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Introduction to Business chapter 1-13 Summary (based on the lectures)

Chapter 1 ‘System Theory and Contingency Approach’

Business = organized effort of individuals to produce and provide goods and services to meet the needs of society.

Businesses can differ in size but also in being profit-oriented or not.

There are five main business activities:

• Innovation
• Operations
• Marketing
• Human resource management
• Finance and accounting

These activities interact with one another. These activities don’t exist in a vacuum but are shaped by the context within they operate. In the Business in Context model there are three types of context identified: strategic, organizational and environmental. Those three context can be seen within the context of globalization.

Strategic level: we are concerned with those management decisions and the influences on those decisions, that determine the direction of business activities. The structure of a firm is often a product of its strategy. [pic 1]

Organizational level: we are concerned with issues grouped under the following headings:

• Goals
• Structure
• Ownership
• Size
• Organizational or corporate culture

Many such issues are interrelated.

These organizational factors combine with management strategy to create distinctive organizational cultures.

Environmental level: there are five operating factors at the environmental level:

• The economy
• The state
• Technology
• Labour
• Cultural and institutional differences

The influence of all these elements and their interaction with individual organizations take place within the context of globalization.

There is considerable interaction between these environmental factors. There can also be interaction between the other contexts.

The Business in Context model is an interaction-influence model. It forms the basis of the systems and contingency approaches that have been developed as part of organization theory:

The systems approach:

All organizations are made up of interdependent parts which can only be understood by reference to the whole. Everything in the organization functions as a system. The firm must adapt to its environment to survive.

The contingency approach:

The environment shapes the organization. The way firms are organised is a product of the environment.

Technology: determinant or choice?

(Later)

Chapter 2 ‘Globalization, Business Cooperation and Integration’

Globalization =

 a process in which the world appears to be converging economically, politically and culturally.

For globalization in the Business in Context model → page 18/19

Five aspects of globalization:

• Internationalization
• Liberalization
• Universalization
• Westernization
• DETERRITORALIZATION

There are many perspectives on globalization:

• World Bank: the global circulation of goods, services, capital and information.
• Scholte: globalization consist of the five aspects, stated above.
• Waters (and Scholte): a fundamental change in social relations at all levels. The key issue is one of geography or territory.
• Castells: significatn changes have taken place and are attributed to information and communications tecchnology. People in both Germany and the USA can work on the same project at the same time.

History of globalization: pages 21/22

Causes and drivers of globalization:

• The importance of rational knowledge
• The growth of trade
• The growth of foreign direct investment (FDI)
• Multinational corporations
• Costs
• Technological innovations
• Changing world politics
• Changing markets
• Regulations

Some of these drivers are also considered as consequences of globalization. (e.g. trade)

Economic and Production aspects of globalization:

Because of globalization a global market has developed. Levitt: ‘a qualitative change has occurred in markets with the appearance of standardized global products. Many products has gone global. However when the development costs rise, than could these costs only be met by economies of scale, standardized global products and larger markets.’ Because there is worldwide known information some economies has developed rapidly because of globalization.

Some products are being produced in several countries.

Outsourcing = getting another company to carry out part of the process.

Off-shoring = moving a process to another country.

Global factory

Different components are made by different firms on different locations and then brought together at the stage of final assembly. There are some key features of the global factory:

• A product assembled in one country using parts made in many other countries.
• Some of the parts are made by multinational firms from advanced industrial economies operating in developing economies either as wholly-owned subsidiaries or joint ventures.
• The same part can be made by several firms in different locations.

There are different factors which has made the global factory possible:

• The quality of technology is the same at different locations.
• The costs of global communications are low.
• There is easier access to pools of cheap labour.

…………………

Chapter 3 ‘Business environment, ownership and institutional frameworks’

Environment = all the factors that exist outside the business enterprise but that interact with it.

Five areas of environment have been identified:

• The economy
• The role of the state
• Technology
• Labour
• Culture and institutions

A firm can interact with the environment on local (e.g. approval to expand building), national (e.g. rate of inflation, national employment) and international level (e.g. international money exchange rates, rules of the EU). The further a company moves away from the local environment, the less are managers able to influence their environment.

Models to assess environmental influences:

The PEST-model gives four types of environmental influences:

• Political environment → covers nature of political system and its influence at the businesses
• Economic environment → issues of economic structure
• Socio-cultural environment → influences resulting from the changing composition of the population
• Technological environment → influence of new or changing technology

The PESTEL- or PESTLE-model extends the PEST-model with two other influences:

• Legal environment → influence of legal regulations
• Ethical environment → examines the implications of ethical and environmental issues

There are some critiques of the PEST-model. (p. 57)

Ownership

Types of ownership:

• Sole trader → can employ staff, is found in most small business start-ups in most countries. Any debts accumulating are the responsibility of the owner (unlimited personal liability).
• Partnership → unlimited personal liability, partners may lose their personal assets to cover loses of if the firm is sued. Ownership is shared on the basis of each partner putting capital into the firm. Profits are most of the time divided according of the size of the share.
• Limited companies → 2 main types: public limited company(plc) and private company(Ltd). Plc has shares that are available for the general public and is quoted on the stock market. In the Ltd the shares aren’t publically available. In both cases is the owner’s liability restricted to the amount they have invested in the company. Both public and private companies have directors elected by the shareholders.

Cooperatives = autonomous association of volunteers to meet their common economic, social and cultural needs.

There are a number of key principles that underpin every cooperative movement (p. 61).

Ownership and their control

There are many discussions about control vs. ownership. Managers are afraid the owners will make decisions in their own self-interest, owners are afraid that managers make decisions in their own self-interest.