University/Faculty Regulations

Minimum attendance in class : 75% No plagiarism in report/academic work and

writing (Merriam-Webster’s Collegiate Dictionary, Eleventh Edition, USA, 2003) to steal and pass off (the ideas or words of another) as one’s own to use (another’s production) without crediting the source to commit literary theft to present as new and original an idea or product derived from an

existing source No cheating in examination Please come on time!

Motives and Function of a Business, Business Ethics and

Social Responsibility(Chapter 1 & 2)

Learning Objectives

The goal of a business The resources a business uses to produce

products/services The key stakeholders involve in a business The business environment The responsibilities of firms to their

customers, employees, stockholders, creditors, environment and their communities

Business Examples

Many mores ……

What is Business?

A business is a person, partnership or corporation that seeks to provide goods and services to others at a profit Goods: tangible products (i.e. products that can be

touched), such as camera, food, computer, clothing, etc

• Business that provide goods are considered to be in the manufacturing sector of the economy

Services: intangible products (i.e. products that cannot be touched), such as education, insurance, travel, etc

• Business that provide services are considered to be in the service sector of the economy

What is the Service Sector?

Services Examples

Personal services Laundries, photographic studios, health clubs, beauty shops

Business services Accounting, consulting, equipment rental

Financial services Banking, insurance, real state agencies

Legal services Law firm

Educational services Schools, libraries

Automotive repair services and garages

Auto rental, parking lots, car washes

Amusement and recreation services Golf courses, video rentals

Etc ….

Your Business Choice

• Main Job

• Side job (“Sampingan”)

Main

Job

Goals of a Business

Lower PriceOpportunity

Needs

Consumer

Profit

Owner

Where Profits Come From

A business receives revenue when it sells its products or services

It incurs expenses from paying its employees and when it purchases machinery or facilities

The difference between revenue and expenses is the profits (or earnings)

Profits go to the owners of the business, thus there is an incentive and reward for success

Profits are dependent upon 3 conditions:(1) Demand: there needs to be demand for your product or service

(2) Attract: you must attract customers (better/lower quality of service)

(3) Expenses: keep expenses low, thus reward will be higher profits

Where Profits Come From [2]

Revenue- (Expense)

Profits

Dem

an

d

Attra

ct

Exp

en

se

Government & Nonprofits

Free-Market economies: people are free to start a business and profit from it Business provide employment, which provides money for

employees and profits for businesses

In socialist countries, businesses were owned by governments and had no profit incentive

Nonprofit businesses serve specific causes and are not intended to make profits Examples: Churches, schools, hospitals

Types of Businesses

Local business A company is local if there

is only one outlet that serves a limited surrounding area

Have a small number of employees and are associated with the town or city in which they are located

Example: Bakmi Margonda Depok, etc

Regional business Serve a wide area

although they don’t serve a national or international market

Example: JOGER, DAGADU, etc

Challenge:

• managing money

• unfavorable economic conditions

• undercapitalization

Types of Businesses [2]

National business Has several outlets through-out the country but it doesn’t serve

an international market Challenge: state law, tax rate, complex supply chain Example: Sinar Mas

Multinational (International) Business Have expanded to provide goods or services to international

consumers or serve only one country, but have suppliers or production facilities in other countries

Have all been adapted to fit the culture of the country in which they are located

Challenge: every country has different corporate laws, business practices, law of the countries (export, import, safety regulations, quality control, copy rights, patent right), etc

Example: McDonald

Factors of Production

Natural Resources any resources that can be used in its natural form example: land

Human Resources the people who are able to perform the work

Capital machinery, equipment, tools and physical facilities

used by a business Entrepreneurship

creation of business ideas and willingness to accept risk

Technology

Technology is an enabler it enables firms to use their capital more effectively

Information Technology (IT) using information to produce products and services

more efficiently E-business or E-commerce

when firms use electronic communications to sell products or services

includes business transactions between a company and its customers, as well as suppliers

ElectronicBusiness

InformationTechnology

Entrepreneurship

RISKIDEAS

Creates Accepts

Stakeholders

Stakeholders: people who have an interest in a business Owners: the entrepreneurs or owners of the business Creditors: financial institutions or persons who

provide loans Employees: people hired to conduct business

operations Suppliers: companies where the business can obtain

materials required for the business Customers: company cannot survive without

customers

Owners

The entrepreneur the founder of the business and is usually the sole owner(s)

when the business initially starts operations. If a business has more than one owner then the investment, risk and profit are shared

Stockholder investors who purchase stock (a certificate representing

ownership in a firm)

Entrepreneur Stockholder

Creditors

Creditors provide loans to a company to help with its inception and growth

Creditors can be financial institutions (commercial banks) or individuals (investors) who provide loans

People in Business

Business Environment

Social Environment social tendencies to which a business is exposed demographics are the characteristics of the population, which

change over time

Industry Environment conditions within the industry within which a firm operates will

also change over time, according to demand and competition

Economic Environment economic conditions will strongly impact the firm’s performance

Global Environment global conditions may directly or indirectly effect businesses

Business Decisions

Management – how will the company use employees and other human resources?

Marketing – how are products and services developed, priced, distributed and promoted?

Finance – how will the company obtain and use funds for operations?

Decisions are commonly based on data which come from accounting system (analysis of financial conditions) and Information System (provides appropriate information to those who need to make a decision)

Decisions and Performance

Customers – Social Responsibility

Companies have a social responsibility when producing and selling products All production should be completed with customer

safety in mind• Example: warning labels on prescription drugs

should be used to prevent accidents that could result from misuse

Responsibility extends into the sales process as well • Example: a common problem is that product may

be overpriced because the salesperson is more interested in making a higher commission (rather than saving the customer money)

Ensuring Responsibility

1 - Code of Responsibilities

2 - Monitor Complaints

3 - Customer Feedback

Government Regulations

Competition

Advertising

Safety

Responsibility to Employees

Employee Safety Safety in the workplace

must be ensured by the company

Example: safety glasses, steel-toed shoes, and back harnesses are required to worn for certain types of work Workplace

Safety

Responsibility to Employees [2]

Proper Treatment by other employees The workplace must allow for employees to be treated fairly The two main issues are:

• Diversity– sensitivity to various types of workers to avoid conflicts

or discrimination – Example: It is wrong for a company to hire a male, over

an equally qualified female, for a position that has traditionally been male dominated

• Sexual Harassment– prevention of unwelcome comments or actions of a

sexual nature – Example: emails or jokes told in the workplace that relate

to sexual situations

Types of Diversity

Religion

Age

RaceBeliefs

Gender

Ensuring Responsibility

Code of Responsibility This code was previously mentioned under

responsibilities toward customers The code should be used for guidance (as it will not

attempt to spell out recommended behaviors for every situation)

Grievance Policy Gives employees a chance to communicate if they feel

that they have not been given equal opportunity

Job Satisfaction

Responsibility to Stockholders

Employee Compensation many companies tie employee compensation to the

firm’s performance this solves some issues, but creates others

Stockholder Actions

Shareholder activism the active efforts of shareholders to influence

the management of a firm

Institutional Investors financial institutions that purchase large

amounts of stocks these types of investors have been the most

active example: insurance companies invest large

portions of their premiums in stocks

Responsibility to Creditors

Accurate Information

Payment

Pollution

Air Land

Responsibility Conflicts

ProfitabilityEnvironment

Responsibility to Community

Contributions companies often make contributions by sponsoring

local events example: many businesses prominently display

plaques of appreciation from the local school or sports team that they recently sponsored

Foundations firms will often create foundations through which

charitable contributions are made

Summary

Business use factors of production such as natural resources, human resources, capital and entrepreneurship

The key of stakeholders in business are owners, creditors, employees, suppliers and customers

Business are exposed to the social, industry, economic and global environments

The key types of business decisions are management, marketing and finance decisions

Firms have a responsibility to provide safe working conditions, proper treatment and equal opportunity for employees

Firms also have a responsibility to the owners/stakeholders, creditors, environment and local communities

References

Madura, Jeff. Introduction To Business. 2007. Thomas South-Western. ISBN 0-324-40711-4