CHAPTER 2

THE FIRM AND ITS

ENVIRONMENT
 DEFINITION OF BUSINESS

• Business – is any activity involved in the

production and distribution of goods and
services, aimed to meet the economic needs
of consumers with an objective of eventually
earning profits.

– aims to satisfy the consumer’s

basic and secondary needs.
Relationship
between
Business and
the Economy
 ELEMENTS OF A BUSINESS SYSTEM

Economics – the study of how a society produces

and distributes its desired goods and services.

Four factors of production:

a. Land – natural resources

b. Labor - people
c. Capital - wealth
d. Entrepreneur - businessman
 PROFIT MOTIVE
 It is the difference between income and expenses.

 It is the prime motivator why people engage in

business.

 Management perspective: Profit keeps the

business viable.

 Employees perspective: profit give employees a

fair share in the form of just wages and
incentives.
Why People
Engage in
Business?
 Why people engage in Business?

• Reasons
1. Profit
2. Power
3. Service to the community
4. Prestige
5. Livelihood
6. Social Approval
 Hierarchy of Needs
• Abraham W. Maslow
1. Physiological or Biological

2. Safety

3. Social

4. Ego or self – esteem

5. Self - fulfillment
KINDS OF BUSINESS
 Industries – conversion of raw materials into
finished products with the application of labor.
 Manufacturing industries
 Commerce – involves the process of buying and
selling where the goods are move from the point of
production to the point of consumption.
 Ex. NCCC mall, SM, Abreeza. etc.
 Service Enterprises - primarily concerned with the
satisfaction of the needs and wants of customers in
the form of service.
 Public and Community Service – Transportation
Companies & Meralco
 Professional Service – Lawyers, Accountant, etc.
 KINDS OF ECONOMIC SYSTEM
 Capitalism – owned and operated by private
individuals (capitalist or provider of capitals)

 Socialism – a free enterprise system with

government control and supervision. (mixed
economy)
 Promotes equality and balance in the society

 Communism – the state owns and controls all

economic activities.
PHASES OF ECONOMIC DEVELOPMENT

 CRITERIA

 Means of Livelihood

 Extent of economic activity

 Medium of exchange
 MEANS OF LIVELIHOOD:
1. Hunting & Fishing Phase – bounties of nature

2. Pastoral Phase – raising of livestock

3. Handicraft Phase – skills creation of

items/object

4. Agricultural Phase - farming

5. Industrial Phase - manufacturing

 EXTENT OF ECONOMIC ACTIVITY

1. Household Economy – family needs

2. Village Economy – organized village

3. National Economy – bigger & broader social

units

4. International Economy – Global trade

 MEDIUM OF EXCHANGE
1. Barter Economy – Exchange of goods-goods,
services-services, goods-services/services-goods
- No money involved

2. Money Economy – payments for objects

standardized in value and regular in appearance
(acceptable in general public)

3. Money & Credit Economy – payments of goods

& services to be paid at some future date
LEGAL FORMS OF BUSINESS OWNERSHIP

 Single / Sole Proprietorship –organized and

managed by only one person.

 Partnership - two or more persons combine to

operate a business.

 Corporation - is a type of business entity

which has a legal entity separate and distinct
from its owners. (stockholders or
shareholders)
 Cooperative
 Project Feasibility Study

• Aspects
1. Marketing
2. Organization and Management
3. Technical
4. Financial
5. Socio - economic
BUSINESS

Start a new or buy an existing one?

It depends:

1. On the nature and kind of business

2. The availability of opportunities for
acquisition
3. On personal biases
 Business Registration

• Purposes
1. to establish the legal personality of the
business
2. to obtain a Permit to operate
3. to comply with the requirements of
special regulatory or promotional programs
of government
 Business Registration

• Security and Exchange Commission (SEC)

- Partnership
- Corporation
* Bureau of Trade Regulation and Consumer
Protection (BTRCP)
- Single or Sole Proprietorship
 THE ENTREPRENEUR AND THE
MANAGER

Entrepreneur – a person who organize and

operate a business, willing to face greater
financial risks to start a business.

Manager- a person responsible in controlling or

running the business.
 Positive values of a Filipino
Entrepreneur
 Pakikipagkapwa tao-human relation
 Bahala na/malakas ang loob – strong-hearted
 Pakikipagsapalaran – risk-taker
 Gaya-gaya - imitations
 Utang na loob, hiya, awa, bayanihan
 Kasipagan -industriousness
 Pagtitipid - thrifty
 Pagtitiis - enduring
 Pagtitimpi – self-control
 Katapatan - honesty
International Business
Environment

Exporting – the selling of an organization’s

goods in another country

Importing – the purchasing of goods and

services from a foreign
company/another country.
 Exporting
Reasons:
1. if the production process requires high volume
to reduce cost per unit, the home market may be
too small to absorb the output.
2. the demand for the firms product may be
seasonal and irregular.
3. product life cycle
4. Established goods in new overseas markets
 Importing
Reasons:
1. the goods may be needed but not available in
the importing country.
2. many foreign – made products have prestige
value and are demanded by the home market.
3. some foreign goods are less expensive due to
lower production costs.