Key Concepts

Why study business ?

Businesses exist to fulfill a need, and provide investors a return from company
income after expenses and taxes are paid. The remaining money will be the
profit.
Profit Motive ?
Is the goal of earning money. Without this motivation, businesses have no
motivation for innovation and improvement.
-Imagine a row of 5 stalls selling Nasi Lemak what are the customers
method of selecting which stall to buy.
vs
-5 stalls selling Nasi Lemak, but one stall came up with a differentiating catch
phrase e.g. 20 % than the everybody else or Nasi Lemak Kukus UPM
Special

Key Concepts
Types of businesses ? Nonprofit vs Profit-seeking businesses
Nonprofit organizations include schools, charities, government agencies, and
museums. They do not have a profit motive, but they bring in revenue just like
the for-profit businesses. Fund raising, donations, and grants are some of ways
nonprofit organizations receive revenue. Both nonprofit and profit-seeking
companies must have resources to produce goods and services.

The five factors of production to produce goods and services ?

These are crucial factors used for the production of goods and services : natural
resources, human resources, capital, entrepreneurs, and knowledge.

Key Concepts
Types of businesses ? Nonprofit vs Profit-seeking businesses

Key Concepts
Profit Motive is the main driver What about ethics ?

Key Concepts
Types of businesses ? Goods-producing vs Service-oriented businesses
Goods-producing businesses create, build, or produce objects of all sizes and
forms. Examples of goods-producing businesses are Proton, Shell, HP, and
animal farming etc.
Goods-producing businesses often require a large initial investment in materials,
equipment, and facilities. Goods producing companies are often capitalintensive, so they require large amounts of money or equipment to begin and
maintain a business.
Capital is the input needed to create a product or service. It can take the form of
money, computers, machines, tools, or buildings.

Key Concepts
Types of businesses ? Goods-producing vs Service-oriented businesses
Service-producing businesses market knowledge and/or labour that enhance,
explain, or deliver goods. Examples are FedEx, Radicare, Vet Diagnostics Sdn
Bhd, Veterinary Practices. Service companies are often labor-intensive. In
labor-intensive businesses, human resource costs are the highest.
Key factors that have contributed to the growth of service-producing business
are :
1.consumers have more disposable income,
2.services target changing demographics and lifestyles e.g. increase in pet
ownership due to a myriad of reasons.
3.services need to support complex goods and new technology like ecommerce, electronic patient filing systems, advanced medical and laboratory
services - companies are increasingly seeking professional advice
4.Perceived lower Capex & barriers to entry.

Key Concepts
Economics ?
Economics is the study of how a society uses its scarce resources to produce
and distribute goods and services.
The two common categories of economics are macroeconomics and
microeconomics. In very simple terms :
Microeconomics studies behaviour among consumers, businesses, and
industries that collectively determine the quality of goods and services
demanded. - e.g. increasing health consciousness and the rise of organic
products farming .
Macroeconomics studies the role that individuals and government play in
allocated a societys resources.i.e. Issues for the entire economy. E.g. Bank
Negara revises the OPR (Overnight Policy Rate) and affects the cost of getting
loan to fund a business. Or government launching microcredit scheme to help
the farming community.

Key Concepts
Economic System
The method of developing, managing, and allocating resources.
Two types of prevailing market systems :
Free market system

vs

Planned system

Two types of free-market systems: capitalism and mixed capitalism. Freedom

and competition are the core of capitalism. Adam Smith was is the father of
capitalism. The economic system of capitalist societies provides economic
freedom and pure competition without any government intervention. too much
freedom could be bad as seen from the 2008 Subprime Mortgage Crisis.
In mixed capitalism, as practiced in Malaysia etc (U.S.A. included). The
government does intervene to influence some prices, wages, and allocation of
resources. E.g. fuel and essential items subsidy, setting minimum wage
Minimum Wage Council/Act in Malaysia (2011).

Key Concepts
Economic System
The method of developing, managing, and allocating resources.
Two types of prevailing market systems :
Free market system

vs

Planned system

The government fully or predominantly controls planned systems. When the

government has total control, as it does in Cuba, it is a communist system.
Communism exists on centralized planning and the absence of any private
enterprise. Countries that control ownership and operation of vital industries but
permit private ownership of less vital ones practice socialism. When a planned
system country begins to adopt free-market system attributes, it is privatizing
as in Peoples Republic of China & Vietnam.
Business challenges & requirements are grossly different across different market
systems

Key Concepts
Supply vs Demand in an economy

In a free economy.
When prices increases :
-More suppliers are willing to
supply but,
-Less people can afford it.
-Supply = Demand at
Equilibrium price

Key Concepts
Supply vs Demand in an economy : Bring in UBER Ridesharing service

-Controversial innovation and business model (disruptive innovation ?), banned

in several countries and cities. Uproar in Malaysia (GABUNGAN and various
taxi organizations urge SPAD to take action (protest since Aug 2014, Jun/Jul
2015.)
-Fare calculated by distance if vehicle speed exceeds (18km/h), otherwise by
time.
-Practices Surge Pricing policy to ensure supply meets demand

Key Concepts
Supply vs Demand in an economy : Bring in Grabcar App-based car with
driver service
-Evolution of MyTeksi app to counter threats from UBER & to meet unmet
demand by MyTeksi app. Emphasis is on car rental (with a twist) with nomidnight surcharge.
-Example of charge schedule (31 Aug 2015)

Key Concepts
Supply vs Demand
Businesses have to address the supply and demand issues based on their
understanding of their competition.
It could turn out as :
-Competitive advantage - a business can differentiate its product from others in
the market.
-Monopoly - not any competition for the product. Could be gained via
innovation (as in Windows OS), barrier of entry (as in Chicken Egg farming &
broiler business), legal and financial avenue (lawsuits, M&As, regulations and
outright business buy-out), etc.
-Oligopoly - few large producers overwhelmingly dominate the market. E.g. for
the broiler farming business, and telcos in Malaysia.\
-Pure competition - industry has a large number of buyers and sellers, and there
are no clear dominating forces or differentiated productswhere the small
animal industry is heading to for the moment..affects starting wage etc..

Key Concepts
Supply vs Demand
The government helps maintain balance in a free market system by promoting
competition. The four major economic roles the government serves:
1. Enacting laws and creates regulations to foster/stifle competition (e.g. new
licensing requirements for practicing vets following liberalization of services
industry under AFTA, antitrust legislations, limiting the number of telcos).
2. Regulating and deregulates certain industries control prices and quality, as
well as to ensure ethical and safety practices (SALT scheme for farms, HALAL
and VHM certification, imposing ceiling price for chickens, deregulating the
price of rice in the country)
3. Protecting stakeholders rights (IP laws etc, in M&As)
4. Intervening to contribute to economic stability (far sighted economic policies,
fiscal stimulus, tax breaks) this is because the economy is rarely static,
government should prevent the economy from overheating(productive
capacity unable to cope with aggregate demand), rein in inflation as well as to
minimize impact of an economic contraction.

Key Concepts
Businesses in the challenging global economy
1.Entity must appreciate and reflect the cultural diversity/ethical expectations of
its marketplace. It is important to act in a socially responsible and ethical
manner that is consistent with the different cultures. Vegan practice in pets ? Pet
fashion ? Prevalence of chemical castration in pigs instead of surgical
castration ? Organic farming ? As globalization increases, social responsibility
becomes more complex.
2.Quickly produce and adapt quality products. E.g. how to position Local
Premium beef vs Indian beef or Australian or New Zealand imports.
3.Small businesses must able to make their product difficult to imitate. That is
particularly tricky in with technologically advanced or well-funded competition
(going against KFCH ?).
4.Sufficient capital to successfully weather tough times in the volatile global
economy. They must move quickly, and be creative to compete in the
marketplace.
5.Creating and improving customer satisfaction is imperative. Customer
satisfaction factors incorporate every aspect of the organization and operations.

Key Concepts
Businesses in the challenging global economy
6. Competition and anticompetitive behaviour overwhelming market
dominance would predispose to unhealthy business practices at the expense of
consumers and competition. Different countries would have different act to
regulate
anticompetitive
behaviour.
Malaysian
Competition Act
2010
The Sherman Act
1890
Treaty of Lisbon,
2007 (prohibits
price fixing &
abuse of dominant
position)
Australian
Competition Law