COMMERCE 1E03 Chapter Notes - Chapter 1: Nonprofit Organization, Capital Good, Outsourcing
3 May 2018
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Chapter 1The Dynamic Business Environment
LO1: Business Fundamentals
Goods: tangible products such as computers, food, clothing, cars and appliances
Services: intangible products such as education, health care, insurance etc.
Business: any activity that seeks to provide g&s to others while operating at a profit
Entrepreneur: a person who risks time and money to start and manage a business
➢ May have to go to financial institutions or to venture capitals to borrow money
➢ Very hard to borrow money in today’s economy
Revenues, Profits & Loss
Revenue: the total amount of money received during a given period for g&s rendered and from
other financial services
Profit: the amount a business earns above and beyond what it spends for salaries and other
expenses
Loss: when a business’s expenses are more than its revenues
Bankruptcy: the liquidation of the business debtor’s assets and the end of the commercial entity’s
operations
Matching Risk with Profit
Risk: the chance of loss, the degree of probability of loss and the amount of possible loss (ex.
time and money)
➢ Need to do research to find the right balance between risk and profit for you
Standard of living and Quality of life
Standard of living: the amount of g&s people can buy with the money they have
➢ Canada enjoys a high standard of living partly because of the wealth created by its
businesses
Quality of life: the general well-being of a society in terms of its political freedom, natural
environment, education, health care, safety, amount of leisure and rewards that add to the
satisfaction and joy that other g&s provide
LO2: Business Stakeholders & Importance to
non-profits
Responding to the various business stakeholders
Stakeholders: all the people who stand to gain or
lose by the policies and activities of a business
and whose concerns the business need to address
➢ Stakeholders include: customers,
employees, financial institutions,
investors, environmentalists and
government
➢ May have direct or indirect impact on a
business
➢ Primary: those who are directly affected by the actions of the business entity
➢ Secondary: whose influence is not essential to the survival of the business
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Offshoring: sourcing part of the purchased inputs outside of the country
➢ May signify changes in international trading patterns
➢ If a company outsourced its work to a contractor in India or the Philippines, it would be
offshoring
Outsourcing: contracting with other companies to assign various functions, such as accounting,
production, security, maintenance and legal work to these organizations
➢ Affect the boundaries of the firm- what production takes place within the firm and what
is purchased outside the firm
➢ May foretell changes in industrial structure
➢ A business in the United States could outsource work to a contractor within the United
States. This is outsourcing.
Insourcing: assigning various functions that could go to an outside organization to employees in
the company
➢ An example is the use of in-house engineers to write technical manuals for equipment
they have designed, rather than sending the work to an outside technical writing firm. The
engineers might have to take technical writing courses at a local college, university, or
trade school before being able to complete the task successfully
Using Business Principles in Non-profit Organizations
Non-profit organization: an organization whose goals do not include making a personal profit for
its owners or organizers
➢ Strive for financial gains because revenue is needed to operate but such gains are used to
meet their social or educational goals rather than for personal or shareholder profit
Social entrepreneurs: people who use business principles to start and manage non-profit
organizations and help address social issues
LO3: Entrepreneurship vs working for others
The Importance of Entrepreneurs to the Creation of Wealth
Factors of Production: the resources used to create wealth: land, labour, capital goods,
entrepreneurship and knowledge
1. Land (or natural resources)
o Land and other natural
resources are used to make
homes, cars and other
products
2. Labour (workers)
o People have always been an
important resource in
producing g&s, but many
people are now being
replaced by technology
3. Capital goods
o 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 production
but it not always considered to be a factor by itself
4. Entrepreneurship
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o All the resources in the world have little value unless entrepreneurs are willing to
take the risk of starting businesses to use these resources
5. Knowledge
o Information technology has revolutionized business, making it possible to quickly
determine wants and needs and to respond with desired g&s
➢ What makes countries rich is a combination of entrepreneurship and knowledge,
entrepreneurs use what they have learned (knowledge) to grow their business and
increase wealth
The Business Environment
Business environment: the surrounding factors
that either help or hinder the development of
businesses
The six elements in the business environment:
1. The legal environment
2. The economic environment
3. The technological environment
4. The competitive environment
5. The social environment
6. The global environment
LO4: The Importance of Business Environment
on Organizations
The legal environment
Regulations: restrictions that provincial and federal laws place on businesses with respect to the
conduct of their activities
➢ Exist to protect consumers as well as businesses
Laws affect Business
o The government can make it easier or harder for entrepreneurs
o The government can lessen risks of entrepreneurship by passing laws that enable business
people to write contracts that are enforceable in court
o Can increase risks through raised taxes and restrictive regulations
o Many laws are put in place to minimize corruption
The Economic environment
o Looks at:
• Income, expenditures, resources that affect the cost of running a business
▪ What is happening in the marketplace? What actions do we need to take?
• The movement of a country’s currency relative to other currencies
▪ Is Canada’s dollar value high or low? Low is better for exporting because
other countries can trade with us cheaper
• Degree of entrepreneurship present
▪ Allow private ownership of businesses
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Document Summary
Goods: tangible products such as computers, food, clothing, cars and appliances. Services: intangible products such as education, health care, insurance etc. Business: any activity that seeks to provide g&s to others while operating at a profit. Entrepreneur: a person who risks time and money to start and manage a business. May have to go to financial institutions or to venture capitals to borrow money. Very hard to borrow money in today"s economy. Revenue: the total amount of money received during a given period for g&s rendered and from other financial services. Profit: the amount a business earns above and beyond what it spends for salaries and other expenses. Loss: when a business"s expenses are more than its revenues. Bankruptcy: the liquidation of the business debtor"s assets and the end of the commercial entity"s operations. Risk: the chance of loss, the degree of probability of loss and the amount of possible loss (ex. time and money)
