Understanding Business Fundamentals: Key Concepts and Strategies
Production and Economic Agents
Production factors: labor, land, and capital.
Economic agents: households, businesses, and the public sector.
Economic system: the way a society organizes itself to solve basic economic problems.
The Company
Company: the basic unit of production whose function is to create or increase the value of goods, using productive factors coordinated by the employer.
Functions of the Company
- Coordinate production factors
- Create or increase property value
- Take risks and generate wealth
- Generate employment
Value-added: the difference between the value of goods produced and the cost of raw materials.
Usefulness of a good: the ability to meet human needs.
Value Creation Process (Value Chain): producing, marketing, and providing a service.
Theories on the Employer
- Knight: the businessman who risks capital and prestige.
- Schumpeter: the entrepreneur as a driver of economic progress.
- Galbraith: the employer as a professional manager maximizing investment benefits.
- Kirzner: the entrepreneur as a discoverer of new opportunities.
Entrepreneur: person or group running the company, responsible for planning, organization, management, and control.
Benefits of an enterprise: income earned during a specific period (B = Income – Costs).
Functional Areas of the Company
- Production: supply of raw materials for processing into finished products.
- Marketing: marketing and sale of products.
- Financial: obtaining and managing financial resources and investment analysis.
- Human Resources: recruitment, training, and motivation of workers.
Components of the Company
- People
- Property or economic assets
- Organization
- External environment
Groups of Interest
- Internal: partners, shareholders, managers, and workers.
- External: customers, suppliers, competitors, the state, and society.
Company Objectives
- Maximum profitability
- Growth and value development
- Social responsibility
Performance: relationship between profits and invested capital (Earnings = Profit / Capital Employed x 100).
Classification of Companies
According to the sector of activity:
- Primary (natural resources)
- Secondary (transformation of goods)
- Tertiary (services: trade, tourism, healthcare, hospitality)
According to scope: local, regional, national, or multinational.
According to size: large (+250 employees), medium (50-250 employees), small (-50 employees), micro (-10 workers).
According to capital ownership: private, public, or mixed.
According to legal form: sole proprietorship, partnership, capital company, social economy, open society (SA), or closed (SL).
Sole Trader
A natural person who exercises a trade, business, or profession independently and is liable for business claims. Liability is unlimited.
Features: individual entrepreneurs can be adults or children through representatives. No minimum capital is required. There is no separation between corporate and personal assets. The owner manages and legally represents the business. The corporate name is the cardholder’s name. The employer is taxed through personal income tax and is not required to register in the commercial register, although it is advisable.
Advantages: full autonomy in decision-making and direct benefit from profits.
Disadvantages: assumes all risk, as personal assets are liable for company debts.
Commercial Register: public body registering companies to publicize their official situation.
SMEs: small and medium enterprises with fewer than 250 employees.
Actions: titles representing equal parts of a company’s capital, granting shareholder status and rights.
Active Dividend: amount of money corresponding to each share upon profit distribution.
Liabilities Dividend: amount unpaid by the shareholder.
Business Environment
General Environment
Factors affecting all firms in a given area: economic (activity level), sociocultural (education), political-legal (commercial law, minimum wage), technology (advances).
Specific Environment
Factors influencing a group of companies with common features: providers, customers, competitors, intermediaries.
Sector: companies offering similar products to meet the same consumer needs.
Sector Production: total sales generated in a sector over a period and area.
Market Share: company’s sales share of total industry sales (Market Share = Net Sales / Total Sales).
Market Leader: business with the highest market share.
Competitive Forces
- Rivalry among competitors
- Threat of new entrants
- Threat of substitutes
- Bargaining power of suppliers and customers
Strategic Analysis and Planning
SWOT Analysis: strengths, weaknesses, opportunities, and threats. A method to analyze a company’s internal and external factors.
External Analysis (Threats and Opportunities): changes in the environment that can affect the company’s competitive position.
Internal Analysis (Strengths and Weaknesses): factors affecting the company’s competitive advantage.
Strategic Plan: determining the current situation, desired future (vision, mission, objectives), and how to achieve it (resources, timeline, control).
Competitive Strategy
Seeking a favorable position in a sector through competitive advantage: cost leadership, differentiation, segmentation, and niche markets.
Corporate Social Responsibility
Social Costs: costs from private activities borne by society.
Corporate Social Responsibility (CSR): legal and ethical commitments to care for and improve the social, labor, and environmental impacts of business activities.
Areas of Social Responsibility
- Commitment to society
- Trust with employees, customers, and consumers
- Credibility and respect for the environment
Sustainable Development: ensuring economic activities meet present needs without endangering future generations.
Status of Employer: natural person performing economic activity professionally and regularly.
Basic Legal Principles
- Free enterprise
- Property rights
- Freedom of contract
Other Legal Aspects: exclusive rights, antitrust, regulatory accounting, tax, and labor laws.