MNB1501 - Study Notes & Summary.

MNB1501 - Study Notes & Summary. The Business World and Business Management The role of business in society • Transformation of resources into goods and services society needs. • Business cannot operate without society. • Needs and values of society influence what business does? - Protecting the environment. • Organizations influence behaviour patterns of people in a particular society by developing new products. - Impact of cell phones & tablets on social life. • Success of business has an impact on the prosperity of a society. - Mining towns. Needs and need satisfaction • Humans have many varied and seemingly unlimited needs. • Society has limited resources to satisfy those needs, which requires a choice to be made about how best to utilize the limited resources. • Most people have limited resources (money) to afford our unlimited wants, so we have to decide how best to utilize the little we have to obtain the greatest satisfaction. • Decision to obtain the maximum benefit (satisfaction) with the limited resources = Economic Principal. • Consumerism = the social force that protects consumers from unsafe products and malpractices by exerting moral and economic pressure on business. • According to Maslow, all humans have same basic needs, but not everybody strives to satisfy the same ones also that once basic needs (hunger) are satisfied, we strive to satisfy the next level - Security etc. • Unlimited needs (Maslow’s hierarchy): 1. Physiological Needs (hunger, thirst) 2. Security Needs (protection) 3. Social Needs (love, recognition) 4. Esteem Needs 5. Self-Realisation Needs • Basic Physical and Psychological needs may overlap • Limited Resources 1. Natural Resources (land, forests, water) 2. Human Resources (labour, physical and mental talents) 3. Capital (buildings, machinery, computers – Not for final human consumption) 4. Entrepreneurship (Individuals who accept the risk, also rewarded with profits for the risks) Downloaded by Rufaro Chikovore () lOMoARcPSD| Main Economic Systems • Free Market Economy (free enterprise system) o Products and services demanded by a community is supplied by private organisations seeking profit. o Members of a community may possess assets and earn profits from them. o Allocation of resources are affected by free markets o Community can freely choose between products, services, place to stay etc. o Minimum interference from the state. o Right for individuals to possess property such as land, buildings equipment vehicles etc. o People are free to do with their assets as they wish (freedom of distribution). o Freedom of choice – producers can decide whether they can profitably produce products. • Command Economy o Alternative to Market Economy o Known as communism o State owns and controls resources and factors of production o System of communal ownership. Individuals own no land, factories or equipment • Socialism o Compromise between Free Market and Command Economies o State owns and controls the principal/strategic industries (steel man, transportation, communication, health and energy) o Private initiative controls less important and smaller maters such as trade and construction. o Strategic and basic resources should belong to every member of the community (Command Economy), the rest operate within the Free Market Economy. • Mixed Economy o Includes a mix of both public and government control (capitalism and socialism) o Degree of private economic freedom with centralized economic planning and government regulation The prevailing economic system is South Africa is a Socialist-Oriented economy with a High degree of government participation and control. The need-satisfying institutions of the free market economy • Business Organisations o Also known as Profit Seeking Businesses o Most are privately owned (Private Enterprises), but state can also own businesses. o State owned business = Public corporations (Transnet etc.) • Government Organisations o Do not operate on a profit-seeking basis. o Also known as Government Departments o Provide a service to the community. o Obtain funds from Treasury (people pay for these services through taxes). • Non-Profit-Seeking Organisations: o Owned by state and private organisations o Do not strive to make a profit o Seek just sufficient income to cover costs o Sports clubs, welfare, religious etc. Downloaded by Rufaro Chikovore () lOMoARcPSD| The Nature of Business Management and the Classification of the Study Material for Business Management • Purpose and task of Business Management = Achieving the maximum output with the lowest possible input of production factors. • Purpose of Business Management = Produce the most units of products or services at the lowest possible cost • Task of Business Management = Study of the principals that have to be applied to make a business as profitable as possible. Could include a study of the environmental factors that could have an effect on the success of an organization, its survival or its profitability. • Economics = Study area of economic problems in the community • Business Management = Focus on the problems of the individual organisations in the same community. Downloaded by Rufaro Chikovore () lOMoARcPSD| Study Unit 2: Entrepreneurship What is an Entrepreneur? • Entrepreneur decides what, how, by whom and for who products and services should be produced. • Entrepreneur is someone who starts a business with the intention of making a profit. • Assumes risk of losing all resources if venture fails. • Entrepreneurship is the factor of production that mobilises land, labour and capital. • Characteristics include: o Have innovative ideas o Identify opportunities o Find resources o Take financial risks o Bring about change, growth and wealth in the economy o Re-energies economies and create jobs o Start, manage and grow small business • Reward for taking risk is profit Entrepreneurship in South Africa • Relatively new concept in South Africa due to legislation and high unemployment. • One reason for high unemployment rate is labour law. • The more flexible the labour market is, the lower unemployment is. • Other reason for high unemployment is lack of business people to create employment. • More entrepreneurs = More employment (that’s the theory). Role of Entrepreneurs and small business owners in society • Not all small business owners are entrepreneurs • Some small business owners are satisfied with autonomy and earning a reasonable income. • What differentiate the Entrepreneur are the following traits and characteristics: o Achievement motivation o An internal locus of control (Need to be in charge of own destiny vs. external which believes outcome is out of control i.e. luck, fortune etc.) o Innovation and creativity o Risk-taking • Other reasons why people initiate business ventures include: o Entrepreneur’s characteristics (mentioned above) o Entrepreneur’s skills and industry experience o Opportunities arising due to outsourcing o Low interest rates o Retrenchment may lead to people starting own businesses etc. Downloaded by Rufaro Chikovore () lOMoARcPSD| • Management skills required by entrepreneur o Strategy skills – Ability to consider business as a whole and how it fits into the market place o Planning skills – Consider the future, how it will impact business and prepare for it o Marketing skills – Evaluate offerings and determine how they satisfy customer needs (Pricing, promotion and distribution of products) o Financial skills – Ability to manage money o Project Management skills – Ability to organize projects, set objectives, schedules and manage resources o Human Resources skills – Ability to deal with people (leadership, motivation and communication) Small Business • Quantitative criteria to define a small business include: o Number of employees o Sales volume o Value of assets o Market share • A small business has at least 2 of the following characteristics: o Management of the business is independent (Owner = manager) o Capital is provided by the entrepreneur or a few people starting the business together o Activities of the business are mainly local o Enterprise is small compared with the largest competitors in the specific industry (i.e. corner café vs. Shoprite Checkers) Category of SMME Description Survivalist Enterprise Operate in informal sector Mainly unemployed Little capital invested, not many assets Not much training Person selling things in townships to keep families alive Micro Enterprise Turnover R300k Basic skills and training Potential to transition to viable small business Use technology Very Small Enterprise Fewer than 10 employees Include self-employed artisans (electricians) and professionals Small Enterprise Fewer than 100 employees More established, formal and registered, fixed business premises Owner-managed with a more complex management structure Medium Enterprise Up to 200 employees Mainly owner-managed but decentralized management structure Operates from fixed premises with all formal requirements Downloaded by Rufaro Chikovore () lOMoARcPSD| The role of small business in the economy Entrepreneurs and small business each have a strategic role to play in the economy. This strategic role for small business revolves around the following: • The production of goods and services • Innovation • Aiding of big business • Job creation The Entrepreneurial Process • The decision to become and entrepreneur goes through the following phases: • Abilities and Skills: Do I have the background knowledge to be able to succeed in business? Access to resources: Do I have finance to start a business • Opportunity/Idea: Is there a chance that the idea will work? • Feasibility: Is my idea feasible in terms of rand and cents? • Business Plan: o Compile a Business o Plan to obtain necessary finance. o Managing the business: o Launch the business and manage it. Corporate Entrepreneurship = When a person or team develops a new corporate business within a business through identifying a new opportunity or business idea. Corporate Entrepreneurship = Method by which a corporation introduces new and diversified products or services to an existing business. Advantage of purchasing an existing business is: • Existing customer base • Customers familiar with the business • Experienced employees will come with the business • Planning can be done based on historical data • Supplier relationships exist • Inventory and equipment already in place • Financing may be available from owner Downloaded by Rufaro Chikovore () lOMoARcPSD| Study Unit 3: Establishing a Business Importance of Geographical Location for the success of a business Factors to consider: • Sources of raw materials • Availability of labour • Proximity of an access to the market • Availability and cost of transport facilities • Availability and costs of power and water • Availability and costs of a site and buildings • Availability of capital • Local authority – Attitude, regulation and tariffs • Existing business environment – Maintenance services, banks, postal Social environment – Housing, education, medical Climate Central Government Policy • Personal preferences Legal forms of ownership in South Africa Forms of Ownership = Forms of Business Companies and Close Corporations are Juristic Persons, while Sole Proprietorships and Partnerships are not. Considerations in choosing a form of enterprise: • Entity’s Legal (Juristic) Personality o Exists independently from members, o Recognized as a legal subject next to individuals o It has its own rights, assets and obligations o Members are not liable to debt • Limited liability of owners or members when legal action is taken o Claims are made against the company and the assets for payment of the company debts, and against the personal estates of the company’s members or directors. o Trusts are generally not considered to be a juristic person as assets are held in trustee’s personal estate. o Trusts enjoy limited liability • Degree of Control that the management or entrepreneur can exercise o Sole proprietor enjoys total management autonomy o Companies – formal division between ownership and control o Partnerships and CC’s - participative management structures o Trusts – Managed by trustee, trust deed can apportion control between trustee, establisher of the business trust and the trust beneficiaries. Downloaded by Rufaro Chikovore () lOMoARcPSD| • Potential for capital acquisition o Public company is ideally suited to raising large sums of capital o Other enterprise forms, capital is provided by a limited number of persons in their own positions. • Compliance with Legal formalities and regulations o Can impose a significant financial and administrative burden on the business o Different forms of business attract different legal and regulatory requirements • Taxation o Rates for income tax, capital gains tax and transfer duty vary depending on the kind of taxpayer. o VAT is levied irrespective of the enterprise form. • Ease with which business or entrepreneur’s interest can be transferred o Shares in publicly listed companies are easy to transfer. o In private companies, CC’s and partnerships, the transfer of interest is dependent on the approval of the remaining members or partners. o Beneficiaries of a trust may transfer their rights in accordance with the trust deed.