BCOM B.COM Business Introduction

Sole proprietorship

The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts.

A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name, such as Nancy's Nail Salon. The fictitious name is simply a trade name--it does not create a legal entity separate from the sole proprietor owner.

Advantages of a Sole Proprietorship

Owners can establish a sole proprietorship instantly, easily and inexpensively.

Sole proprietorships carry little, if any, ongoing formalities.

A sole proprietor need not pay unemployment tax on himself or herself (although he or she must pay unemployment tax on employees).

Owners may freely mix business or personal assets.

Disadvantages of a Sole Proprietorship

Owners are subject to unlimited personal liability for the debts, losses and liabilities of the business.

Owners cannot raise capital by selling an interest in the business.

Sole proprietorships rarely survive the death or incapacity of their owners and so do not retain value.

Objectives of Business Combinations

The basic objective of combinations is the sustained profitable growth of the combining enterprises. This basic objective is realized by achieving economies of scale, reducing competition, preventing the entry of new firms and controlling the market.

The objectives of combinations are:

Achieving sustained growth and profits.

Reduction in competition.

Preventing the entry of new firms by creating entry barriers.

Achieving monopoly status.

Undertaking large scale production and benefiting from economies of scale.

Investing in common facilities and infrastructure.

Avoiding cut-throat competition and the evils associated with it.

Achieving greater financial strength and stability.

Investing in research and development to innovate new products.

Pooling of material and manpower to ensure efficiency in operations.

Sharing knowledge of best practices for mutual benefit.

Maintaining stability in prices.

To withstand the effects of business cycles.

Business Environment

The definition of Business Environment, “The sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but the business still depends upon them as they affect the overall performance and sustainability of the business.”

A business can be established, but to successfully sustain a business, the business needs resources like finance, for which it has to depend on financial institutions. Acceptance of social norms, for which it has to depend on society. Proper market conditions, for which it has to depend on the market. The sale of products/services, for which it has to depend on the customers. The labor, for which it has to depend on society.

Then there are natural resources and raw material, for which it has to depend on Nature. Also, the legal support of the government, for which it has to depend on the government. There are many factors and dimensions that affect Business Environment. These factors are many different components of a single concept called Business Environment.

These factors which business depends upon aren’t standstill, they are very dynamic and ever-changing. For example, trends, the trend of fidget spinners gave the biggest big push the silicone mold industry has ever received.

The changing needs of customers and new innovations in the market are a part of the business environment. The challenge for businesses in this technological era is not to enter the market but to survive in the market. To survive in the market means to adapt to the changes as fast as possible. To adapt to the changes means to be aware of the business environment.

Cartel

A cartel is a grouping of producers that work together to protect their interests. Cartels are created when a few large producers decide to co-operate with respect to aspects of their market. Once formed, cartels can fix prices for members, so that competition on price is avoided.

Traditional Economic System

The traditional economic system is the most traditional and ancient types of economies in the world. Vast portions of the world still function under a traditional economic system. These areas tend to be rural, second- or third-world, and closely tied to the land, usually through farming. In general, in this type of economic system, a surplus would be rare. Each member of a traditional economy has a more specific and pronounced role, and these societies tend to be very close-knit and socially satisfied. However, they do lack access to technology and advanced medicine.

Command Economic System

In a command economic system, a large part of the economic system is controlled by a centralized power. For example, in the USSR most decisions were made by the central government. This type of economy was the core of the communist philosophy.

Since the government is such a central feature of the economy, it is often involved in everything from planning to redistributing resources. A command economy is capable of creating a healthy supply of its resources, and it rewards its people with affordable prices. This capability also means that the government usually owns all the critical industries like utilities, aviation, and railroad.

Advantages of Command Economic Systems

If executed correctly, the government can mobilize resources on a massive scale. This mobility can provide jobs for almost all of the citizens.

The government can focus on the good of society rather than an individual. This focus could lead to more efficient use of resources.

Disadvantages of Command Economic Systems

It is hard for central planners to provide for everyone’s needs. This challenge forces the government to ration because it cannot calculate demand since it sets prices.

There is a lack of innovation since there is no need to take any risk. Workers are also forced to pursue jobs the government deems fit.

Market Economic System

In a free-market economy, firms and households act in self-interest to determine how resources get allocated, what goods get produced and who buys the goods. This is opposite to how a command economy works, where the central government gets to keep the profits.

There is no government intervention in a pure market economy (“laissez-faire“). However, no truly free market economy exists in the world. For example, while America is a capitalist nation, our government still regulates (or attempts to control) fair trade, government programs, honest business, monopolies, etc.

In this type of economy, there is a separation between the government and the market. This separation prevents the government from becoming too powerful and keeps their interests aligned with that of the markets.

Historically, Hong Kong is considered an example of a free market society.

Advantages of a Free Market Economy

Consumers pay the highest price they want to, and businesses only produce profitable goods and services. There is a lot of incentive for entrepreneurship.

This competition for resources leads to the most efficient use of the factors of production since businesses are very competitive.

Businesses invest heavily in research and development. There is an incentive for constant innovation as companies compete to provide better products for consumers.

Disadvantages of a Free Market Economy

Due to the fiercely competitive nature of a free market, businesses will not care for the disadvantaged like the elderly or disabled. This lack of focus on societal benefit leads to higher income inequality.

Since the market is driven solely by self-interest, economic needs have a priority over social and human needs like providing healthcare for the poor. Consumers can also be exploited by monopolies.

Mixed Economic System
A mixed economy is a combination of different types of economic systems. This economic system is a cross between a market economy and command economy. In the most common types of mixed economies, the market is more or less free of government ownership except for a few key areas like transportation or sensitive industries like defense and railroad.

However, the government is also usually involved in the regulation of private businesses. The idea behind a mixed economy was to use the best of both worlds – incorporate policies that are socialist and capitalist.

To a certain extent, most countries have a mixed economic system. For example, India and France are mixed economies.

Advantages of Mixed Economies

There is less government intervention than a command economy. This results in private businesses that can run more efficiently and cut costs down than a government entity might.

The government can intervene to correct market failures. For example, most governments will come in and break up large companies if they abuse monopoly power. Another example could be the taxation of harmful products like cigarettes to reduce a negative externality of consumption.

Governments can create safety net programs like healthcare or social security.

In a mixed economy, governments can use taxation policies to redistribute income and reduce inequality.

Disadvantages of Mixed Economies

There are criticisms from both sides arguing that sometimes there is too much government intervention, and sometimes there isn’t enough.

A common problem is that the state run industries are often subsidized by the government and run into large debts because they are uncompetitive.

Warehousing

Warehousing is the act of storing goods that will be sold or distributed later. While a small, home-based business might be warehousing products in a spare room, basement, or garage, larger businesses typically own or rent space in a building that is specifically designed for storage.

What is warehousing and its functions?

Functions of Warehousing means the wide ranges of activities, which are associated with the physical distribution of goods from end of production line to the final consumers. These activities include purchasing of goods, inventory management, storage, materials handling, protective packing and transportation

Types of warehouses include storage warehouses, distribution centers (including fulfillment centers and truck terminals), retail warehouses, cold storage warehouses, and flex space.

Warehousing and logistics

Warehousing and logistics are two different sides of the same coin. Warehousing is the safe & economical storage of goods, inventory, information, etc. within a specified area or building. Logistics is generally the detailed organization and implementation of a complex operation in different management tomes.

Objectives of Warehousing & Distribution

Basic Storage. For many small-business owners, the main objective for building a warehouse or renting warehouse space is simply to store inventory. ...

Efficient Accessibility. ...

Increased Turnover. ...

Better Production Processes. ...

Decreased Shrinkage. ...

Optimal Safety.

Why is warehousing needed?

Warehousing plays an important role in the supply chain, and here's why: Continuous production – Factories need to have their raw materials stored so they can make a continuous supply of goods. The storage allows the factories to have enough raw materials put by so production is production

What is difference between store and warehouse?

There is a huge difference between a warehouse and a store. A store is the place where things are kept for retail purpose whereas a warehouse is the place where things are just stocked and then moved to their point of sale which might be a store, a mall or a supermarket.

What is the role of warehousing in logistics?

Warehousing is a very important part of the logistics management system. It provides storage for the finished goods and also includes packing and shipping of the order. Efficient warehousing provides an important economic benefit to the business as well as the customers.

Types of Consumer Products

Firstly, what specifically is a consumer product? A consumer product is a product bought by final consumers for personal consumption. But not every consumer product is the same. There are four different types of consumer products. Marketers usually classify consumer products into these 4 types of consumer products:

Convenience products

Shopping products

Specialty products

Unsought products.

These 4 types of consumer products all have different characteristics and involve a different consumer purchasing behavior. Thus, the types of consumer products differ in the way consumers buy them and, for that reason, in the way they should be marketed.

Convenience products

Among the four types of consumer products, the convenience product is bought most frequently. A convenience product is a consumer product or service that customers normally buy frequently, immediately and without great comparison or buying effort. Examples include articles such as laundry detergents, fast food, sugar and magazines. As you can see, convenience products are those types of consumer products that are usually low-priced and placed in many locations to make them readily available when consumers need or want them.

Shopping products

The second one of the 4 types of consumer products is the shopping product. Shopping products are a consumer product that the customer usually compares on attributes such as quality, price and style in the process of selecting and purchasing. Thus, a difference between the two types of consumer products presented so far is that the shopping product is usually less frequently purchased and more carefully compared. Therefore, consumers spend much more time and effort in gathering information and comparing alternatives. Types of consumer products that fall within the category of shopping products are: furniture, clothing, used cars, airline services etc. As a matter of fact marketers usually distribute these types of consumer products through fewer outlets, but provide deeper sales support in order to help customers in the comparison effort.

Specialty products

Number three of the types of consumer products is the specialty product. Specialty products are consumer products and services with unique characteristics or brand identification for which a significant group of consumers is willing to make a special purchase effort. As you can see, the types of consumer products involve different levels of effort in the purchasing process: the specialty product requires a special purchase effort, but applies only to certain consumers.

Examples include specific cars, professional and high-prices photographic equipment, designer clothes etc. A perfect example for these types of consumer products is a Lamborghini. In order to buy one, a certain group of buyers would make a special effort, for instance by travelling great distances to buy one. However, specialty products are usually less compared against each other. Rather, the effort must be understood in terms of other factors: Buyers invest for example the time needed to reach dealers that carry the wanted products. To illustrate this, look at the Lamborghini example: the one who wants one is immediately convinced of the choice for a Lamborghini and would not compare it that much against 10 other brands.

Unsought products

The 4 types of consumer products also include unsought products. Unsought products are those consumer products that a consumer either does not know about or knows about but does not consider buying under normal conditions. Thus, these types of consumer products consumers do not think about normally, at least not until they need them. Most new innovations are unsought until consumers become aware of them. Other examples of these types of consumer products are life insurance, pre-planned funeral services etc. As a consequence of their nature, unsought products require much more advertising, selling and marketing efforts than other types of consumer products.

RISK IN BUSINESS

Strategic Risk

Everyone knows that a successful business needs a comprehensive, well-thought-out business plan. But it’s also a fact of life that things change, and your best-laid plans can sometimes come to look very outdated, very quickly.

This is strategic risk. It’s the risk that your company’s strategy becomes less effective and your company struggles to reach its goals as a result. It could be due to technological changes, a powerful new competitor entering the market, shifts in customer demand, spikes in the costs of raw materials, or any number of other large-scale changes.

Compliance Risk

Are you complying with all the necessary laws and regulations that apply to your business?

Of course you are (I hope!). But laws change all the time, and there’s always a risk that you’ll face additional regulations in the future. And as your own business expands, you might find yourself needing to comply with new rules that didn’t apply to you before.

Operational Risk

So far, we’ve been looking at risks stemming from external events. But your own company is also a source of risk.

Operational risk refers to an unexpected failure in your company’s day-to-day operations. It could be a technical failure, like a server outage, or it could be caused by your people or processes.

In some cases, operational risk has more than one cause. For example, consider the risk that one of your employees writes the wrong amount on a check, paying out $100,000 instead of $10,000 from your account.

Financial Risk

Most categories of risk have a financial impact, in terms of extra costs or lost revenue. But the category of financial risk refers specifically to the money flowing in and out of your business, and the possibility of a sudden financial loss.

For example, let’s say that a large proportion of your revenue comes from a single large client, and you extend 60 days credit to that client

n that case, you have a significant financial risk. If that customer is unable to pay, or delays payment for whatever reason, then your business is in big trouble.

Reputational Risk

There are many different kinds of business, but they all have one thing in common: no matter which industry you’re in, your reputation is everything.

If your reputation is damaged, you’ll see an immediate loss of revenue, as customers become wary of doing business with you. But there are other effects, too. Your employees may get demoralized and even decide to leave. You may find it hard to hire good replacements, as potential candidates have heard about your bad reputation and don’t want to join your firm. Suppliers may start to offer you less favorable terms. Advertisers, sponsors or other partners may decide that they no longer want to be associated with you.