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BBA 111: INTRODUCTION TO BUSINESS STUDIES 1. Introduction Definition of business studies The word Business in its economic sense means human activities like production, extraction or purchase or sales of goods that are performed for earning profits. A business (also known as enterprise or firm) is an organization engaged in the trade of goods, services, or both to consumers.[1] Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit or stateowned. A business owned by multiple individuals may be referred to as a company. Business is an economic activity, which is related with continuous and regular production and distribution of goods and services for satisfying human wants. All of us need food, clothing and shelter. We also have many other household requirements to be satisfied in our daily lives. We met these requirements from the shopkeeper. The shopkeeper gets from wholesaler. The wholesaler gets from manufacturers. The shopkeeper, the wholesaler, the manufacturer are doing business and therefore they are called as Businessman. Features of business studies 1. Exchange of goods and services All business activities are directly or indirectly concerned with the exchange of goods or services for money or money's worth. 2. Deals in numerous transactions In business, the exchange of goods and services is a regular feature. A businessman regularly deals in a number of transactions and not just one or two transactions. 3. Profit is the main Objective The business is carried on with the intention of earning a profit. The profit is a reward for the services of a businessman. 4. Business skills for economic success Anyone cannot run a business. To be a good businessman, one needs to have good business qualities and skills. A businessman needs experience and skill to run a business. 5. Risks and Uncertainties

Business is subject to risks and uncertainties. Some risks, such as risks of loss due to fire and theft can be insured. There are also uncertainties, such as loss due to change in demand or fall in price cannot be insured and must be borne by the businessman. 6. Buyer and Seller Every business transaction has minimum two parties that is a buyer and a seller. Business is nothing but a contract or an agreement between buyer and seller.

7. Connected with production Business activity may be connected with production of goods or services. In this case, it is called as industrial activity. The industry may be primary or secondary. 8. Marketing and Distribution of goods Business activity may be concerned with marketing or distribution of goods in which case it is called as commercial activity. 9. Deals in goods and services In business there has to be dealings in goods and service. Goods may be divided into following two categories :1. Consumer goods : Goods which are used by final consumer for consumption are called consumer goods e.g. T.V., Soaps, etc. 2. Producer goods : Goods used by producer for further production are called producers goods e.g. Machinery, equipments, etc. Services are intangible but can be exchanged for value like providing transport, warehousing and insurance services, etc. 10. To Satisfy human wants The businessman also desires to satisfy human wants through conduct of business. By producing and supplying various commodities, businessmen try to promote consumer's satisfaction. 11. Social obligations Modern business is service oriented. Modern businessmen are conscious of their social responsibility. Today's business is service-oriented rather than profit-oriented.

Objectives of business firms An aim is where the business wants to go in the future, its goals. It is a statement of purpose, e.g. we want to grow the business into Europe. Business objectives are the stated, measurable targets of how to achieve business aims. For instance, we want to achieve sales of €10 million in European markets in 2004. A mission statement sets out the business vision and values that enables employees, managers, customers and even suppliers to understand the underlying basis for the actions of the business. Business Objectives Objectives give the business a clearly defined target. Plans can then be made to achieve these targets. This can motivate the employees. It also enables the business to measure the progress towards to its stated aims. The most effective business objectives meet the following criteria: Goals must be SMART S – Specific – objectives are aimed at what the business does, e.g. a hotel might have an objective of filling 60% of its beds a night during October, an objective specific to that business.

M - Measurable – the business can put a value to the objective, e.g. €10,000 in sales in the next half year of trading. A – Attainable- When you identify goals that are most important to you, you begin to figure out ways you can make them come true. You develop the attitudes, abilities, skills, and financial capacity to reach them. You begin seeing previously overlooked opportunities to bring yourself closer to the achievement of your goals. R - Realistic – the objective should be challenging, but it should also be able to be achieved by the resources available. T- Time specific – they have a time limit of when the objective should be achieved, e.g. by the end of the year. The main objectives that a business might have are: Survival – a short term objective, probably for small business just starting out, or when a new firm enters the market or at a time of crisis. Profit maximisation – try to make the most profit possible – most like to be the aim of the owners and shareholders. Profit satisfiction – try to make enough profit to keep the owners comfortable – probably the aim of smaller businesses whose owners do not want to work longer hours. Sales growth – where the business tries to make as many sales as possible. This may be because the managers believe that the survival of the business depends on being large. Large businesses can also benefit from economies of scale. A business may find that some of their objectives conflict with one and other: Growth versus profit: for example, achieving higher sales in the short term (e.g. by cutting prices) will reduce short-term profit. Short-term versus long-term: for example, a business may decide to accept lower cash flows in the shortterm whilst it invests heavily in new products or plant and equipment. Large investors in the Stock Exchange are often accused of looking too much at short-term objectives and company performance rather than investing in a business for the long-term. Changing Objectives A business may change its objectives over time due to the following reasons: A business may achieve an objective and will need to move onto another one (e.g. survival in the first year may lead to an objective of increasing profit in the second year). The competitive environment might change, with the launch of new products from competitors. Technology might change product designs, so sales and production targets might need to change. Business and Society

Companies play an important role in society, impacting on communities and regions as well as individual employees. The concept of corporate social responsibility recognises that businesses often voluntarily integrate social and environmental concerns into their business models. Issues of corporate governance come into play particularly in cases of company restructuring. The Foundation monitors developments through its European Restructuring Monitor. A quarterly analysis of trends and in-depth case studies are available in the ERM quarterly. Through their business operations, companies have an important impact on the natural environment. The corporate sector has found itself in the media spotlight for environmentally problematic activities. Small and medium-sized enterprises are also under increasing pressure to adopt environmentally responsible practices. Role of business societ 1. New Ground Rules of Globalization Globalisation has been hotly debated in the last 10-15 years. Critics point to what they see as the negative effects of free trade, increased foreign investment and the movement of capital. Debate has begun to focus ever more on development objectives, sustainable development and the fight against poverty. More and more people, United Nations bodies included, have come to recognise and understand the part business has to play in reaching these goals. At the same time, many people are questioning the roles of individual companies. What should their involvement be? What are their responsibilities? 2. Business Benefits Society Companies benefit society by:  Supplying goods and services that customer cannot, or do not want to, produce themselves  Creating jobs for customers, suppliers, distributors and coworkers. These people make money to support themselves and their families, pay taxes and use their wages to buy goods and  services  Continually developing new goods, services and processes  Investing in new technologies and in the skills of employees  Building up and spreading international standards, e.g. for environmental practices  Spreading “good practice” in different areas, such as the environment and workplace safety. 3. Good relations lead to profitability The long-term survival of companies is partly dependent on maintaining relationships of trust. Deterioration of such relationships will jeopardise the ongoing development of the company. Experience shows that companies with an international outlook, which are open and adopt the long-term approach, are often best at maintaining relationships and hence at developing their operations. The ability to constantly go on improving products and processes is a basic prerequisite. Companies that want to keep developing have to be receptive to signals from and opinions expressed by the market, staff and the general public. Now that more and more customers – and stakeholders as well – are making demands of companies’ ethical, social and environmental awareness, it is also natural for companies to be receptive to these issues and actively use them in their operations. Corporate Social Responsibility (CSR)

Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large

CSR is about how companies manage the business processes to produce an overall positive impact on society. Corporate social responsibility (CSR) can cut across almost everything you do and everyone you deal with. You need to think about:    

The suppliers you choose and the way you deal with them. For example, trading with suppliers who pollute the environment could be as irresponsible as doing so yourself. How you treat your employees. For the responsible business, this means doing more than simply complying with legal requirements. How your business affects your local community and whether you should be actively involved. How what you do affects the environment and what you can do to use resources more efficiently and reduce pollution and waste.

CSR PRACTICE IN KENYA 1. EABL – EABL Foundation 2. KCB- KCB rally 3. SAFARICOM-Lewa marathon, Ndakaini Dam race, Tecla Lorupe race 4. STANCHART- Nairobi Marathon 5. EQUITY BANK-Scholarships and Internships

Business and the government Scope of government interaction with Businesses Government provides rules of the game Government is a prime customer to businesses, benefiting directly or indirectly from the purchases Government promotes or subsidizes business Government owns large quantities of productive equipment and wealth Government is the architect of economic growth-Responsibility to achieve acceptable levels of economic growth Government protects interest in society against business exploitation Government provides national security which is essential for businesses Areas of Government Regulation of Business Advertising Every business in the country is required to comply with laws relating to truth-in-advertising. Employment and Labor Among the ever-changing regulations in business are employment laws. These laws pertain to minimum wages, benefits, safety and health compliance, working conditions, equal opportunity employment, and privacy regulations-and cover the largest area of subjects of all the business regulations. Environment The carbon footprint of businesses and other emissions on the environment is regulated by the Government Environmental Protection Agencies. (National Environment Management Authority (NEMA) Kenya. Privacy Sensitive information is usually collected from employees and customers during hiring and business transactions and privacy laws prevent businesses from disclosing this information freely Safety and Health The Safety and Health Acts ensure that employers provide safe and sanitary work environments through frequent inspections and a grading scale. A company must meet specific standards in order to stay in business.

BUSINESS AND ENVIRONMENT Business Environment has two components: 1. Internal Environment 2. External Environment Internal Environment: It includes 5 Ms i.e. man, material, money, machinery and management, usually within the control of business. Business can make changes in these factors according to the change in the functioning of enterprise. External Environment: A business does not operate in a vacuum. It has to act and react to what happens outside the factory and office walls. These factors that happen outside the business are known as external factors or influences. These will affect the main internal functions of the business and possibly the objectives of the business and its strategies. Those factors which are beyond the control of business enterprise are included in external environment. These factors are: Government and Legal factors, Political Factors, Socio-Cultural Factors, Demo-Graphical factors etc. It is of two Types: 1. Micro/Operating Environment 2. Macro/General Environment Micro/Operating Environment: The environment which is close to business and affects its capacity to work is known as Micro or Operating Environment. It consists of Suppliers, Customers, Market Intermediaries, Competitors and Public. (1) Suppliers: – They are the persons who supply raw material and required components to the company. They must be reliable and business must have multiple suppliers i.e. they should not depend upon only one supplier. (2) Customers: - Customers are regarded as the king of the market. Success of every business depends upon the level of their customer’s satisfaction. Customer markets are of five types: -

Consumer Markets: They consist of individuals and households that buy goods for personal consumption. Business Markets: They buy goods for further processing or for use in their production process.

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Reseller Markets: They buy goods and services to resell at a profit.

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Government Markets: They are made up of government agencies that buy goods to produce public services or transfer them to those who need.

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International Markets: These consist of those buyers in other countries including consumers, producers, resellers and governments.

(3) Market Intermediaries: - Marketing intermediaries are firms that help the company to promote, sell and distribute its goods to final buyers. They include resellers, distribution firms, marketing services agencies and financial intermediaries. They work as a link between business and final consumers. Types:(i) Middleman (ii) Marketing Agencies (iii) Financial Intermediaries (iv) Physical Intermediaries (4) Competitors: - Every move of the competitors affects the business. Business has to adjust itself according to the strategies of the Competitors. According to the marketing concept, a company must provide

customer value and satisfaction more than its competitor do. Therefore marketers must gain advantage by positioning (USP) their offerings strongly against the competitors’ offerings. (5) Public/Stakeholders: - A public is any group that has an actual or potential interest (stake) or impact on an organization’s ability to achieve its objectives. In short, a group of people interested in an organization is public for that organization. There are seven types of public: 1) Financial Public: They influence the company’s ability to obtain funds. Include banks, stockholders etc. 2) Media Public: They carry news, features and editorial opinions. Includes newspapers, magazines, TV and Radio. 3) Government Public: They are government people. Management must take government developments into account and consult them regarding product safety, truth in advertisements etc. 4) Citizen-action Public: They are consumer and citizen groups who may question the marketing management’s decisions such as consumer groups, environmental groups, minority groups etc. 5) Local Public: They include neighbourhood residents and community organizations. 6) General Public: A company needs to be concerned about the general public’s attitude toward its products and activities. 7) Internal Public: Includes workers, managers, volunteers and the board of directors. Macro/General Environment: – It includes factors that create opportunities and threats to business units. Following are the elements of Macro Environment: (1) Economic Environment: Economic factors refer to the character and direction of the economic system within which the firm operates. Economic factors include the balance of payments, the state of the business cycle, the distribution of income within the population, and governmental monetary and fiscal policies. Balance of payments- The balance of payments of a country refers to the net difference in value of goods bought and sold by citizens of the country includes exports and imports. Business cycle - The business cycle is another economic factor that may influence the operation of a firm e.g. economic boom, recession, depression. Purchases of many durable goods (appliances, furniture, and automobiles) can be postponed during periods of recession and depression, as can purchases of new equipment and plant expansions. The impact of economic factors may also differ between industries. Distribution of income - The distribution of income may differ between economic systems. The majority of persons in the United States are considered middle income, with only a relatively small number of persons having exceptionally high or low incomes. Many developing countries such as Kenya have citizens who are either extremely wealthy or extremely poor. Only a few persons would qualify as middle class.

Government Monetary and Fiscal Policies - Monetary and fiscal policies utilized by the government also influence business operations. Monetary policies are controlled by the affect the size of the money supply and interest rates. Fiscal policies control taxes and government expenditure. (2) Non-Economic Environment: - Following are included in non-economic environment:(i) Political Environment: - It affects different business units extensively. The philosophy of the political parties in power influences business practices e.g. political instability or war can affect the business. Components: (a) Political Belief of Government (b) Political Strength of the Country (c) Relation with other countries (d) Defense and Military Policies (e) Thinking Opposition Parties towards Business Unit (ii) Socio-Cultural Environment: - Influence exercised by social and cultural factors, not within the control of business, is known as Socio-Cultural Environment. These factors include: customs, lifestyles, values, attitude of people to work, family system, caste system, religion, education, marriage etc. that characterize the society in which the firm operates. Socio-cultural components of the environment influence the ability of the firm to obtain resources, make its goods and services, and function within the society. Sociocultural factors include anything w...