CH2 - The environment of business

Question 1

List the multiple organizational environments that have affect the business organization

Answer 1

PESTLE - Political, Economic, Socio-cultural, Technology, Legal, Environmental
(global business, business, emerging challenged and opportunities)

Question 2

Define the economic environment

Answer 2

Def : the conditions of the economic system in which an organization operates
- Aggregate Output
- Business Cycle
- GDP
- GDP per capita
- Real GDP
- GNP
- Purchasing Power Parity
- Balance of Trade
- National Debt
- Inflation / Deflation
- CPI
- Unemployment Rate
- Monetary Policy

Question 3

What is the aggregate output

Answer 3

Def : total quantity of goods and services produced by an economic system during a given period
-> measure of economic growth

Question 4

What happens when output grows more quickly than the population

Answer 4

The output per capita (the quantity of goods and services per person) goes up, and the system provides relatively more of the goods and services that people want
–> higher standard of living

Question 5

What is the Business Cycle

Answer 5

Definition : The growth (and contraction) pattern of short-term ups and downs in an economy

Question 6

The 4 phases of the business cycle

Answer 6

1. Peak
2. Recession : two consecutive quarters when the economy shrinks, starts just after the peak of the business cycle is reached and ends when the trough is reached
3. Trough
4. Recovery

Depression : occurs when the trough of the business cycle extends two or more years

Question 7

GDP def

Answer 7

Gross Domestic Product -> total value of all goods and services produced within a given period by a national economy through domestic factors of production (is it rises, a nation experiences economic growth)
-> tracks an economy’s performance over time

Question 8

GNP def

Answer 8

Gross national product -> total value of all goods and services produced by a national economy within a given period regardless of where the factors of production are located

ex. Canada producing/manufacturing products in Mexico - not part of Canada’s GDP but GNP but part of Mexico’s GDP

Question 9

Real Growth Rate

Answer 9

Growth rate of GDP adjusted for inflation and changes of value of the country’s currency
-> growth rate of GDP > rate of population growth = improvement of standards of living

Question 10

GDP per capita

Answer 10

GDP per person (GDP/total population)

• measure of the economic well-being of the average person
• better measure than GDP alone

Question 11

Real GDP

Answer 11

adjusted GDP (for inflation)

• non-adjusted GDP is nominal GDP (measured with current dollars)

Question 12

Purchasing Power Parity

Answer 12

The principle that exchange rates are set so that the prices of similar products in different countries are about the same
- gives a better idea of what people can buy / the standard of living across the globe

Question 13

Balance of Trade

Answer 13

Economic value of all the products that a country exports minus the economic value of its imported products

Question 14

Effect of a negative trade deficit

Answer 14

negative trade deficit → negatively affects economic growth because the money that flows out of a country can’t be used to invest in productive enterprises, either at home or overseas

Question 15

National Debt

Answer 15

Amount of money the government owes its creditors
—> the government takes in revenues (e.g., taxes) and has expenses (e.g., military spending, social programs)
—> When the government of Canada sells bonds to individuals and organizations (both at home and overseas), this affects economic growth because the Canadian government competes with every other potential borrower—individuals, households, businesses, and other organizations—for the available supply of loanable money. The more money the government borrows, the less money is available for the private borrowing and investment that increase productivity.

Question 16

Economic Stability + threatening factors

Answer 16

→ the key goal of an economic system
→ the amount of money available in an economic system and the quantity of goods and services produced in it are growing at about the same rate
→ threatening factors : inflation, deflation, unemployment

Question 17

Inflation + its source

Answer 17

• amount of money injected into an economic system outstrips the increase in actual output
  
  • people have more money to spend but quantity of products available stays the same = competition to buy = prices go up
  • eventually, high prices will erase the increase in the amount of money injected into the economy → purchasing power declines
    SOURCE : no definite one but a product of multiple factors

Question 18

How to measure Inflation

Answer 18

Measuring inflation : the Consumer Price Index (CPI)

• measures changes in the cost of a “basket” of goods and services that a typical family buys (the contents change over time, reflecting changes that have occurred in the pattern of consumer purchases)

Question 19

Deflation

Answer 19

• amount of money injected into an economic system lags behind increases in actual output
• Prices may fall because industrial productivity is increasing and cost savings are being passed on to consumers (this is good) or because consumers have high levels of debt and are therefore unwilling to buy very much (this is bad)

Question 20

Unemployment (+4 types)

Answer 20

• level of joblessness among people actively seeking work
• various types :
  
  • frictional unemployment → people are out of work temporarily while looking for a new job
  • seasonal unemployment → people are out of work because of the seasonal nature of their jobs
  • cyclical unemployment → people are out of work because of a downturn in the business cycle
  • structural unemployment → people are unemployed because they lack the skills needed to perform available jobs

Question 21

Fiscal policies

Answer 21

• collection and spending of government revenues
  
  • ex. when the growth rate of the economy is decreasing, tax cuts will normally stimulate renewed economic growth

Question 22

Monetary policies

Answer 22

• controlling the size of the nation’s money supply (flow of money in the system)
  -> the government can influence the ability and willingness of banks throughout the country to lend money
  - higher interest rate - more expensive to borrow → reduced spending by companies that produce goods and services + consumers who buy them (tight MP)
  - lower interest rate - less expensive to borrow → increase in spending by companies and the consumers (easy MP, usually during financial crisis)

Question 23

What is the technological environment

Answer 23

Technology generally includes all the ways firms create value for their constituents. It includes : human knowledge, work methods, physical equipment, electronics and telecommunications, and various processing systems that are used to perform business activities

Question 24

R&D (Research and Development)

Answer 24

Tech improvements + innovation are important contributors to the economic development of a country. Innovation process includes R&D : new ideas for products, services and processes

Question 25

Basic (or pure) R&D

Answer 25

improving knowledge in an area without a primary focus on whether any discoveries that might occur are immediately marketable

Question 26

Applied R&D

Answer 26

focusing specifically on how a technological innovation can be used in the making of a product or service that can be sold in the marketplace

Question 27

Product and Service Technologies

Answer 27

-> tech is important in the service sector (ex. mobile orders)
-> technology is the basis of competition for some companies, especially when their goal is to be the technology leader in their industry (ex. Apple for home computers)

Question 28

Technology Transfer

Answer 28

the process of getting a new technology out of the lab and into the marketplace where it can generate profits for the company (if efficient = increase of likelihood of business success

Question 29

Political Legal environment effect on business

Answer 29

• Affects the relationship between business and government, including government regulation of business
  
  • legal system defines what an organization can and cannot do
  • even in free-market economies, there is a regulation of business activity - can be advantageous to businesses (ex. no tax on electric vehicles)

Question 30

Society’s view on business

Answer 30

• periods of antibusiness sentiment - companies may find their competitive activities restricted
• Positive times - the threat of government control is always there

Question 31

Political Stability

Answer 31

• No business wants to set up shop in another country unless trade relationships with that country are relatively stable
• Relations between sovereign governments can also affect business activity (can also be at provincial/local level)

Question 32

Sociocultural Environment

Answer 32

Includes the customs, values, attitudes, and demographic characteristics of the society in which a company operates. It influences customer preferences for goods and services and what standards of business conduct are acceptable

Question 33

Customer Preferences and Tastes

Answer 33

• vary across and within national boundaries (ex. some brands have market in some countries and not others)
• product usage also varies (ex. China - bicycles are seen as mode of transportation, Canada - marketed primarily for recreational purposes)
• customer preference changes over time

Question 34

Ethical Compliance and Responsible Business Behaviour

Answer 34

• fast-paced business activities → difficult to keep up → putting a strain on the accounting profession’s traditional methods (auditing, financial reporting, time-honoured standards for professional ethics)
  
  • stakeholders of business firms (employees, shareholders, customers, etc.) are entitled to a fair accounting to make enlightened personal business decisions
• Area of ethical compliance and responsible business behaviour has undoubtedly evolved and gained traction in the business world
  
  • central and core idea reflected in the concept of social justice + fair treatment of all individuals in society

Question 35

The Business Environment

Answer 35

• Businesses trying to differentiate themselves : tend towards higher-quality products, planned obsolescence, and product life cycles measured in weeks or months rather than years
  
  • created customer expectations of instant gratification (high quality goods and services for lower prices and immediate delivery
  • employees want flexible working hours and opportunities to work at home
  • shareholders expectations add pressure for productivity increases, growth in market share, and larger profits / at the same time, a more vocal public demands more honesty, fair competition, and respect for the environment

Question 36

Outsourcing

Answer 36

Definition : strategy of paying suppliers and distributors to perform certain business processes or to provide needed materials or services

• ex. a museum will outsource cafeteria operations because their primary focus are the exhibitions

Question 37

Role of social media

Answer 37

• Social media is now an important part of everyday life for consumers (esp. youth)
  
  • Companies provide content and create links to connect with customers
  • Most organizations are being careful about their online presence → don’t want to be an imposition but rather a natural extension of their real-world relationship with customers

Question 38

Viral Marketing

Answer 38

• word-of-mouth marketing that spreads information like a virus from customer to customer and relies on the internet to replace face-to-face communications
  
  • fueled today by consumer information highways like YouTube and Tiktok
  • various formats : games, contests, instant messaging
  • works because people increasingly rely on social media for information they used to get from traditional media and because the customer becomes a participant in the process of spreading the word