo courtesy of Jack Spade
How Technology
Benefits Workers
and You

LG4BENEFITS of TECHNOLOGY

• Technology -- Everything from phones to copiers

and the various software programs that make
businesses more effective, efficient and productive.
• Effectiveness -- Producing the desired result.
• Efficiency -- Producing goods and services using
the least amount of resources.
• Productivity -- The amount of output you generate
given the amount of input (example: hours you
work).
The Competitive
Environment
USING EMPOWERMENT
LG5
to COMPETE in TODAY’S MARKET
• Customers want quality products at a good price
with excellent customer service.

• Because business is more customer-driven,

some managers give frontline employees more
decision-making power.

• Empowerment -- Giving frontline workers the

responsibility, authority, and freedom to respond
quickly to customer requests.
The Social
Environment

DEMOGRAPHY
LG6

• Demography --
The statistical study
of the population in
terms of size,
density and
characteristics like,
age, race, gender
and income.
The Social
Environment
DEMOGRAPHY of the U.S. by
LG6
AGE

Source: U.S. Census Bureau, [Link], accessed June 2011.

The Social
Environment
PROJECTED DEMOGRAPHY
LG6
of the U.S. by RACE in 2050

Source: U.S. Census Bureau, [Link], accessed June 2011.

The Social
Environment
The RISE of the
LG6
U.S. HISPANIC POPULATION

Source: AARP Bulletin, June 2011.

The Social
Environment

LG6 U.S. POPULATION CHANGES

• Diversity has grown from just
recruiting minority and female
workers.
• Population shifts are creating
opportunities for some and
limiting others.
• Growth of single-parent
households have encouraged
businesses to implement
programs such as family leave
and flextime.
The Social
WORRIED ABOUT
Environment

SOCIAL SECURITY?
LG6

Source: AXA Equitable Retirement Scope, accessed June 2011.

The Global
Environment
IMPORTANT CHANGES to the
LG7
GLOBAL ENVIRONMENT
1. Growth of global competition.
2. Increase of free trade among nations.
3. Development
of efficient
distribution
systems.
4. Advances in
communication
systems.
The Global
Environment
INCREASING COSTS of the
LG7
GLOBAL ENVIRONMENT
• Wars, like those in Iraq and
Afghanistan, cost billions of
dollars.

• Tax money is diverted.

• Cost of security goes up.

• Cost of insurance goes up.

The Ecological
Environment

GLOBAL
LG7 GREENING
• Climate Change -- Movement of the temperature of
the planet up or down over time.
• Greening -- Trend toward saving energy and
producing products that cause less harm to the
environment.
• Many companies like GE, Coca-Cola,
British Airways and Shell are adopting green
practices.
GETTING INVOLVED
PERSONALLY
(Thinking Green)

It’s not necessary to radically change your lifestyle to

make an ecological difference. Here are a few ways
you can make small changes to help.
• Buy a reusable grocery bag.
• Buy energy efficient light bulbs.
• Recycle more.
• Drive fewer miles or ride your bike.
• Use less water.
• Run less electrical equipment.
• Buy local produce.
• Buy a hybrid car.
The Evolution of
U.S. Business

LG8
The EVOLUTION of BUSINESS

Agriculture Era

Manufacturing Era

Service Era

Information-Based Era
Progress in the
Agricultural
Industry
LG8 The AGRICULTURAL ERA
• In the 1800s, the
agricultural industry led
economic development.
• Technology, like the
harvester and cotton gin,
changed the farming
industry making it more
efficient.
• This led to fewer farmers
with larger farms.
Progress in the
Manufacturing
Industry
LG8 The MANUFACTURING ERA

• Industrialization in the 19th and 20th centuries

moved jobs from farms to factories.

• As technology
improved
productivity, fewer
workers were
needed in factories.
Progress in the
Service Industry

The
LG8 SERVICE ERA

• Make up about 70% of the

U.S. economy.
• Since the mid-1980s, the
service industry generated
almost all the increases in
employment.
• More high-paying jobs in
service industries.
Your Future in
Business
The INFORMATION
TECHNOLOGY ERA
LG8

• IT affects:
- Agriculture
- Industry
- Service