# data[].attributes.headline
Chapter 1: Understanding Economic Systems and Business

# data[].attributes.subject
Chapter 1: Understanding Economic Systems and Business

# data[].attributes.body
This chapter is split into 8 segments that each go over a fundamental aspect of business and economics. The goal of this chapter is to give you a basic picture of what business and economics are like.
To accomplish this goal, it explains the fundamentals of what they are comprised of. Everything from Goods and Services, Quality of Life, and Standard of Living, to things like Factors of Production, a basic explanation of Macro and Microeconomics and the concept of Inflation among other things. All to help you develop a basic summarization.

In summary, Businesses are organizations which strive for profit by providing goods and services, and Economics refers to how resources, goods, and services flow through the businesses and population of a country. Countries use resources to create goods and services, and distribute them to create profit. Profit leads to economic growth, and economic growth leads to improvements in Standard of Living.
Throughout history, several economic systems have been developed, such as Capitalism, Communism, and Socialism. However, real-world economics rarely leans entirely into one or the other. Each system has its advantages, and so, most countries will apply a mixture of each to fit its needs.

# data[].attributes.attachment_link.readable_text
Definition: Business is defined as an organised economic activity, wherein the exchange of goods and services takes place, for adequate consideration. It is nothing but a method of making money, from commercial transactions. It includes all those activities whose sole aim is to make available the desired goods and services to the society, in an effective manner.

It is a systematic attempt of the businesspersons to produce goods and services, and sell them at the market, to reap the reward, by way of profit.

Profit plays a pivotal role, as all the business activities are directed towards it, because it works an incentive to the entrepreneurs, for their efforts, and thus, necessary for every business.

Characteristics of Business

Economic Activity: Business is an economic activity, as it is conducted with the primary objective of earning money, i.e. for an economic motive.

Production/purchase of goods and services: Goods and services are produced or procured by business entities, so as to add value and sell them to the consumer. Goods are either manufactured by the company or procured from the supplier, with the aim of selling it further to the consumer, for profit.

Selling of goods and services: Business must involve the transfer of goods to the customer for value, through selling, meaning that if the goods are acquired for personal consumption, then the transaction will not amount to business activity.

Continuity in dealings: Every business requires regularity in transactions, i.e. an isolated transaction of exchange of goods or services will not be considered as business. So, to constitute business, the dealings must be carried out on a regular basis.

Profit earning: The basic purpose of business is to make the profit from its activities. It is the spine of business, which keeps the business going, in the long term.

Element of risk: Risk is the key element of every business, concerned with exposure to loss. Efforts are made to forecast future events and plan the business strategies accordingly. However, the factors that affect business are uncertain and so does the business opportunities, which can be a shift in demand, floods, fall in prices, strikes, lockout, money market fluctuation, etc.

Uncertain return: In business, the return is never predictable and guaranteed, i.e. the amount of money which the business is going to reap is not certain. It may be possible that the business earns a huge profit or suffer heavy losses.

Legal and Lawful: No matter, in which type of business the company is engaged, it should be legal in the eyes of the law, or else it will not be considered as business.

Consumer satisfaction: The aim of business is to supply goods and services to consumers, so as to satisfy their wants, as when the consumer (final user) is satisfied, he/she will purchase the goods or services. But, if they are not, there are chances that they will look for substitutes.

The consumer is regarded as the king, and so all the activities of the business are aligned towards the satisfaction of consumers. This can be done by making available quality-riched goods easily available to them, at reasonable prices.

Classification of Business Activities

1. Industry: Industry implies the economic activities that are associated with the conversion of resources into goods that are ready for use. This involves production, processing, mining of goods. The industry is further divided into three broad categories; primary industry, secondary industry and tertiary industry.

2. Commerce: In simple terms, commerce refers to the buying and selling of goods for value, and includes all those activities which facilitate the transaction. Further, commerce encompasses two types of activities, trade and auxiliaries to trade.

From the past few years, the entire concept of business has undergone a drastic change, i.e. it has been turned from producer oriented activity to consumer-oriented activity. Previously, the approach is 'to sell what is produced', but now the approach is 'to produce what is demanded'.

# data[].attributes.attachment_link.title
What is a Business? definition, characteristics and classification - Business Jargons

# data[].attributes.attachment_link.description
Definition: Business is defined as an organised economic activity, wherein the exchange of goods and services takes place, for adequate consideration. It is nothing but a method of making money, from commercial transactions. It includes all those activities whose sole aim is to make available the desired goods and services to the society, in an effective manner.

# data[].attributes.headline
Chapter 2: Ethical Decision-Making, and Managing a Socially-Responsible Business

# data[].attributes.subject
Chapter 2: Ethical Decision-Making, and Managing a Socially-Responsible Business

# data[].attributes.body
This chapter is split into 5 segments that discuss ethics and social responsibility. It covers the concept of justice and fairness as a way of dictating what is the right thing to do.

Ethics and Social Responsibility are very important for a business. They govern a set of moral principles that a business must follow, because without morals, business would devolve into rampant corruption. In order to maintain a sense of order within the company, businesses create a Code of Ethics to explain to the employees how they are expected to behave. All employees, no matter their rank in the business, must conduct themselves in accordance with the Code of Ethics, and the higher up in the chain you are, the more important this becomes. With a high rank comes power, with power comes influence, and with influence comes a responsibility to conduct yourself in a way that makes a positive example for those under you.

In addition to this, businesses are expected to conduct themselves in a similar manner to uphold a sense of social responsibility. These responsibilities include Economic Responsibilities, Legal Responsibilities, Ethical Responsibilities, and Philanthropic Responsibilities in descending order of importance. In other words, Economic Responsibilities make up the foundation of a business, but they're still expected to follow the law, expected to do what is right, and expected to be a good corporate citizen. That being said, it matters little as long as the economic responsibilities fail to be met.

Lastly, all businesses are expected to uphold a positive image of themselves, and have a responsibility to take care of their Stakeholders. Those being their employees, their customers, their investors, and society at large. Without a positive look on your business, people will be less inclined to purchase your goods and services because they don't look favorably upon you. You have a responsibility to take care of your employees as best as you can. You have a responsibility to satisfy your customers to the best of your ability and deliver on your promises. You also have a responsibility to listen to your shareholders and meet their demands. And lastly, you have a responsibility to give back to society and provide a community for jobs, goods and services.

A successful business must manage all of these responsibilities, and know what is most important at any given time.

# data[].attributes.attachment_link.title
Business Ethics: Definition, Principles, Why They’re Important

# data[].attributes.attachment_link.description
Business ethics is the implementation of policies and procedures regarding topics such as fraud, bribery, discrimination, and corporate governance.

# data[].attributes.headline
Chapter 3: Competing in the Global Marketplace

# data[].attributes.subject
Chapter 3: Competing in the Global Marketplace

# data[].attributes.body
This chapter is split into 9 segments that discuss the global marketplace, international trade relations, and multinational corporations. The segments covered in the lesson went over Global Trade in relation to the United States and the impact it has had on the world, and the reasons why different nations trade with one another.

Global Trade has had an enormous impact on the world at large. Many countries depend on international commerce, and engaging in it can greatly bolster a country's economy, improve relationships between nations, raise standard of living, and, among other things, provide jobs. In modern times, a businesses main competition tends to come from foreign sources. Terrorism however, has greatly impacted international commerce. Nations around the world have become more warry about such events, with heightened border security, tighter immigration policies, and stricter regulations helping to stop them from happening. However, these same regulations greatly slow down global trade.

Globalization has many advantages and disadvantages, but as a consequence of the global marketplace, it cannot be stopped. Globalization allows for cheaper prices, spurs innovation, and, among other things, allows products to be produced and distributed more efficiently. However, many also fear losing their jobs as a result of outsourcing.

# data[].attributes.attachment_link.readable_text
On this topic page, you can find data, visualizations, and research on historical and current patterns of international trade, as well as discussions of their origins and effects.

Other research and writing on trade and globalization on Our World in Data:

Related topics
See all interactive charts on Trade and Globalization ↓
Trade has grown remarkably over the last century

One of the most important developments of the last century has been the integration of national economies into a global economic system. This process of integration, often called globalization, has resulted in a remarkable growth in trade between countries.

The chart here shows the growth of world exports over more than the last two centuries. These estimates are in constant prices (i.e. have been adjusted to account for inflation) and are indexed at 1913 values.

The chart shows an extraordinary growth in international trade over the last couple of centuries: Exports today are more than 40 times larger than in 1913.

You can switch to a logarithmic scale under 'Settings'. This will help you see that, over the long run, growth has roughly followed an exponential path.

The increase in trade has even outpaced economic growth

The chart above shows how much more trade we have today relative to a century ago. But what about trade relative to total economic output?

Over the last couple of centuries the world economy has experienced sustained positive economic growth, so looking at changes in trade relative to GDP offers another interesting perspective.

The next chart plots the value of traded goods relative to GDP (i.e. the value of merchandise trade as a share of global economic output).

Up to 1870, the sum of worldwide exports accounted for less than 10% of global output. Today, the value of exported goods around the world is around 25%. This shows that over the last hundred years, the growth in trade has even outpaced rapid economic growth.

Trade expanded in two waves

The first "wave of globalization" started in the 19th century, the second one after WW2

The following visualization presents a compilation of available trade estimates, showing the evolution of world exports and imports as a share of global economic output.

This metric (the ratio of total trade, exports plus imports, to global GDP) is known as the "openness index". The higher the index, the higher the influence of trade transactions on global economic activity.

As we can see, until 1800 there was a long period characterized by persistently low international trade - globally the index never exceeded 10% before 1800. This then changed over the course of the 19th century, when technological advances triggered a period of marked growth in world trade - the so-called "first wave of globalization".

This first wave came to an end with the beginning of World War I, when the decline of liberalism and the rise of nationalism led to a slump in international trade. In the chart we see a large drop in the interwar period.

After World War II trade started growing again. This new - and ongoing - wave of globalization has seen international trade grow faster than ever before. Today the sum of exports and imports across nations amounts to more than 50% of the value of total global output.

Before the first wave of globalization, trade was driven mostly by colonialism

Over the early modern period, transoceanic flows of goods between empires and colonies accounted for an important part of international trade. The following visualizations provide a comparison of intercontinental trade, in per capita terms, for different countries.

As we can see, intercontinental trade was very dynamic, with volumes varying considerably across time and from empire to empire.

Leonor Freire Costa, Nuno Palma, and Jaime Reis, who compiled and published the original data shown here, argue that trade, also in this period, had a substantial positive impact on the economy.

The first wave of globalization was marked by the rise and collapse of intra-European trade

The following visualization shows a detailed overview of Western European exports by destination. Figures correspond to export-to-GDP ratios (i.e. the sum of the value of exports from all Western European countries, divided by the total GDP in this region). You can use "Settings" to switch to a relative view and see the proportional contribution of each region to total Western European exports.

This chart shows that growth in Western European trade throughout the 19th century was largely driven by trade within the region: In the period 1830-1900 intra-European exports went from 1% of GDP to 10% of GDP, and this meant that the relative weight of intra-European exports doubled over the period. However, this process of European integration then collapsed sharply in the interwar period.

After the Second World War trade within Europe rebounded, and from the 1990s onwards exceeded the highest levels of the first wave of globalization. In addition, Western Europe then started to increasingly trade with Asia, the Americas, and to a smaller extent Africa and Oceania.

The next graph, using data from Broadberry and O'Rourke (2010), shows another perspective on the integration of the global economy and plots the evolution of three indicators measuring integration across different markets - specifically goods, labor, and capital markets.

The indicators in this chart are indexed, so they show changes relative to the levels of integration observed in 1900. This gives us another perspective on how quickly global integration collapsed with the two World Wars.

The second wave of globalization was enabled by technology

The worldwide expansion of trade after the Second World War was largely possible because of reductions in transaction costs stemming from technological advances, such as the development of commercial civil aviation, the improvement of productivity in the merchant marines, and the democratization of the telephone as the main mode of communication. The visualization shows how, at the global level, costs across these three variables have been going down since 1930.

Reductions in transaction costs impacted not only the volumes of trade but also the types of exchanges that were possible and profitable.

The first wave of globalization was characterized by inter-industry trade. This means that countries exported goods that were very different from what they imported - England exchanged machines for Australian wool and Indian tea. As transaction costs went down, this changed. In the second wave of globalization, we are seeing a rise in intra-industry trade (i.e. the exchange of broadly similar goods and services is becoming more and more common). France, for example, now both imports and exports machines to and from Germany.

The following visualization, from the UN World Development Report (2009), plots the fraction of total world trade that is accounted for by intra-industry trade, by type of goods. As we can see, intra-industry trade has been going up for primary, intermediate, and final goods.

This pattern of trade is important because the scope for specialization increases if countries are able to exchange intermediate goods (e.g. auto parts) for related final goods (e.g. cars).

Trade and trade partners by country

Above, we examined the broad global trends over the last two centuries. Let's now examine country-level trends over this long and dynamic period.

This chart plots estimates of the value of trade in goods, relative to total economic activity (i.e. export-to-GDP ratios).

These historical estimates obviously come with a large margin of error (in the measurement section below we discuss the data limitations); yet they offer an interesting perspective.

You can edit the countries and regions selected. Each country tells a different story.

In the next chart we plot, country by country, the regional breakdown of exports. India is shown by default, but you can edit the countries and regions shown.

When switching to displaying relative values under 'Settings', we see the proportional contribution of purchases from each region. For example, we see that more than a third of Indian exports went to Asian countries in recent decades.

This gives us an interesting perspective on the changing nature of trade partnerships. In India, we see the rising importance of trade with Africa-a pattern that we discuss in more detail below.

How much do countries trade?

Trade openness around the world

The metric trade as a share of GDP gives us an idea of global integration by capturing all incoming and outgoing transactions of a country.

The charts shows that countries differ a lot in the extent to which they engage in trade. Trade, for example, is much less important to the US economy than for other rich countries.

If you press the play button on the map, you can see changes over time. This reveals that, despite the great variation between countries, there is a common trend: over the last couple of decades trade openness has gone up in most countries.

Exports and imports in real dollars

Expressing the value of trade as a share of GDP tells us the importance of trade in relation to the size of economic activity. Let's now take a look at trade in monetary terms - this tells us the importance of trade in absolute, rather than relative terms.

The chart shows the value of exports (goods plus services) in dollars, country by country.

The main takeaway here is that the trend towards more trade is more pronounced than in the charts showing shares of GDP. This is not surprising: most countries today produce more than a couple of decades ago, and at the same time they trade more of what they produce.

What do countries trade?

Trade in goods vs. trade in services

Trade transactions include goods (tangible products that are physically shipped across borders by road, rail, water, or air) and services (intangible commodities, such as tourism, financial services, and legal advice).

Many traded services make merchandise trade easier or cheaper-for example, shipping services, or insurance and financial services.

Trade in goods has been happening for millennia, while trade in services is a relatively recent phenomenon.

In some countries services are today an important driver of trade: in the UK services account for around half of all exports; and in the Bahamas, almost all exports are services.

In other countries, such as Nigeria and Venezuela, services account for a small share of total exports.

Globally, trade in goods accounts for the majority of trade transactions. But as this chart shows, the share of services in total global exports has slightly increased in recent decades.

How are trade partnerships changing?

Bilateral trade is becoming increasingly common

If we consider all pairs of countries that engage in trade around the world, we find that in the majority of cases, there is a bilateral relationship today: most countries that export goods to a country also import goods from the same country.

The interactive visualization shows this. In the chart, all possible country pairs are partitioned into three categories: the top portion represents the fraction of country pairs that do not trade with one another; the middle portion represents those that trade in both directions (they export to one another); and the bottom portion represents those that trade in one direction only (one country imports from, but does not export to, the other country).

As we can see, bilateral trade is becoming increasingly common (the middle portion has grown substantially). However, many countries still do not trade with each other at all.

South-South trade is becoming increasingly important

The next visualization here shows the share of world merchandise trade that corresponds to exchanges between today's rich countries and the rest of the world.

The 'rich countries' in this chart are: Australia, Austria, Belgium, Canada, Cyprus, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom and the United States. 'Non-rich countries' are all the other countries in the world.

As we can see, up until the Second World War, the majority of trade transactions involved exchanges between this small group of rich countries. But this has changed quickly over the last couple of decades, and today, trade between non-rich countries is just as important as trade between rich countries.

In the past two decades, China has been a key driver of this dynamic: the UN Human Development Report (2013) estimates that between 1992 and 2011, China's trade with Sub-Saharan Africa rose from $1 billion to more than $140 billion.

The majority of preferential trade agreements are between emerging economies

The last few decades have not only seen an increase in the volume of international trade, but also an increase in the number of preferential trade agreements through which exchanges take place. A preferential trade agreement is a trade pact that reduces tariffs between the participating countries for certain products.

The visualization here shows the evolution of the cumulative number of preferential trade agreements in force worldwide, according to the World Trade Organization (WTO). These numbers include notified and non-notified preferential agreements (the source reports that only about two-thirds of the agreements currently in force have been notified to the WTO) and are disaggregated by country groups.

This figure shows the increasingly important role of trade between developing countries (South-South trade), vis-a-vis trade between developed and developing countries (North-South trade). In the late 1970s, North-South agreements accounted for more than half of all agreements - in 2010, they accounted for about one-quarter. Today, the majority of preferential trade agreements are between developing economies.

Trading patterns have been changing quickly in middle-income countries

An important change in the composition of exported goods in these countries has accompanied the increase in trade among emerging economies over the last half century.

The next visualization plots the share of food exports in each country's total exported merchandise. These figures, produced by the World Bank, correspond to the Standard International Trade Classification, in which 'food' includes, among other goods, live animals, beverages, tobacco, coffee, oils, and fats.

Two points stand out. First, the relative importance of food exports has substantially decreased in most countries since the 1960s (although globally, it has gone up slightly more recently). Second, this decrease has been largest in middle-income countries, particularly in Latin America.

Regarding levels, as one would expect, in high-income countries, food still accounts for a much smaller share of merchandise exports than in most low- and middle-income-countries.

The raw correlation between trade and growth

Over the last couple of centuries, the world economy has experienced sustained positive economic growth, and over the same period, this process of economic growth has been accompanied by even faster growth in global trade.

In a similar way, if we look at country-level data from the last half century we find that there is also a correlation between economic growth and trade: countries with higher rates of GDP growth also tend to have higher rates of growth in trade as a share of output. This basic correlation is shown in the chart here, where we plot the average annual change in real GDP per capita, against growth in trade (average annual change in value of exports as a share of GDP).

Is this statistical association between economic output and trade causal?

Among the potential growth-enhancing factors that may come from greater global economic integration are: competition (firms that fail to adopt new technologies and cut costs are more likely to fail and be replaced by more dynamic firms); economies of scale (firms that can export to the world face larger demand, and under the right conditions, they can operate at larger scales where the price per unit of product is lower); learning and innovation (firms that trade gain more experience and exposure to develop and adopt technologies and industry standards from foreign competitors).

Are these mechanisms supported by the data? Let's take a look at the available empirical evidence.

Evidence from cross-country differences in trade, growth, and productivity

When it comes to academic studies estimating the impact of trade on GDP growth, the most cited paper is Frankel and Romer (1999).

In this study, Frankel and Romer used geography as a proxy for trade to estimate the impact of trade on growth. This is a classic example of the so-called instrumental variables approach. The idea is that a country's geography is fixed, and mainly affects national income through trade. So if we observe that a country's distance from other countries is a powerful predictor of economic growth (after accounting for other characteristics), then the conclusion is drawn that it must be because trade has an effect on economic growth. Following this logic, Frankel and Romer find evidence of a strong impact of trade on economic growth.

Other papers have applied the same approach to richer cross-country data, and they have found similar results. A key example is Alcalá and Ciccone (2004).

This body of evidence suggests trade is indeed one of the factors driving national average incomes (GDP per capita) and macroeconomic productivity (GDP per worker) over the long run.

Evidence from changes in labor productivity at the firm level

If trade is causally linked to economic growth, we would expect that trade liberalization episodes also lead to firms becoming more productive in the medium and even short run. There is evidence suggesting this is often the case.

Pavcnik (2002) examined the effects of liberalized trade on plant productivity in the case of Chile, during the late 1970s and early 1980s. She found a positive impact on firm productivity in the import-competing sector. She also found evidence of aggregate productivity improvements from the reshuffling of resources and output from less to more efficient producers.

Bloom, Draca, and Van Reenen (2016) examined the impact of rising Chinese import competition on European firms over the period 1996-2007 and obtained similar results. They found that innovation increased more in those firms most affected by Chinese imports. They also found evidence of efficiency gains through two related channels: innovation increased and new existing technologies were adopted within firms, and aggregate productivity also increased because employment was reallocated towards more technologically advanced firms.

Trade does not only increase efficiency gains

Overall, the available evidence suggests that trade liberalization does improve economic efficiency. This evidence comes from different political and economic contexts and includes both micro and macro measures of efficiency.

This result is important because it shows that there are gains from trade. But of course, efficiency is not the only relevant consideration here. As we discuss in a companion article, the efficiency gains from trade are not generally equally shared by everyone. The evidence from the impact of trade on firm productivity confirms this: "reshuffling workers from less to more efficient producers" means closing down some jobs in some places. Because distributional concerns are real it is important to promote public policies - such as unemployment benefits and other safety-net programs - that help redistribute the gains from trade.

The conceptual link between trade and household welfare

When a country opens up to trade, the demand and supply of goods and services in the economy shift. As a consequence, local markets respond, and prices change. This has an impact on households, both as consumers and as wage earners.

The implication is that trade has an impact on everyone. It's not the case that the effects are restricted to workers from industries in the trade sector; or to consumers who buy imported goods. The effects of trade extend to everyone because markets are interlinked, so imports and exports have knock-on effects on all prices in the economy, including those in non-traded sectors.

Economists usually distinguish between "general equilibrium consumption effects" (i.e. changes in consumption that arise from the fact that trade affects the prices of non-traded goods relative to traded goods) and "general equilibrium income effects" (i.e. changes in wages that arise from the fact that trade has an impact on the demand for specific types of workers, who could be employed in both the traded and non-traded sectors).

Considering all these complex interrelations, it's not surprising that economic theories predict that not everyone will benefit from international trade in the same way. The distribution of the gains from trade depends on what different groups of people consume, and which types of jobs they have, or could have.

The link between trade, jobs and wages

Evidence from Chinese imports and their impact on factory workers in the US

The most famous study looking at this question is Autor, Dorn and Hanson (2013): "The China syndrome: Local labor market effects of import competition in the United States".

In this paper, Autor and coauthors examined how local labor markets changed in the parts of the country most exposed to Chinese competition. They found that rising exposure increased unemployment, lowered labor force participation, and reduced wages. Additionally, they found that claims for unemployment and healthcare benefits also increased in more trade-exposed labor markets.

The visualization here is one of the key charts from their paper. It's a scatter plot of cross-regional exposure to rising imports, against changes in employment. Each dot is a small region (a 'commuting zone' to be precise). The vertical position of the dots represents the percent change in manufacturing employment for the working-age population, and the horizontal position represents the predicted exposure to rising imports (exposure varies across regions depending on the local weight of different industries).

The trend line in this chart shows a negative relationship: more exposure goes along with less employment. There are large deviations from the trend (there are some low-exposure regions with big negative changes in employment); but the paper provides more sophisticated regressions and robustness checks, and finds that this relationship is statistically significant.

This result is important because it shows that the labor market adjustments were large. Many workers and communities were affected over a long period of time.

But it's also important to keep in mind that Autor and colleagues are only giving us a partial perspective on the total effect of trade on employment. In particular, comparing changes in employment at the regional level misses the fact that firms operate in multiple regions and industries at the same time. Indeed, Ildikó Magyari found evidence suggesting the Chinese trade shock provided incentives for US firms to diversify and reorganize production.

So companies that outsourced jobs to China often ended up closing some lines of business, but at the same time expanded other lines elsewhere in the US. This means that job losses in some regions subsidized new jobs in other parts of the country.

On the whole, Magyari finds that although Chinese imports may have reduced employment within some establishments, these losses were more than offset by gains in employment within the same firms in other places. This is no consolation to people who lost their jobs. But it is necessary to add this perspective to the simplistic story of "trade with China is bad for US workers".

Evidence from the expansion of trade in India and the impact on poverty reductions

Another important paper in this field is Topalova (2010): "Factor immobility and regional impacts of trade liberalization: Evidence on poverty from India".

In this paper, Topalova examines the impact of trade liberalization on poverty across different regions in India, using the sudden and extensive change in India's trade policy in 1991. She finds that rural regions that were more exposed to liberalization experienced a slower decline in poverty and lower consumption growth.

Analyzing the mechanisms underlying this effect, Topalova finds that liberalization had a stronger negative impact among the least geographically mobile at the bottom of the income distribution and in places where labor laws deterred workers from reallocating across sectors.

The evidence from India shows that (i) discussions that only look at "winners" in poor countries and "losers" in rich countries miss the point that the gains from trade are unequally distributed within both sets of countries; and (ii) context-specific factors, like worker mobility across sectors and geographic regions, are crucial to understand the impact of trade on incomes.

Evidence from other studies

Donaldson (2018) uses archival data from colonial India to estimate the impact of India's vast railroad network. He finds railroads increased trade, and in doing so they increased real incomes (and reduced income volatility).

Porto (2006) looks at the distributional effects of Mercosur on Argentine families, and finds this regional trade agreement led to benefits across the entire income distribution. He finds the effect was progressive: poor households gained more than middle-income households because prior to the reform, trade protection benefitted the rich disproportionately.

Trefler (2004) looks at the Canada-US Free Trade Agreement and finds there was a group who bore "adjustment costs" (displaced workers and struggling plants) and a group who enjoyed "long-run gains" (consumers and efficient plants).

The link between trade and the cost of living

The fact that trade negatively affects labor market opportunities for specific groups of people does not necessarily imply that trade has a negative aggregate effect on household welfare. This is because, while trade affects wages and employment, it also affects the prices of consumption goods. So households are affected both as consumers and as wage earners.

Most studies focus on the earnings channel and try to approximate the impact of trade on welfare by looking at how much wages can buy, using as a reference the changing prices of a fixed basket of goods.

This approach is problematic because it fails to consider welfare gains from increased product variety, and obscures complicated distributional issues such as the fact that poor and rich individuals consume different baskets so they benefit differently from changes in relative prices.

Ideally, studies looking at the impact of trade on household welfare should rely on fine-grained data on prices, consumption, and earnings. This is the approach followed in Atkin, Faber, and Gonzalez-Navarro (2018): "Retail globalization and household welfare: Evidence from Mexico".

Atkin and coauthors use a uniquely rich dataset from Mexico, and find that the arrival of global retail chains led to reductions in the incomes of traditional retail sector workers, but had little impact on average municipality-level incomes or employment; and led to lower costs of living for both rich and poor households.

The chart here shows the estimated distribution of total welfare gains across the household income distribution (the light-gray lines correspond to confidence intervals). These are proportional gains expressed as a percent of initial household income.

As we can see, there is a net positive welfare effect across all income groups; but these improvements in welfare are regressive, in the sense that richer households gain proportionally more (about 7.5 percent gain compared to 5 percent).

Evidence from other countries confirms this is not an isolated case - the expenditure channel really seems to be an important and understudied source of household welfare. Giuseppe Berlingieri, Holger Breinlich, Swati Dhingra, for example, investigated the consumer benefits from trade agreements implemented by the EU between 1993 and 2013; and they found that these trade agreements increased the quality of available products, which translated into a cumulative reduction in consumer prices equivalent to savings of €24 billion per year for EU consumers.

Implications of trade's distributional effects

The available evidence shows that, for some groups of people, trade has a negative effect on wages and employment opportunities; at the same time, it has a large positive effect via lower consumer prices and increased product availability.

Two points are worth emphasizing.

For some households, the net effect is positive. But for some households that's not the case. In particular, workers who lose their jobs can be affected for extended periods of time, so the positive effect via lower prices is not enough to compensate them for the reduction in earnings.

On the whole, if we aggregate changes in welfare across households, the net effect is usually positive. But this is hardly a consolation for the worse off.

This highlights a complex reality: There are aggregate gains from trade, but there are also real distributional concerns. Even if trade is not a major driver of income inequalities, it's important to keep in mind that public policies, such as unemployment benefits and other safety-net programs, can and should help redistribute the gains from trade.

Comparative advantage

Theory: What is 'comparative advantage' and why does it matter to understand trade?

In economic theory, the 'economic cost' - or the 'opportunity cost' - of producing a good is the value of everything you need to give up in order to produce that good.

Economic costs include physical inputs (the value of the stuff you use to produce the good), plus forgone opportunities (when you allocate scarce resources to a task, you give up alternative uses of those resources).

A country or a person is said to have a 'comparative advantage' if it can produce something at a lower opportunity cost than its trade partners.

The forgone opportunities of production are key to understanding this concept. It is precisely this that distinguishes absolute advantage from comparative advantage.

To see the difference between comparative and absolute advantage, consider a commercial aviation pilot and a baker. Suppose the pilot is an excellent chef, and she can bake just as well, or even better than the baker. In this case, the pilot has an absolute advantage in both tasks. Yet the baker probably has a comparative advantage in baking, because the opportunity cost of baking is much higher for the pilot.

The freely available economics textbook The Economy: Economics for a Changing World explains this as follows: "A person or country has comparative advantage in the production of a particular good, if the cost of producing an additional unit of that good relative to the cost of producing another good is lower than another person or country's cost to produce the same two goods."

At the individual level, comparative advantage explains why you might want to delegate tasks to someone else, even if you can do those tasks better and faster than them. This may sound counterintuitive, but it is not: If you are good at many things, it means that investing time in one task has a high opportunity cost, because you are not doing the other amazing things you could be doing with your time and resources. So, at least from an efficiency point of view, you should specialize on what you are best at, and delegate the rest.

The same logic applies to countries. Broadly speaking, the principle of comparative advantage postulates that all nations can gain from trade if each specializes in producing what they are relatively more efficient at producing, and imports the rest: "do what you do best, import the rest".

In countries with a relative abundance of certain factors of production, the theory of comparative advantage predicts that they will export goods that rely heavily upon those factors: a country typically has a comparative advantage in those goods that use its abundant resources. Colombia exports bananas to Europe because it has comparatively abundant tropical weather.

Is there empirical support for comparative-advantage theories of trade?

The empirical evidence suggests that the principle of comparative advantage does help explain trade patterns. Bernhofen and Brown (2004), for instance, provide evidence using the experience of Japan. Specifically, they exploit Japan's dramatic nineteenth-century move from a state of near complete isolation to wide trade openness.

The graph here shows the price changes of the key tradable goods after the opening up to trade. It presents a scatter diagram of the net exports in 1869 graphed in relation to the change in prices from 1851-53 to 1869. As we can see, this is consistent with the theory: after opening to trade, the relative prices of major exports such as silk increased (Japan exported what was cheap for them to produce and which was valuable abroad), while the relative price of imports such as sugar declined (they imported what was relatively more difficult for them to produce, but was cheap abroad).

Trade diminishes with distance

The resistance that geography imposes on trade has long been studied in the empirical economics literature - and the main conclusion is that trade intensity is strongly linked to geographic distance.

The visualization, from Eaton and Kortum (2002), graphs 'normalized import shares' against distance. Each dot represents a country pair from a set of 19 OECD countries, and both the vertical and horizontal axes are expressed on logarithmic scales.

The 'normalized import shares' in the vertical axis provide a measure of how much each country imports from different partners (see the paper for details on how this is calculated and normalized), while the distance in the horizontal axis corresponds to the distance between central cities in each country (see the paper and references therein for details on the list of cities). As we can see, there is a strong negative relationship. Trade diminishes with distance. Through econometric modeling, the paper shows that this relationship is not just a correlation driven by other factors: their findings suggest that distance imposes a significant barrier to trade.

The fact that trade diminishes with distance is also corroborated by data on trade intensity within countries. The visualization here shows, through a series of maps, the geographic distribution of French firms that export to France's neighboring countries. The colors reflect the percentage of firms that export to each specific country.

As we can see, the share of firms exporting to each of the corresponding neighbors is the largest close to the border. The authors also show in the paper that this pattern holds for the value of individual-firm exports - trade value decreases with distance to the border.

Institutions

Conducting international trade requires both financial and non-financial institutions to support transactions. Some of these institutions are fairly obvious (e.g. law enforcement); but some are less obvious. For example, the evidence shows that producers in exporting countries often need credit in order to engage in trade.

The scatter plot, from Manova (2013), shows the correlation between levels in private credit (specifically exporters' private credit as a share of GDP) and exports (average log bilateral exports across destinations and sectors). As can be seen, financially developed economies - those with more dynamic private credit markets - typically outperform exporters with less evolved financial institutions.

Other studies have shown that country-specific institutions, like the knowledge of foreign languages, for instance, are also important to promote foreign relative to domestic trade.

Increasing returns to scale

The concept of comparative advantage predicts that if all countries had identical endowments and institutions, there would be little incentive for specialization because the opportunity cost of producing any good would be the same in every country.

So you may wonder: why is it then the case that in the last few years, we have seen such rapid growth in intra-industry trade between rich countries?

The increase in intra-industry between rich countries seems paradoxical under the light of comparative advantage because in recent decades we have seen convergence in key factors, such as human capital, across these countries.

The solution to the paradox is actually not very complicated: Comparative advantage is one, but not the only force driving incentives to specialization and trade.

Several economists, most notably Paul Krugman, have developed theories of trade in which trade is not due to differences between countries, but instead due to "increasing returns to scale" - an economic term used to denote a technology in which producing extra units of a good becomes cheaper if you operate at a larger scale.

The idea is that specialization allows countries to reap greater economies of scale (i.e. to reduce production costs by focusing on producing large quantities of specific products), so trade can be a good idea even if the countries do not differ in endowments, including culture and institutions.

These models of trade, often referred to as "New Trade Theory", are helpful in explaining why in the last few years we have seen such rapid growth in two-way exchanges of goods within industries between developed nations.

In a much-cited paper, Evenett and Keller (2002) show that both factor endowments and increasing returns help explain production and trade patterns around the world.

You can learn more about New Trade Theory, and the empirical support behind it, in Paul Krugman's Nobel lecture.

There are dozens of official sources of data on international trade, and if you compare these different sources, you will find that they do not agree with one another. Even if you focus on what seems to be the same indicator for the same year in the same country, discrepancies are large.

Such differences between sources can also be found in rich countries where statistical agencies tend to follow international reporting guidelines more closely.

There are also large bilateral discrepancies within sources: the value of goods that country A exports to country B can be more than the value of goods that country B imports from country A.

Here we explain how international trade data is collected and processed, and why there are such large discrepancies.

What data is available?

The data hubs from several large international organizations publish and maintain extensive cross-country datasets on international trade. Here's a list of the most important ones:

In addition to these sources, there are also many other academic projects that publish data on international trade. These projects tend to rely on data from one or more of the sources above, and they typically process and merge series in order to improve coverage and consistency. Three important sources are:

How large are the discrepancies between sources?

In the visualization here, we compare the data published by several of the sources listed above, country by country, from 1955 to today.

For each country, we exclude trade in services, and we focus only on estimates of the total value of exported goods, expressed as shares of GDP.

As this chart clearly shows, different data sources often tell very different stories. If you change the country or region shown you will see that this is true, to varying degrees, across all countries and years.

Constructing this chart was demanding. It required downloading trade data from many different sources, collecting the relevant series, and then standardizing them so that the units of measure and the geographical territories were consistent.

All series, except the two long-run series from CEPII and NBER-UN, were produced from data published by the sources in current US dollars and then converted to GDP shares using a unique source (World Bank).

So, if all series are in the same units (share of national GDP) and they measure the same thing (value of goods exported from one country to the rest of the world), what explains the differences?

Let's dig deeper to understand what's going on.

Why doesn't the data add up?

Differences in guidelines used by countries to record and report trade data

Broadly speaking, there are two main approaches used to estimate international merchandise trade:

The first approach relies on estimating trade from customs records, often complementing or correcting figures with data from enterprise surveys and administrative records associated with taxation. The main manual providing guidelines for this approach is the International Merchandise Trade Statistics Manual (IMTS).

The second approach relies on estimating trade from macroeconomic data, typically National Accounts. The main manual providing guidelines for this approach is the Balance of Payments and International Investment Position Manual (BPM6), which was drafted in parallel with the 2008 System of National Accounts of the United Nations (SNA 2008). The idea behind this approach is to record changes in economic ownership.

Under these two approaches, it is common to distinguish between 'traded merchandise' and 'traded goods'. The distinction is often made because goods simply being transported through a country (i.e., goods in transit) are not considered to change a country's stock of material resources and are hence often excluded from the more narrow concept of 'merchandise trade'.

Also, adding to the complexity, countries often rely on measurement protocols developed alongside approaches and concepts that are not perfectly compatible to begin with. In Europe, for example, countries use the 'Compilers guide on European statistics on international trade in goods'.

Measurement error and other inconsistencies

Even when two sources rely on the same broad accounting approach, discrepancies arise because countries fail to adhere perfectly to the protocols.

In theory, for example, the exports of country A to country B should mirror the imports of country B from country A. But in practice this is rarely the case because of differences in valuation. According to the BPM6, imports, and exports should be recorded in the balance of payments accounts on a ' free on board (FOB) basis', which means using prices that include all charges up to placing the goods on board a ship at the port of departure. Yet many countries stick to FOB values only for exports, and use CIF values for imports (CIF stands for 'Cost, Insurance and Freight', and includes the costs of transportation).

The chart here gives you an idea of how large import-export asymmetries are. Shown are the differences between the value of goods that each country reports exporting to the US, and the value of goods that the US reports importing from the same countries. For example, for China, the figure in the chart corresponds to the "Value of merchandise imports in the US from China" minus the "Value of merchandise exports from China to the US".

The differences in the chart here, which are both positive and negative, suggest that there is more going on than differences in FOB vs. CIF values. If all asymmetries were coming from FOB-CIF differences, then we should only see positive values in the chart (recall that, unlike FOB values, CIF values include the cost of transportation, so CIF values are larger).

What else may be going on here?

Another common source of measurement error relates to the inconsistent attribution of trade partners. An example is failure to follow the guidelines on how to treat goods passing through intermediary countries for processing or merchanting purposes. As global production chains become more complex, countries find it increasingly difficult to unambiguously establish the origin and final destination of merchandise, even when rules are established in the manuals.

And there are still more potential sources of discrepancies. For example differences in customs and tax regimes, and differences between "general" and "special" trade systems (i.e. differences between statistical territories and actual country borders, which do not often coincide because of things like 'custom free zones').

Even when two sources have identical trade estimates, inconsistencies in published data can arise from differences in exchange rates. If a dataset reports cross-country trade data in US dollars, estimates will vary depending on the exchange rates used. Different exchange rates will lead to conflicting estimates, even if figures in local currency units are consistent.

A checklist for comparing sources

Asymmetries in international trade statistics are large and arise for a variety of reasons. These include conceptual inconsistencies across measurement standards and inconsistencies in the way countries apply agreed-upon protocols. Here's a checklist of issues to keep in mind when comparing sources.

Differences in underlying records: is trade measured from National Accounts data rather than directly from custom or tax records?

Differences in import and export valuations: are transactions valued at FOB or CIF prices?

Inconsistent attribution of trade partners: how is the origin and final destination of merchandise established?

Difference between 'goods' and 'merchandise': how are re-importing, re-exporting, and intermediary merchanting transactions recorded?

Exchange rates: how are values converted from local currency units to the currency that allows international comparisons (most often the US-$)?

Differences between 'general' and 'special' trade system: how is trade recorded for custom-free zones?

Other issues: Time of recording, confidentiality policies, product classification, deliberate mis-invoicing for illicit purposes.

Many organizations producing trade data have long recognized these factors. Indeed, international organizations often incorporate corrections in an attempt to improve data quality.

The OECD's Balanced International Merchandise Trade Statistics, for example, uses its own approach to correct and reconcile international merchandise trade statistics.

The corrections applied in the OECD's 'balanced' series make this the best source for cross-country comparisons. However, this dataset has low coverage across countries, and it only goes back to 2011. This is an important obstacle since the complex adjustments introduced by the OECD imply we can't easily improve coverage by appending data from other sources. At Our World in Data we have chosen to rely on CEPII as the main source for exploring long-run changes in international trade, but we also rely on World Bank and OECD data for up-to-date cross-country comparisons.

There are two key lessons from all of this. The first lesson is that, for most users of trade data out there, there is no obvious way of choosing between sources. And the second lesson is that, because of statistical glitches, researchers and policymakers should always take analyses of trade data with a pinch of salt. For example, in a recent high-profile report, researchers attributed mismatches in bilateral trade data to illicit financial flows through trade mis-invoicing (or trade-based money laundering). As we show here, this interpretation of the data is not appropriate, since mismatches in the data can, and often do arise from measurement inconsistencies rather than malfeasance.

Hopefully, the discussion and checklist above can help researchers better interpret and choose between conflicting data sources.

# data[].attributes.attachment_link.description
How did international trade and globalization change over time? What do they look like today? And what are their impacts?

# data[].attributes.body
This chapter is split into 7 segments and cover the many different forms of business ownership, such as Sole Proprietorships, Partnerships, Corporations, and Franchising.

Sole Proprietorships are a form of business which only has 1 owner. They possess a great deal of freedom and control over the business, but have an equally large amount of responsibility and personal investment in the business. Suitable for first-time start-ups, and can evolve further.

A Partnership is a business which has multiple people working together to operate a business. In other words, it's a business with multiple owners. The workload and responsibilities are shared between every owner, allowing for a more diverse and manageable workload. However, the owners are cumulatively responsible for the business, can have disagreements over how the business should be managed, and can be held liable for each-other's actions. This last part however, isn't always the case, as is true for a Limited Liability Partnership(LLP) or a Limited Partnership(LP). In the case of of the former, partners are not responsible for the debts and liabilities of the business, and in the latter, a partners liability is limited to their personal investment.

Corporations are legal entities subject to the laws of the state in which they are formed, where a state charter is issued to give them to right to operate. They are taxable entities which exist separately from their owners who are free of personal liabilities over the business. Corporations are stable, have theoretically infinite life spans, and can transfer ownership easily. On the other hand, they are far more difficult to set up than the prior forms of business, have reduced freedom, and complex internal structures.

Finally, Franchising is a form of business in which a franchisee can essentially "rent" out a business from the Franchisor. The franchisee gets a sustainable income from a recognizable brand, as well as training and assistance, and in exchange, the franchisor gets a large cut of the profits, and an increased ability to expand the business. However, franchising is expensive, has restricted operating freedom, and a lack of control over the franchisees.

All forms of business have their upsides and downsides, and it's up to the individual to decide which one is best for the business you are trying to create.

# data[].attributes.attachment_link.provider_name
Value Investing - Business and Economic Principles

# data[].attributes.attachment_link.readable_text
When an entrepreneur starts out on his long journey of building a legacy with his business; he almost immediately focuses on the legal status of his business. His thoughts include: 'Should I become a limited liability company or an S-Corporation?'; 'What if I take on partners?'; 'How do I get more capital without giving up control?'

To understand this profit and risk management relationship, this article first explains the eight different forms of business ownership. Next, risk assessment is evaluated to help the entrepreneur understand why one form of entity status may be superior to another. From there, tax consequences are explained. Finally, some general guidelines are presented to help the entrepreneur make an informed decision.

To start, let's look at the eight different forms of business ownership.

Eight Different Forms of Business Ownership

There are eight different forms of legal status for a business. The eight are divided into two distinct categories. One category is driven by profit. The other category is customer oriented. In business, there are generally three goals.

Make a profit

Provide for the long-term security of employees

Serve the consumer by providing the customer with a product or service that is in demand.

Six of the eight entity forms are designed to maximize the number one goal - profit. The second category focuses on the third goal of business. Two of the eight forms place this goal as the priority in its legal structure. The following is a table of the two categories and the corresponding entity forms customarily found:

Profit Driven Sole Proprietorship Non-Profit Status
Partnership Trust
Limited Partnership
Corporation
S-Corporation
Limited Liability Company

The following sections explain each of the eight entity forms of business ownership in more detail.

Sole Proprietorship

This is the easiest and simplest of all entity forms to create. There is literally one form to fill out and that is an SS-4 Application for a Federal Identification Number. There is no application to the secretary of your respective state. The sole proprietorship form of business status is ideal for micro-businesses and for home businesses especially those selling general consumer products either over the internet or at weekend events. The risk factor to others is generally none existent or extremely low and there are no employees. The tax impact is comparable to the other five remaining profit driven entity forms. The benefits are numerous and include:

1) Pure simplicity
2) Lowest overall cost to exist

4) Easiest to understand and document
5) Accounting is straight forward with processing and maintenance|
6) Don't need an attorney

Partnership

When two or more individuals get together for a business endeavor they automatically form a partnership. Most partnerships have a single goal in mind and are short lived. They are often family arrangements to complete a single task. An example would be heirs selling some inherited property or two brothers agreeing to work together on a single project over a weekend to make a few extra dollars. The primary goal is profit just as with the sole proprietorship. The secondary goal of rendering service or providing a product is short term. Most partnerships are undocumented relationships. This is where the problems begin.

Partnerships are uniquely the most flexible of all business forms of ownership as it is simple to negotiate changes to the agreement. In addition, a well drafted financial compensation and earnings allocation clause can minimize the overall tax burden borne by all partners.

There are few drawbacks. One is that any partner may encumber the business by asserting authority to a third party. Secondly, it is difficult to raise additional capital as new partners tend to misunderstand or distrust this form of business ownership. The legal community has tainted this legal status as an unworthy business ownership model mostly out a lack of knowledge of how it works. Finally, there is the personal wealth defense, a shield per se, to protect the partners. It is non-existent in partnerships. This doesn't mean it is a poor ownership model it merely requires the partners to use other tools to protect their personal wealth.

Overall, partnerships are the most flexible and effective business form of ownership.

Limited Partnership

Limited partnerships are almost identical to partnerships. Limited partnerships solve the problem of raising more capital that often hamper traditional partnerships.

With small businesses, no matter the form of ownership all lenders require personal guarantees of the owners in case of default with debt. In a limited partnership, the limited partners are exempt from this requirement. Limited partners are at risk to the value of their investment just like shareholders in a corporation. The drawback for a limited partner is the highly restrictive management role. Limited partners can only vote their share of ownership as it pertains to changing the partnership agreement. Limited partners are not allowed management input.

Overall, the drawback for a limited partnership is a significantly reduced ability to change the partnership agreement. In effect, there is a trade off for additional investment by third parties by a decrease in flexibility a traditional partnership offers.

One last note about limited partnerships. It is a wonderful tool to use with retiring partners. Basically in lieu of paying a retiring general partner his share of value upon retirement, the general partner converts to limited partner status and is paid his capital account balance over time via installments from annual earnings.

Corporations

There are other more beneficial reasons to consider corporate status as the form of ownership. First is the ability to raise additional capital. In the partnership format, any new partners must sign the partnership agreement. That signature serves as title to ownership. In the corporation form, the stock certificate serves as title to ownership. Furthermore, a shareholder position does not entitle the bearer to a role in management. It only allows the holder the right to vote for directors that in turn appoint officers to manage the company. The average layman understands this exchange of financial investment for very restrictive rights in regards to corporate structure.

S-Corporations

S-Corporations are corporations with special tax status. In effect, an S-Corporation is exactly like a partnership whereby taxation is at the individual level. This is referred to as pass-through taxation. All tax items are transferred to the individual shareholders per their respective percentage of ownership. Tax items include:

All these tax items are reported via Form K-1 . The form is turned in to the IRS and a copy is forwarded to the shareholders.

Although there are tax savings, this status has many restrictions including disallowance of certain employee benefits for owners, greater scrutiny over certain deductions and a responsibility to track tax for each shareholder. In addition, the S-Corporation status is designed for small business including limits on revenue and the number of shareholders. The status requires the agreement of all shareholders and acceptance by these shareholders of their respective share of any trust issues related to taxation. Basically, the IRS expects each shareholder to do their share of due diligence in regards to the company's tax issues.

In general, S-Corporations provide dual benefits. First it is viewed as a corporation in the eyes of the state and the legal system. Secondly it has special tax treatment similar to partnerships eliminating double taxation customarily assigned to regular corporations (also known as C-Corporations).

The drawback to this form of entity status is the lack of ownership flexibility as provided via the partnership agreement. Thus, a relatively new form of business ownership (about 60 years old now) provides both flexibility and corporate protection.

Limited Liability Corporation (Company)

A) Management
B) Management Compensation
C) Voting Rights and Control
D) Membership Transfers
E) Rules of Conduct
F) Procedures for Agreement Amendments
G) Termination
H) Financial Obligations
I) Operational Control of the Business

... and so forth.

In the eyes of all third parties including customers, LLC's are seen as corporations; but for internal purposes, they are just like partnerships. As for tax purposes, the IRS allows the owners (members) to select their respective tax status. LLC's can elect to be taxed as a sole proprietorship (single member operation), partnership or as an S-Corporation.

As with any small business form of ownership, third party lenders require owners to sign away their rights via personal guarantees on all debt.

With the above six different business forms of ownership profit is the primary motive. In addition to profit, businesses seek out the desire to provide a product or service solely for the community, a select group or for a few individuals.

Non-Profit Organizations

Common non-profit or tax exempt organizations include:

Social Organizations

Sports Based Clubs like Little League or Soccer Clubs

Youth Groups (Bands, Scouts, 4-H Clubs)

Community Associations

Condo Associations

Conservation Groups

Education Facilities or Private Schools Hospitals

Again, just because they are tax exempt does not mean donors or membership dues are deductible on individual tax returns; it merely means the organization is allowed to retain excess receipts over expenses without taxation as long as these excesses are used in the future to promote community good. Profit is not the principle purpose of this businesses' existence. Service is the primary purpose.

Trusts

Trusts are set up to benefit one or a few individuals. There are two types of trusts - revocable and irrevocable. Revocable trusts can be modified and therefore are not recognized as a legally separate entity. Only irrevocable trusts are recognized as a separate form of business ownership. Often trusts are immediately created upon the death of an individual as a function of closing the estate. Other trusts are created to deposit assets including ownership rights to businesses. The donor of the assets is called the grantor (trustor) and the person running or managing the trust is the trustee. Unlike other forms of ownership, the trust can be taxed in whole on its profits or taxed partially. Any untaxed income is assigned via Form K-1 to the beneficiary. The beneficiary is the third party the trust is designed to take care of in accordance with the trust document.

In general, there are no tax benefits related to a trust; its primary purpose is to provide financially for the beneficiary(ies). Everything is spelled out in the trust document. Very few businesses start out in the trust form but over time the owner or primary key person deposits the business into the trust for the long term benefit of his/her family and for legacy purposes.

With business assets in the trust, the trust is configured to benefit/individuals, the business is managed to make a profit to fund the benefit. In the legal section of this site are several articles explaining trusts. The Internal Revenue Code has several different types of trusts allowed from the very simple to highly complex real estate investment conduits .

The trust form of ownership is a very sophisticated form of ownership and requires extensive legal and accounting assistance. Small law firms and accounting practices will not have the knowledge depth to assist the trustee. Only large firms have the resources to assist in creating trusts and complying with the tax code. This form of ownership is not recommended for micro businesses.

The above eight forms of ownership are the legally acceptable tools used in the business world. To assist the reader in evaluating the best form of ownership for their individual situation, the entrepreneur must first assess risk and how to manage risk.

Risk Management

Risk is inherent in any business activity. There are some things in life that are certain including death, the proverbial taxation and risk. In business, the greater the risk the greater the reward sought for the risk taken. Risk is divided into two broad categories - pure and market risk.

Pure risk is described as controllable. It includes acts of God and accidental errors by human beings. Examples include property accidents, automobile accidents, loss from fire or flooding and automotive incidents. Insurance is the most common loss protection instrument. For example, all states require worker's compensation insurance for employee injuries. Typical small business insurance includes:

General Liability - covers customers for injury on premises

Property - protects the company for losses incurred associated with assets and facilities from fire and flooding

Professional - reimburses customers for losses incurred due to lack of professional due diligence

Health - covers employees and their families for general health

Product Liability - protects customers over long terms from any effects of product use or failure of the product

Life Insurance - loss of life and provides something to the employee's family

Key Man Policy - similar to life insurance except it is designed to reimburse the business for the loss of a key individual

Bonds - covers employee dishonesty

Disability - covers claims for long term non employment related health issues

Insurance is the primary tool to reduce the cost of losses associated with pure risk. Other tools to reduce pure risk include training, risk assessments and the corporate culture. However, some risks are uncontrollable.

At the macro level of economics no single person can control or manipulate the market. It takes vast numbers of investment dollars to change the market. This includes everything from interest rates to inflation to government debt. Uncertainty exists in the market. With any investment decision, there is a possibility of losing it all. The key is defining what 'all' means.

The market risk is generally uncontrollable but the legal profession believes that it is controllable to some degree with the use of the proper form of ownership. Most attorneys default to the corporate shield to separate business assets from personal assets. They cite lawsuits as the primary reason to use this form of ownership. These types of lawsuits are rare and typically exist due to gross negligence (obvious misconduct) of the business. Even so, buying proper insurance mitigates these claims as often the insurance underwriter engages high profile law firms to defend against such claims.

In reality, the form of ownership selection is a tool to enhance profitability and control to some extent market risk. Insurance is the tool to control pure risk which includes these so called litigious pseudo claims.

One last note about pure risk claims. Experienced business owners purchase an umbrella policy. A typical $1 Million additional coverage is less than $1,000 per year. Each additional $1 Million of coverage is marginal (in the $250 to $400 range) in cost. A $3 Million umbrella policy is less than $2,000 per year. If your operation has a high interaction rate with customers and the customer is exposed to injury, umbrella policies are the perfect tool to significantly reduce pure risk.

The key lesson here related to risk is that the form of ownership is designed to reduce market risk and not pure risk issues. As the small business grows, it will naturally convert to the corporate shield to protect against customer claims and other business lawsuits. In the small business world select the form of ownership that will best maximize profits.

Selection Process

With small business the key is to keep the eye on the prize. The selection of the proper form of ownership makes this task easier. Since most small businesses are not community service driven or designed to benefit a select few individuals, the non-profit and trust forms of ownership are not a part the selection group.

Historically, most small businesses simply followed the pattern of development via maturation from sole proprietorship to a full corporation. Most likely your small business will follow this same pattern. As a micro business (revenue of less than $500,000 per year), the sole proprietorship is quite advantageous. The focus is on earning profit as there is no annual requirement to file an application or articles to the state. It is simple and geared around the owner's identity. Most risks are pure in nature and insurance is the true shield to protect the owner from claims. The more important issues begin as the business grows and requires more management than just the owner. Others get involved.

Now the emphasis shifts from one person to a relationship management between two or more primary and responsible parties. Profit is not as important in comparison to the need to create a manageable relationship between the parties. This is the underlying objective of a partnership agreement. Even if this partnership level is skipped to go directly into the corporate form, the owners must still draft a management agreement between them to reduce friction and misunderstandings. No matter what, anytime more than one owner is involved; some form of formal arrangement is required between the parties. The beauty of the partnership agreement is the ease of implementing amendments and addressing not only compensation but control of the business operations.

If the corporation is well capitalized and has adequate working capital it may seek out preferred tax status for the shareholders. This involves getting permission from the IRS for S-Corporation status. This step transfers the tax obligation (the actual tax payments) to the shareholders. This is why the IRS requires each shareholder to sign a document acknowledging this financial responsibility.

At some point in the small business maturation process, the owner(s) may want the additional corporate protection and the flexibility partnership agreements bring and simply become a limited liability company (LLC). As stated earlier this format can provide the corporate shield protection in case of a lawsuit gone wild. The drawback is the requirement to have a well documented membership agreement. This agreement can cost upwards of $10,000 for a multi-member small business. Without this document, the inner turmoil will doom the business to failure and a lawsuit will pale in comparison. Again, pure risk items are customarily managed with insurance including umbrella policies.

What is the best decision model to select the appropriate form of ownership? The following is a general guideline.

Is your goal profit driven or service focused?

If you seek out to serve the community or a select few individuals then the non-profit status or trust form of ownership is best. Go to non-profit organizations page or the legal page for trusts for further help. If profit is the motive, go to question number two.

What is your personal net worth?

If your personal net worth is less than $250,000, then continue to question three. If your net worth is more than $250,000, then the corporate form of ownership will serve you well in the long run. The other option is the limited liability corporation. Go to questions five and six for more guidance.

Will you be involved with others?

If 'yes' you must create an agreement between the parties for control and ownership. The agreement must address not only the financial investment but the time commitment by all partners. Create a partnership agreement and force all parties to sign the notes created during discussions related to the respective sections of the agreement. A partnership is a good form of ownership especially if the other partner is only putting up a little financial risk. The agreement is designed to award the partner with more invested capital and time commitment. However, some partners are only interested in financial reward and desire to be silent. If so, go to question four. If any of the partners are going to be actively involved and if any partner has a net worth of more than $250,000 then the corporation or limited liability company form of ownership is more appropriate. Go to question five.

Will any owners have a passive position related to the business?

If 'yes' then the limited partnership is an ideal tool. In general, the partnership agreement grants rights to the limited (Ltd) partner for two critical aspects of business. First it grants a right to vote on changes to the partnership agreement and secondly it outlines the method of profit allocation and distribution.

If 'no' make sure the partnership agreement has a well defined responsibility assignment to each of the general partners. The partner with the highest net worth has the most to lose concerning market risk. Again, if any partner's net worth exceeds $250,000 net of the business value, go to question five.

Do any general partners have a net worth of $250,000 or more net of the business?

If 'no' go back to question three.

If 'yes' then the general partner with the greatest net worth may want to opt for either the corporate form of existence or the limited liability corporation status. The corporate form is generally more restrictive and penalizes wealth distribution when dividends are paid. The restrictions of a shareholder's agreement make it difficult to reward the owners with the most to lose or the hardest worker a greater share of the profits. Therefore it behooves the management team to consider the limited liability corporation form of business ownership. Go to question six.

Does one partner have more knowledge, certification or experience over other partners?

If 'no' then the corporate form of ownership is more appropriate because the restrictive covenants of the shareholder's agreement and employment arrangement make it nearly impossible for one owner to dominate financially over other owners.

If 'yes' then the traditional partnership or limited liability corporation is best. The partnership/membership agreement allows for maximum latitude of compensation for a key man. In addition, all partners/members are equally compensated in a passive method for their respective financial position. The partner/member that generates the highest gross margins is compensated in a superior manner over other partners/members. The only key question to separate traditional partnership from limited liability status is risk. Go to question seven.

Can the product or service rendered permanently injure or disable the customer?

If 'no', a traditional partnership is warranted. A corporate shield is not necessary nor cost effective. Pure risk items are easily managed with insurance.

If 'yes', a corporate shield is necessary if any partner's/member's net worth exceeds $250,000 net of the business. The corporate shield is acquired via corporation status or using the LLC form of ownership.

Notice with the above questions that tax consequences are not the decision driver for the form of ownership? This next section will cover this in more detail.

Tax Consequences

The reason tax consequences are not the primary driver in the decision model for the form of business is that practically speaking all of the models are taxed at the investor/owner level. Look at the following table:

Form of OwnershipSole Proprietorship Individual
Partnership Individual
Limited Partnership Individual
Corporation Business Entity Level
Limited Liability Co. Individual
S-Corporation Individual
Non-Profit Tax-Exempt
Trust Individual

Notice that the only business entity format that is taxed as a business is the corporation. The company pays a tax and if it pays out profits to owners (shareholders) known as dividends; the dividends are taxed at the individual level. This is known as double taxation and is commonly found in the top 2,000 companies worldwide. In small business, double taxation is not an issue for several reasons. Number one, wealth earned by the company can be easily transferred to owners as additional compensation or using different stock instruments such as preferred stock or via capital gains. Secondly, the goal of a business is to build it up in value which is normally done by retaining earnings.

Most small businesses that decide to incorporate use the S-Corporation status which assigns net profit to shareholders per percentage of ownership. Distributions are common to pay the tax on behalf of the shareholder. This information is reported using Form K-1 for the tax return 1120-S.

There are some tax restrictions for certain industries; so the entity format selection process is modified to comply with the Internal Revenue Code. First off, S-Corporations may not exist as pure passive income generators. Examples include real estate rentals or any capital investment rental company. It may not be used to act as an investment vehicle like a lending company or a bank.

Some industries are restricted to their tax format by the very nature of the business. For example, any form of finance is customarily incorporated because the market risk for failure is very high. To limit the losses, incorporation is functionally the most appropriate option. Furthermore, the IRS regulations are so overwhelming for the finance industry the corporate form of ownership is the only one that makes sense.

Often tax consequences are the guiding thought in selecting the form of ownership. In reality, most forms of ownership tax at the individual level or have no real impact at the small business stage of the business life cycle. Unless the net profits exceed $500,000 per year, income taxation is the least of the concerns in the decision model. Other concerns are more important.

Insights to the Decision Model

The Internal Revenue Service reports that over 70% of all new businesses start out as sole proprietorships. Why? It is simply the most cost effective form of ownership at the small business level. Most of these businesses are home based and have very low if any pure risk. Furthermore, many do not even get to the level of a micro business (profits less than $100,000/yr).

Odds are that your business will start out as a sole proprietorship.

Some businesses are fortunate and grow rapidly requiring continuous reinvestment of profits back into the business. In effect the owner's personal wealth is the business. Once this wealth surpasses several hundred thousand dollars the owner should consider incorporation and using the S-Corporation status to control taxation. Let your CPA guide you as this wealth accumulates.

Throughout this article market risk is the real risk issue to consider when selecting the business form of ownership. None of the entity forms will protect you from the personal guarantee. This single tool slices a huge hole in the corporate veil of protection. Even leases require personal guarantees.

The real market risk is adding key individuals to the management team. Thoughtful, principled and hard working team members will drive the success of the business. The best tool is prevention of risk and this means a well drafted document whether a partnership, membership or shareholder's agreement.

Summary - Forms of Business Ownership

There is a profit and risk relationship that affects the form of business ownership. The goal of the particular form of ownership is to reduce market risk and not pure risk. Pure risk which is often a lawyer's primary concern is managed with insurance and with enforced policies (including corresponding procedures) to prevent accidents.

Market risk refers to investment loss. The form of ownership can help to reduce market risk but not eliminate the potential loss. The reality is that the consumer will cast the ultimate vote of approval.

There are eight forms of small business ownership. Two of the forms (non-profit and trusts) are driven by the product or service rendered. Most small businesses select one of the six profit driven forms of ownership. The most common is the sole proprietorship which accommodates the owner until either partners are needed or wealth accumulates.

When partners are needed the owner may elect the partnership, limited partnership or corporation form of ownership. No matter the choice, a well drafted working relationship agreement must accompany the arrangement. The real market risk is in the working relationship of the principles.

As the business prospers, capital infusion from silent partners becomes essential; so often the business form of ownership matures into the limited partnership or the corporate form of existence. To minimize taxation, the owners may elect S-Corporation status.

The limited liability company (LLC) is appropriate for not only corporate protection but the ability to easily amend the membership agreement. This form of ownership is very common in the professionally licensed industries (law, accounting, engineering, architecture, medical and surveying). Act on Knowledge.

Value Investment Fund's Two 1/2 Year Running Average Annual Return After Quarterly Taxes (28%) = 23.78% Thru 03/31/2022

This site's Value Investment Fund has outperformed all major indices since inception two and half years ago. A 23.78% annual return after taxes (28% tax rate) is simply unheard of with any fund in the market. This Fund's average annual pre-tax return is 31.09%. Here is a list of the major indices and their average annual pre-tax return over the last two and half years:
Businessecon.org's Value Investment Fund 31.09%

Dow Jones Industrial Average 10.83% S&P 500 18.53%

S&P Composite 1500 18.37% Russel 2000 13.73%

NASDAQ 100 30.13% NASDAQ 26.25%

Invesco QQQ 30.31% Vanguard Growth 24.83%

This exceptional return on capital investment demonstrates unequivocally how the principles of value investing simply outperform all other forms of investing. Only sheer coincidence with one's picks, referred to as 'luck', can beat value investing.

This site's Value Investment Fund's Annual Returns (Pre-Tax Basis):
. 2020 - 34.41%
. 2021 - 41.08%
Year-to-Date Thru 03/31/2022 - 3.50% (see chart below, click to enlarge)
Notice how this site's Fund had a positive return while all major indices had losses? This is due to risk reduction which is one of the four core principles taught in Phase I of this program. If you want returns like this for your investment fund, then learn more, click here: Membership Program.

A FREE alternative is to only receive updates on this Fund's performance via regular e-mails. Members receive regular updates, action announcements, in-depth analysis, portfolio reviews, and the education program. Subscribe for free updates only via this form:

© 2017 - 2022, David J Hoare MSA. All rights reserved.

# data[].attributes.attachment_link.description
When an entrepreneur starts out on his long journey of building a legacy with his business; he almost immediately focuses on the legal status of his business. His thoughts include: 'Should I become a limited liability company or an S-Corporation?'; 'What if I take on partners?'; 'How do I get more capital without giving up control?'

# data[].attributes.body
This chapter is split into 8 segments which discuss Entrepreneurship in its many forms, what it takes to be a successful entrepreneur, and the responsibilities that come with being one.

Entrepreneurs are people who find a want/need in society, and expands on it to form a business and fill that gap. Innovators and Visionaries who spot trends, and start businesses to pursue ideas. Modern society rewards innovation, flexibility, and adaptability. As a result, being an entrepreneur requires the vision and creativity needed to innovate, and the drive needed to put those ideas in motion.

There are several types of Entrepreneurs. Classic Entrepreneurs are risk-takers who start a business based on an innovative idea. Micropreneurs are businessmen who start small and plan to stay small. Growth-Oriented Entrepreneurs desire to expand their business and grow it into a major corporation. Multipreneurs who desire to start several different businesses. And lastly, Intrapreneurs who don't actually own their own business, and instead apply their ideas as an employee of a larger business.

# data[].attributes.attachment_link.title
What Is Entrepreneurship? Definition, Meaning, and Tips (2024)

# data[].attributes.attachment_link.description
What is entrepreneurship? Find out in this no-BS beginner’s guide.

# data[].attributes.headline
Chapter 6: Management and Leadership in Today's Organizations

# data[].attributes.subject
Chapter 6: Management and Leadership in Today's Organizations

# data[].attributes.body
This chapter is split into 8 segments which discuss Business Management, the concept of Leadership, and the responsibilities that a manager possesses.

Management is the process of overseeing and guiding the development, maintenance, and allocation of resources to meet the goals of your organization/business. This process is based on 4 key concepts: planning, organizing, leading, and controlling. Planning is where you anticipate potential issues or opportunities and create plans to deal with them. Organizing is where you make sure that resources are coordinated and allocated in the way necessary to enact those plans. Leading is where you guide the available personnel through the implementation of that plan. Lastly, controlling is where you review the results of the plan, and make changes where necessary.

Each step is important but Organizing, Leading, and Controlling don't matter much if you don't have a plan to begin with. There are several kinds of plans for different situations. Strategic Plans for long-term goals, Tactical Plans for short-term goals, Operational Plans for creating rules, standards and procedures, and Contingency Plans for emergencies. Effective management takes advantage of all 4 so that the business has a plan for any situation.

# data[].attributes.attachment_link.readable_text
What is Business Management?
Business management is the act of organizing people to accomplish the desired goals and objectives of a business. Business management requires the utilization of the entity's resources in the most efficient manner possible.

Business management comprises organizing, planning, leading, staffing or controlling and directing a business effort for the purpose of accomplishing the entity's listed goals. In a for-profit business model, business management focuses on the satisfaction of a range of stakeholders, including the officers of the business, its employees, shareholders and the general public (consumers). In this regard, business management's primary function is to secure a profit, (for shareholders) create valuable and innovative products at a reasonable cost (consumers) and provide employment opportunities. In a nonprofit scope, business management will focus on keeping the faith of its supporters and donors.
Basic Functions of Business Management:
Business management operates through a series of functions, typically classified as organizing, staffing, planning, leading, monitoring, controlling and motivating.

Planning: This area of business management decides what needs to happen in the future and subsequently generates plans for action. Planning is the foundation for effective business management; by deciding what needs to happen next week, next year or over the next five years, a business can develop a strategy to meet its listed goals.

Organizing: This portion of business management implements a pattern of relationships among its employees to encourage the optimum use of the entity's resources. Organizing is needed to utilize the businesses' finite resources; effective use of resources is the foundation for reaching a desired level of productivity.

Staffing: This area of business management focuses on recruiting, analyzing and hiring individuals for appropriate employment posts.

Leading: Also referred to as "directing" in the business management model, leading requires the entity's executives to determine what needs to be accomplished in a situation and what employees are best to fulfill such expectations.

Monitoring/Controlling: This phase of the business management process requires the leaders of the entity to monitor progress in relation to the plans and business of the business.

Motivation: A key aspect to the business management model, motivation is a basic function to maximize employment efficiency. By boosting morale, employees will carry-out their specific tasks in an effective manner.
Basic Roles of the Business Management Process:
Decisional Roles: Carried out by the entity's executives, the decisional roles are required for decision-making purposes.

Interpersonal: These roles are necessary to effectively coordinate and interact with the employee base. Interpersonal roles are used to bridge the gap between the businesses' executives and their employees; interpersonal roles are used to create a sense of uniformity and a team environment.

Informational: These roles are implemented to handle, analyze and share information that is important to the business.

Management Skills Needed for the Business Management Process:

Diagnostic: These skills are essential to the business management process because they analyze the appropriate course of action/responses to situations that may affect the business's stability or health.

Political: These skills are used to build a foundation for the business; political skills are needed to establish connections with public bodies, the public and other companies.

Conceptual: These skills are required to effectively evaluate complex situations.

Interpersonal: A series of skills needed to bolster motivation and communication among the executives and employee-base of a company. Interpersonal skills are a fundamental aspect of the business management process because they enable executives to mentor employees and delegate tasks.
Formation of a Business Management Plan:
In the business management process, the mission of the entity is the most fundamental purpose. The vision of the company's goals reflects its overall aspirations; this portion of the business management process specifies the intended direction of the company. The business management process also requires the entity to list its objectives. By listing objectives, the business will refer to the ends at which a certain activity is aimed-this gives the purpose's tangible actions a means.

The business's management plan is a guide that stipulates regulations and objectives; the management plan may be used by executives in the decision-making process and may be followed by the entity's employees to bolster transparency and motivation. Regardless of its particular use, the business plan must be flexible and easily interpreted by all employees of the business.

The business management plan refers to the construction of a coordinated plan of action that lists the goals and the resources used to engage these goals in relation to the company's long-term objectives. The business management plan provides guidelines for all members of the business; these instructions or regulations stipulate how the employees and managers ought to utilize and allocate the entity's factors of production.
The Implementation of the Business Management Plan:
To effectively implement a business management plan, the following strategies and relationships must be formed:

The policies must be discussed with all executives, managerial staff and general employees of the business model.

All managers must understand how and where they can implement their strategies and policies.

A formal plan of action must be constructed for each department of the management plan.

All strategies and policies must be reviewed at least quarterly-the review of the business management plan will be evaluated to ensure that the provisions of the plan are properly aligned with the broader goals of the business.

Contingency plans must be developed to meet changes in the macro-economy or the environment.

The business management plan must actively assess the progress of the company as well as the actions carried-out by the top executives of the company

The construction of a sound environment and palpable team spirit is required for the business to be efficient

The objectives, missions, strengths and weaknesses of each sector of the business must be evaluated to determine their roles in achieving the broader mission.

A planning strategy must be created to ensure that all initiatives are consistent and that strategies are aimed at achieving the same objectives.

The above policies must be discussed with all executives and managerial personnel that are required in the execution of any department's policy. Organizational alteration is achieved through the implementation of succinct plans. An example of a common business management plan will include the following steps: Increase the corporation's urgency, create a vision, bolster communication, empower action, create short-term goals and victories, keep pushing towards the final objective and make changes stick.
Important Players in the Business Management Process:
The majority of business entities have three distinct management levels: first-level, mid-level and top-level executives or managers. These executives are classified in a distinct hierarchy of authority to perform different tasks aligned with the business model. In a number of organizations, these managers provide the business model with the following tasks:

This classification is comprised of a board of directors, a president, a vice-president, CEO's, CFO's, CLO's etc. These executives are responsible for controlling, directing and overseeing the entire organization. The top-level management of corporations develops goals, strategies, and company policies and renders decisions on the direction of the business. Moreover, top-level managers will play a primary role in the mobilization and utilization of outside resources to effectively produce or supply the company's product or service. Because of these roles, top-level managers are accountable to the general public and shareholders.

This classification consists of general managers, branch managers and the company's department managers. Middle-level managers are accountable to top-level managers for their department's function. A middle-level manager must devote more time to directional and organizational functions of the business model. These individuals execute organizational plans in accordance with the entity's policies and objectives of the above-listed executives. Middle-level managers discuss information and policies from executives and regurgitate the orders derived from these conservations to lower management workers. Most importantly, because of their everyday interaction with the general employee base, middle-level managers inspire and provide guidance to employees to promote more efficient performance.
Common functions of the middle-level managers:
Middle level managers will design and implement effective group work and information systems to bolster productivity in the business model.

Middle level managers define and monitor group-level performance indicators.

Middle level managers pinpoint and resolve problems among workers.

Middle level managers implement reward systems to support cooperative behavior.

This group of the business management system consists of supervisors, foremen and the everyday experienced employee-individuals in this group are typically in charge of a few fellow employees. First-level managers focus on directing and controlling ground-level employees to effectively carry-out their work. First-level managers assign employee tasks and supervise these workers on day-to-day activities. These individuals ensure quality and quantity production; they will make suggestions and implement regulations to ensure proper compliance. A first-level manager will provide the following to employees:

Provide career planning services

Offer performance feedback

Business process management is an approach to business management that believes that all aspects of the organization should be aligned with meeting the wants, needs, and desires of the business' clients. Business process management is a holistic management approach. This approach to business management strives for innovation, flexibility, and integrating technology, while promoting business efficiency and effectiveness.

A manager or company that subscribes the business process management approach to business management believes that the processes should be improved upon on a continual basis. Proponents of the business process management approach believe that this approach allows a company to be more efficient and effective, which in turn, leaves them more capable of changing to accommodate new conditions in a traditional, hierarchical management approach that is focused on function.

On a more general level, business management is the process by which the operation of a business is made possible through planning, organizing, staffing, leading or directing, and controlling a corporation, organization, or effort with the intent of accomplishing a specific goal. Often, at the highest level of a corporation, business management will involve setting these goals in the first place.

Business process management enables a company to abstract business processes from software or technology infrastructure; business process management goes far beyond automating business software or solving the entity's problems. Business process management enables the entity to respond to changing market and consumer regulatory demands faster than its competitors-this effectively creates a competitive advantage.

This form of management is made tangible through the use of business process management software. Business process management software is a computer program that organizes a company's business model; the software will align the company's goals with its available resources to create a detailed business management plan.

When utilized business process management software or tolls will allow a business to engage in the following:

Business process management software or tools enable users to strategize processes and functions.

Business process management software or tools to develop a baseline for the process improvement

Business process management software or tools to develop a model, which will stimulate the change to the process.

The tools enable users to analyze simulations to determine optimal improvements.

The tools enable users to select and implement the suggested improvements.

To deploy this maneuver, the business process management software will provide user defined dashboards to monitor the improvement in real time. Business process management software will relay the performance information back to the user for the subsequent iteration.

comments

# data[].attributes.attachment_link.title
A Guide to Business Management - LAWS.com

# data[].attributes.attachment_link.description
What is Business Management? Business management is the act of organizing people to accomplish the desired goals and objectives of a business. Business management requires the utilization of the entity's resources in the most efficient manner possible. Business management comprises organizing, planning, leading, staffing or controlling and directing a business effort for the purpose of accomplishing the entity's listed goals.

# data[].attributes.headline
Chapter 8: Managing Human Resources and Labor Relations

# data[].attributes.subject
Chapter 8: Managing Human Resources and Labor Relations

# data[].attributes.body
This chapter is split into 10 segments which discusses human resources, the labor market, and employee training.

Regardless of the kind of business you are running, human resources will always be necessary. Managing your employees, making sure you have enough personnel, and making sure that the personnel is exactly where it needs to be are all fundamentally important aspects of running a business. This process is known as "Human Resource Management" and "Human Resource Planning".

In order to acquire a work-force in the first place, you need to acquire them through the labor market, and, if needed, train them to accomplish the tasks needed. The labor market can come from two sources, the Internal Labor Market(ILM), and the External Labor Market(ELM). The ILM refers to how a company can redistribute employees into places where they can best take advantage of their skills. The ELM refers to when a company reaches out to the public in order to recruit entirely new employees through a variety of sources. Recruiting methods include setting up job fairs, college recruiting, the internet, social media, and specialized websites.

Once employees are acquired for a job, you have to make sure they are trained to be able to handle the work asked of them. This training can happen either on-the-job, or off-the-job. On-the-job training means the employee gets taught as they work, typically through mentoring and apprenticeships. Off-the-job means the employee gets trained outside the workplace, typically in a classroom environment with films, videos, lectures, and demonstrations simulating, explaining, and showing what they are expected to do. Both have their advantages, and it's up to company to decide which is more beneficial.

# data[].attributes.attachment_link.readable_text
What is Human Resource Management?

Human Resource Management (HRM) is a collective term for all the formal systems created to help in managing employees and other within a company. Human resource management is tasked with three main functions, namely, the recruitment and of employees, and designating work. Ideally, the role of HRM is to find the best way to increase the productivity of an organization through its employees. Despite the ever-increasing rate of change in the corporate world, the HRM role is not likely to change in a significant way.

Until recently, a company's HR department was categorized in the lower rungs. This is surprising considering the crucial role that this department plays in replenishing and nourishing an organization's resources.

Principles of Human Resource Management

The HR department has transformed significantly from the task-oriented nature of administration it used to be in the 1980s. It is now viewed as a strategy-focused extension of every firm. The HR department thrives on specific principles, as highlighted below:

1. Commitment

One aspect that the HR department tries to deal with is job security. To guarantee job security, many employees know that they need to show commitment to the company and their job duties. The HR management comes in to put measures in place that ensure that staffing levels correspond to the company's needs and that, in the process, assure employees of their long-term positions within the organization. The firm demonstrates its long-term commitment to the workers by providing regular training, performance evaluations, and goal-setting activities Team Building .

2. Competence

Competence is one of the core principles that supports a company's growth and development. It is also an aspect that affects employees' job satisfaction and how the company benefits society. The success of a firm depends on the competency of its employees. The HRM department tries to sustain workforce competency by providing training opportunities. It also schedules orientation programs, which provide avenues to enlighten new employees on a company's and objectives.

Training and orientation are essential in improving employees' skills, knowledge, and competency. The benefit of having a competent workforce is that it leads to the production of safe and reliable products and services that consumers can rely on. In the absence of a high level of competence, a company will be susceptible to lawsuits and legal claims resulting from the products and services that it renders.

Main Functions of Human Resource Management

1. Employee Recruitment

Recruitment is the process of identifying talent gaps in a company and finding the right people to fill the roles. There are four stages in the employee recruitment process:

Job analysis - This involves defining the various aspects of a job through job description and specification. Through job description, the HRM department identifies the tasks required for a specific job while the latter defines the requirements an individual needs to fulfill that job.

Sourcing - This encompasses the different techniques a company employs to attract potential candidates to fill a given position. This can be achieved through internal and external advertisements.

Screening and selection - This is the process of evaluating the candidates who apply for the job. The evaluation is performed to determine the skills, qualifications, competency, and job-related experience that potential candidates bring to the table.

Selection of the right candidates - Once the best candidate has been selected, the next process that follows is onboarding. This is simply helping the new recruits become productive members of the company.

2. Employee Orientation

Another core function of human resource management is employee orientation. Also known as onboarding, it is the process of teaching new recruits the necessary skills, knowledge, and behaviors so that they can transition to the new company effectively.

Employee orientation is a broad process conducted by the HR department, and it's done through different methods, including lectures, meetings, videos, mentoring, and team-building exercises. The main objective of the orientation is to provide new recruits with adequate information regarding the company's targets, rules, policies, and activities.

3. Employee Development

Employee development refers to all the efforts for improving personal, team, and organizational effectiveness. One aspect the human resource department tackles is talent development. This involves aligning the employees' skills with the company's needs. In addition to hiring, training, and orienting employees, HRM should also improve their career opportunities.

Essentially, it is more economical to improve a company's current workforce than to hire new employees in the future. So, employee development is a trade-off through which human resource management saves money by avoiding the potential costs of hiring new employees.

Summary

Human resource management refers to the process of recruiting and developing a company's workforce. The HR department is concerned with identifying talent gaps in a company, advertising for positions, evaluating potential candidates, and hiring top talent.

Human resource management does not just handle the recruitment of new employees; it also oversees redundancy for companies that want to downsize. HR management also oversees orientation programs to introduce new employees to the company's goals, objectives, and policies. Overall, human resource management guarantees the smooth running of employees within a company.

Related Readings

CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™ Become a Certified Financial Modeling & Valuation Analyst (FMVA)® certification program, designed to help anyone become a world-class financial analyst. To keep learning and advancing your career, the additional CFI resources below will be useful:

# data[].attributes.attachment_link.description
Human Resource Management (HRM) is a collective term for all the formal systems created to help in managing employees and other within a company. Human resource management is tasked with three main functions, namely, the recruitment and of employees, and designating work.

# data[].attributes.body
This chapter is split into 8 segments which discuss the Production Process and Operations Management. With a focus on resource planning, operations control, operations/production efficiency, location, and market trends.

Production is the process of taking inputs, such as natural resources, and converting them into products and services. The management of this process is known as Operations Management, and Operations Managers are the people in charge of supervising this whole process. Operations Managers control most a firm's assets, and cooperate with other divisions in the firm to ensure everything goes smoothly.

Production and Operations Management involves 3 major types of decisions; planning, control, and improvements. Planning involves deciding where, when, and how the production will work. Stuff life deciding what will be needed, and where the production site will be located. The control stage involves managing the quality of the inputs, the costs involved with procuring the whole process, scheduling the plans, and whatever day-to-day operations are necessary to keep it afloat. Finally, the Improvements stage focuses on figuring out ways to improve the methods of production being used over time.

Operations Managers need to think of a lot of things when making decisions. Where do I get the materials I need? What do I need? How can I cut costs on the things I need? Where do I set up the production line? How long will this take? What layout should the facility have? Asking these questions and finding the best answers you can to them is essential to your job as an Operations Manager.

# data[].attributes.attachment_link.readable_text
The product development process can be complex and lengthy. It took sixteen years for Bob Montgomery and others at his company to develop the PowerSki Jetboard, and this involved thousands of design changes. It was worth it, though: the Jetboard was an exciting, engine-propelled personal watercraft - a cross between a high-performance surfboard and a competition water-ski/wakeboard that received extensive media attention and rave reviews. It was showered with honors, including Time magazine's "Best Invention of the Year" award. Stories about the Jetboard appeared in more than fifty magazines around the world, and it was featured in several movies, over twenty-five TV shows, and on YouTube.

Montgomery and his team at PowerSki enjoyed taking their well-deserved bows for the job they did designing the product, but having a product was only the beginning for the company. The next step was developing a system that would produce high-quality Jetboards at reasonable prices. Before putting this system in place, PowerSki managers had to address several questions.

What kind of production process should they use to make the Jetboards?

How large should their production facilities be, and where should they be located?

Where should they buy needed materials?

What systems will be needed to control the production process and ensure a quality product?

Answering these and other questions helped PowerSki set up a manufacturing system through which it could accomplish the most important task that it had set for itself: efficiently producing quality Jetboards.

Like PowerSki, every organization-whether it produces goods or provides services- sees Job 1 as furnishing customers with quality products. Thus, to compete with other organizations, a company must convert resources (materials, labor, money, information) into goods or services as efficiently as possible. The upper-level manager who directs this transformation process is called an operations manager. The job of operations management (OM) consists of all the activities involved in transforming a product idea into a finished product. In addition, operations managers are involved in planning and controlling the systems that produce goods and services. In other words, operations managers manage the process that transforms inputs into outputs.
Like PowerSki, all manufacturers set out to perform the same basic function: to transform resources into finished goods. To perform this function in today's business environment, manufacturers must continually strive to improve operational efficiency. They must fine-tune their production processes to focus on quality, to hold down the costs of materials and labor, and to eliminate all costs that add no value to the finished product. Making the decisions involved in the effort to attain these goals is another job of operations managers. Their responsibilities can be grouped as follows:

Production planning: During production planning, managers determine how goods will be produced, where production will take place, and how manufacturing facilities will be laid out.

Production control: Once the production process is underway, managers must continually schedule and monitor the activities that make up that process. They must solicit and respond to feedback and make adjustments where needed. At this stage, they also oversee the purchasing of raw materials and the handling of inventories.

Quality control. The operations manager is directly involved in efforts to ensure that goods are produced according to specification and that quality standards are maintained.

Let's take a closer look at each of these responsibilities.

Planning the Production Process

The decisions made in the planning stage have long-range implications and are crucial to a firm's success. Before making decisions about the operations process, managers must consider the goals set by marketing managers. Does the company intend to be a low-cost producer and to compete on the basis of price? Or does it plan to focus on quality and go after the high end of the market? Many decisions involve trade-offs. For example, low cost doesn't normally go hand in hand with high quality. All functions of the company must be aligned with the overall strategy to ensure success.

With these thoughts in mind, let's look at the specific types of decisions that have to be made in the production planning process. We've divided these decisions into those dealing with production methods, site selection, facility layout, and components and materials management.

Production-Method Decisions

The first step in production planning is deciding which type of production process is best for making the goods that your company intends to manufacture. In reaching this decision, you should answer such questions as:

Am I making a one-of-a kind good based solely on customer specifications, or am I producing high-volume standardized goods to be sold later?

Do I offer customers the option of "customizing" an otherwise standardized good to meet their specific needs?

One way to appreciate the nature of this decision is by comparing three basic types of processes or methods: make-to-order, mass production, and mass customization. The task of the operations manager is to work with other managers, particularly marketers, to select the process that best services the needs of the company's customers.

Make-to-Order

At one time, most consumer goods, such as furniture and clothing, were made by individuals practicing various crafts. By their very nature, products were customized to meet the needs of the buyers who ordered them. This process, which is called a make-to-order strategy, is still commonly used by such businesses as print or sign shops that produce low-volume, high-variety goods according to customer specifications. This level of customization often results in a longer production and delivery cycle than other approaches.

Mass Production

By the early twentieth century, a new concept of producing goods had been introduced: mass production (or make-to-stock strategy), the practice of producing high volumes of identical goods at a cost low enough to price them for large numbers of customers. Goods are made in anticipation of future demand (based on forecasts) and kept in inventory for later sale. This approach is particularly appropriate for standardized goods ranging from processed foods to electronic appliances and generally result in shorter cycle times than a make-to-order process.

Mass Customization

There is at least one big disadvantage to mass production: customers, as one old advertising slogan put it, can't "have it their way." They have to accept standardized products as they come off assembly lines. Increasingly, however, customers are looking for products that are designed to accommodate individual tastes or needs but can still be bought at reasonable prices. To meet the demands of these consumers, many companies have turned to an approach called mass customization, which combines the advantages of customized products with those of mass production.

This approach requires that a company interact with the customer to find out exactly what the customer wants and then manufacture the good, using efficient production methods to hold down costs. One efficient method is to mass-produce a product up to a certain cut-off point and then to customize it to satisfy different customers.

Naturally, mass customization doesn't work for all types of goods. Most people don't care about customized detergents or paper products. And while many of us like the idea of customized clothes, footwear, or sunglasses, we often aren't willing to pay the higher prices they command.

Facilities Decisions

After selecting the best production process, operations managers must then decide where the goods will be manufactured, how large the manufacturing facilities will be, and how those facilities will be laid out.

Site Selection

In site selection (choosing a location for the business), managers must consider several factors:

To minimize shipping costs, managers often want to locate plants close to suppliers, customers, or both.

They generally want to locate in areas with ample numbers of skilled workers.

They naturally prefer locations where they and their families will enjoy living.

They want locations where costs for resources and other expenses-land, labor, construction, utilities, and taxes-are low.

They look for locations with a favorable business climate-one in which, for example, local governments might offer financial incentives (such as tax breaks) to entice them to do business in their locales. For example, an enterprise zone is an area in which incentives are used to attract investments from private companies.

Managers rarely find locations that meet all these criteria. As a rule, they identify the most important criteria and aim at satisfying them. In deciding to locate in San Clemente, California, for instance, PowerSki was able to satisfy three important criteria: (1) proximity to the firm's suppliers, (2) availability of skilled engineers and technicians, and (3) favorable living conditions. These factors were more important than operating in a low-cost region or getting financial incentives from the local government. Because PowerSki distributes its products throughout the world, proximity to customers was also unimportant.

Capacity Planning

Now that you know where you're going to locate, you have to decide on the quantity of products that you'll produce. You begin by forecasting demand for your product, which isn't easy. To estimate the number of units that you're likely to sell over a given period, you have to understand the industry that you're in and estimate your likely share of the market by reviewing industry data and conducting other forms of research.

Once you've forecasted the demand for your product, you can calculate the capacity requirements of your production facility-the maximum number of goods that it can produce over a given time under normal working conditions. In turn, having calculated your capacity requirements, you're ready to determine how much investment in plant and equipment you'll have to make, as well as the number of labor hours required for the plant to produce at capacity.

Like forecasting, capacity planning is difficult. Unfortunately, failing to balance capacity and projected demand can be seriously detrimental to your bottom line. If you set capacity too low (and so produce less than you should), you won't be able to meet demand, and you'll lose sales and customers. If you set capacity too high (and turn out more units than you should), you'll waste resources and inflate operating costs.

Operations managers engage in the daily activities of materials management, which encompasses the activities of purchasing, inventory control, and work scheduling.

Purchasing and Supplier Selection

The process of acquiring the materials and services to be used in production is called purchasing (or procurement). For many products, the costs of materials make up about 50 percent of total manufacturing costs. Not surprisingly, materials acquisition gets a good deal of the operations manager's time and attention. As a rule, there's no shortage of vendors willing to supply materials, but the trick is finding the best suppliers. Operations managers must consider questions such as:

Can the vendor supply the needed quantity of materials at a reasonable price?

Is the quality good?

Is the vendor reliable (will materials be delivered on time)?

Does the vendor have a favourable reputation?

Is the company easy to work with?

Getting the answers to these questions and making the right choices-a process known as supplier selection-is a key responsibility of operations management.

e-Procurement

Technology has changed the way businesses buy things. Through e-procurement, companies use the Internet to interact with suppliers. The process is similar to the one you'd use to find a consumer good-say, a high-definition TV-over the Internet. To choose a TV, you might browse the websites of manufacturers like Sony then shop prices and buy at Amazon, the world's largest online retailer.

If you were a purchasing manager using the Internet to buy parts and supplies, you'd follow basically the same process. You'd identify potential suppliers by going directly to private websites maintained by individual suppliers or to public sites that collect information on numerous suppliers. You could do your shopping through online catalogs, or you might participate in an online marketplace by indicating the type and quantity of materials you need and letting suppliers bid. Finally, just as you paid for your TV electronically, you could use a system called electronic data interchange (EDI) to process your transactions and transmit all your purchasing documents.

The Internet provides an additional benefit to purchasing managers by helping them communicate with suppliers and potential suppliers. They can use the Internet to give suppliers specifications for parts and supplies, encourage them to bid on future materials needs, alert them to changes in requirements, and give them instructions on doing business with their employers. Using the Internet for business purchasing cuts the costs of purchased products and saves administrative costs related to transactions. It's also faster for procurement and fosters better communications.

Inventory Control

If a manufacturer runs out of the materials it needs for production, then production stops. In the past, many companies guarded against this possibility by keeping large inventories of materials on hand. It seemed like the thing to do at the time, but it often introduced a new problem-wasting money. Companies were paying for parts and other materials that they wouldn't use for weeks or even months, and in the meantime, they were running up substantial storage and insurance costs. If the company redesigned its products, some parts might become obsolete before ever being used.

Most manufacturers have since learned that to remain competitive, they need to manage inventories more efficiently. This task requires that they strike a balance between two threats to productivity: losing production time because they've run out of materials and wasting money because they're carrying too much inventory. The process of striking this balance is called inventory control, and companies now regularly rely on a variety of inventory-control methods.

Just-in-Time Production

One method is called just-in-time (JIT) production: the manufacturer arranges for materials to arrive at production facilities just in time to enter the manufacturing process. Parts and materials don't sit unused for long periods, and the costs of "holding" inventory are significantly cut. JIT, however, requires considerable communication and cooperation between the manufacturer and the supplier. The manufacturer has to know what it needs and when. The supplier has to commit to supplying the right materials, of the right quality, at exactly the right time.

Material Requirements Planning

A software tool called material requirements planning (MRP), relies on sales forecasts and ordering lead times for materials to calculate the quantity of each component part needed for production and then determine when they should be ordered or made. The detailed sales forecast is turned into a master production schedule (MPS), which MRP then explodes into a forecast for the needed parts based on the bill of materials for each item in the forecast. A bill of materials is simply a list of the various parts that make up the end product. The role of MRP is to determine the anticipated need for each part based on the sales forecast and to place orders so that everything arrives just in time for production.

Graphical Tools: Gantt and PERT Charts

To control the timing of all operations, managers set up schedules: they select jobs to be performed during the production process, assign tasks to work groups, set timetables for the completion of tasks, and make sure that resources will be available when and where they're needed. There are a number of scheduling techniques. We'll focus on two of the most common-Gantt and PERT charts.

A Gantt chart, named after the designer, Henry Gantt, is an easy-to-use graphical tool that helps operations managers determine the status of projects. Let's say that you're in charge of making the "hiking bear" offered by the Vermont Teddy Bear Company. This is a Gantt chart for the production of one hundred of these bears. As you can see, it shows that several activities must be completed before the bears are dressed: the fur has to be cut, stuffed, and sewn; and the clothes and accessories must be made. Our Gantt chart tells us that by day six, all accessories and clothing have been made. The sewing and stuffing, however (which must be finished before the bears are dressed), isn't scheduled for completion until the end of day eight. As operations manager, you'll have to pay close attention to the progress of the sewing and stuffing operations to ensure that finished products are ready for shipment by their scheduled date.

PERT Charts

Gantt charts are useful when the production process is fairly simple and the activities aren't interrelated. For more complex schedules, operations managers may use PERT charts. PERT (which stands for Program Evaluation and Review Technique) is designed to diagram the activities required to produce a good, specify the time required to perform each activity in the process, and organize activities in the most efficient sequence. It also identifies a critical path: the sequence of activities that will entail the greatest amount of time.

Our PERT chart shows how the activities involved in making a single bear are related. It indicates that the production process begins at the cutting station. Next, the fur that's been cut for this particular bear moves first to the sewing and stuffing stations and then to the dressing station. At the same time that its fur is moving through this sequence of steps, the bear's clothes are being cut and sewn and its T-shirt is being embroidered. Its backpack and tent accessories are also being made at the same time. Note that fur, clothes, and accessories all meet at the dressing station, where the bear is dressed and outfitted with its backpack. Finally, the finished bear is packaged and shipped to the customer's house.

PowerSki founder and CEO Bob Montgomery spent sixteen years designing the Jetboard and bringing it to production. At one point, in his efforts to get the design just right, he'd constructed thirty different prototypes. Montgomery thought that he could handle the designing of the engine without the aid of a computer. Before long, however, he realized that it was impossible to keep track of all the changes.

Computer-Aided Design

That's when Montgomery turned to computer technology for help and began using a computer-aided design (CAD) software package to design not only the engine but also the board itself and many of its components. The CAD program enabled Montgomery and his team of engineers to test the product digitally and work out design problems before moving to the prototype stage.

The sophisticated CAD software allowed Montgomery and his team to put their design paper in a drawer and to start building both the board and the engine on a computer screen. By rotating the image on the screen, they could even view the design from every angle. Having used their CAD program to make more than four hundred design changes, they were ready to test the Jetboard in the water. During the tests, onboard sensors transmitted data to computers, allowing the team to make adjustments from the shore while the prototype was still in the water. Nowadays, PowerSki uses collaboration software to transmit design changes to the suppliers of the 340 components that make up the Jetboard. In fact, a majority of design work these days is done with the aid of computers, which add speed and precision to the process.

Computer Aided Manufacturing

For many companies, the next step is to link CAD to the manufacturing process. A computer-aided manufacturing (CAM) software system determines the steps needed to produce the component and instructs the machines that do the work. Because CAD and CAM programs can "talk" with each other, companies can build components that satisfy exactly the requirements set by the computer-generated model. CAD/CAM systems permit companies to design and manufacture goods faster, more efficiently, and at a lower cost, and they're also effective in helping firms monitor and improve quality. CAD/CAM technology is used in many industries, including auto industry, electronics, and clothing. If you have ever seen how a 3-D printer works, you have a pretty good idea of how CAM works too.

Computer-Integrated Manufacturing

By automating and integrating all aspects of a company's operations, computer-integrated manufacturing (CIM) systems have taken the integration of computer-aided design and manufacturing to a higher level-and are in fact revolutionizing the production process. CIM systems expand the capabilities of CAD/CAM. In addition to design and production application, they handle such functions as order entry, inventory control, warehousing, and shipping. In the manufacturing plant, the CIM system controls the functions of industrial robots-computer-controlled machines used to perform repetitive tasks that are also hard or dangerous for human workers to perform.

What do you do if your brand-new DVD player doesn't work when you get it home? What if you were late for a test because it took you twenty minutes to get a burger and fries at a drive-through window? Like most people, you'd probably be more or less disgruntled. As a customer, you're constantly assured that when products make it to market, they're of the highest possible quality, and you tend to avoid brands that have failed to live up to your expectations or to producers' claims.

But what is quality? According to the Society for Quality, the term quality refers to "the characteristics of a product or service that bear on its ability to satisfy stated or implied needs." When you buy a DVD player, you expect it to play DVDs. When you go to a drive-through window, you expect to be served in a reasonable amount of time. If your expectations are not met, you'll conclude that you're the victim of poor-quality.

Quality Management

Total quality management (TQM), or quality assurance, includes all the steps that a company takes to ensure that its goods or services are of sufficiently high quality to meet customers' needs. Generally speaking, a company adheres to TQM principles by focusing on three tasks:

1. Customer satisfaction

2. Employee involvement

3. Continuous improvement

Let's take a closer look at these three principles.

Customer Satisfaction

Companies that are committed to TQM understand that the purpose of a business is to generate a profit through customer satisfaction. Thus, they let their customers define quality by identifying desirable product features and then offering them. They encourage customers to tell them how to offer services that work the right way.

Armed with this knowledge, they take steps to make sure that providing quality is a factor in every facet of their operations-from design, to product planning and control, to sales and service. To get feedback on how well they're doing, many companies routinely use surveys and other methods to monitor customer satisfaction. By tracking the results of feedback over time, they can see where they need to improve.

Employee Involvement

Successful TQM requires that everyone in the organization, not simply upper-level management, commits to satisfying the customer. When customers wait too long at a drive-through window, it's the responsibility of a number of employees, not the manager alone. A defective DVD isn't solely the responsibility of the manufacturer's quality control department; it's the responsibility of every employee involved in its design, production, and even shipping. To get everyone involved in the drive for quality assurance, managers must communicate the importance of quality to subordinates and motivate them to focus on customer satisfaction. Employees have to be properly trained not only to do their jobs but also to detect and correct quality problems.

In many companies, employees who perform similar jobs work as teams, sometimes called quality circles, to identify quality, efficiency, and other work-related problems, to propose solutions, and to work with management in implementing their recommendations.

Continuous improvement

An integral part of TQM is continuous improvement: the commitment to making constant improvements in the design, production, and delivery of goods and services.

Improvements can almost always be made to increase efficiency, reduce costs, and improve customer service and satisfaction. Everyone in the organization is constantly on the lookout for ways to do things better.

Statistical Process Control

Companies can use a variety of tools to identify areas for improvement. A common approach in manufacturing is called statistical process control. This technique monitors production quality by testing a sample of output to see whether goods in process are being made according to predetermined specifications. An example of a statistical process control method is Six Sigma. A Six-Sigma process is one in which 99.99966% of all opportunities to perform an operation are free of defects. This percentage equates to only 3.4 defects per million opportunities.

Outsourcing

PowerSki's Web site states that "PowerSki International has been founded to bring a new watercraft, the PowerSki Jetboard, and the engine technology behind it, to market." That goal was reached in May 2003, when the firm emerged from a lengthy design period. Having already garnered praise for its innovative product, PowerSki was ready to begin mass-producing Jetboards. At this juncture, the management team made a strategic decision; rather than producing Jetboards in-house, they opted for outsourcing: having outside vendors manufacture the engines, fiberglass hulls, and associated parts. Assembly of the final product took place in a manufacturing facility owned by All American Power Sports in Moses Lake, Washington. This decision doesn't mean that the company relinquished control over quality; in fact, every component that goes into the PowerSki Jetboard is manufactured to exact specifications set by PowerSki. One advantage of outsourcing its production function is that the management team can thereby devote its attention to refining its product design and designing future products.

# data[].attributes.attachment_link.description
The product development process can be complex and lengthy. It took sixteen years for Bob Montgomery and others at his company to develop the PowerSki Jetboard, and this involved thousands of design changes. It was worth it, though: the Jetboard was an exciting, engine-propelled personal watercraft - a cross between a high-performance surfboard and a competition water-ski/wakeboard that received extensive media attention and rave reviews.

# data[].attributes.headline
Chapter 11: Products and Pricing Strategies

# data[].attributes.subject
Chapter 11: Products and Pricing Strategies

# data[].attributes.body
This chapter is split into 10 segments which go into great detail about Marketing, Marketing Strategy, Human Psychology, and Pricing.

Marketing is the process of finding out the wants and needs of potential customers, and providing goods and services which fill those wants and needs. Businesses do research in order to learn what people want, and then create products and services to fill those desires and make profit. The "Marketing Concept" refers to this process, and is based on the "right" principle. Under the Marketing Concept, customer value and customer satisfaction are some of the most important aspects of business. Customer value referring to the comparative value of the product in relation to its price, and customer satisfaction referring to how happy the customer is with their purchase.

When marketing a product, there are 5 things to keep track of in the strategy you choose to use. Product, Price, Place, Promotion, and People, otherwise known as "The 5 P's. Product refers to what you're offering to the customer. Price being what it costs for the customer to obtain the product. Place refers to when and how you get product to the customer. Promotion refers to how you influence customers into buying the product. And People refers to how the business uses employees to support the marketing.

In addition to these things, there are a huge amount of factors which can come together to influence any individual persons' buying decisions. Cultural influences, social factors, age, geography, economics, technology, psychology, politics, legality, gender, and so many more. When marketing a product, you need to have a firm understanding of the kind of person who would want the product in the first place and fine tune your marketing towards that demographic. Understanding this and taking advantage of it is key in a successful marketing strategy.

# data[].attributes.attachment_link.readable_text
Creating Products and Pricing Strategies to Meet Customers' Needs

What is the marketing concept and relationship-building?

Marketing is the process of getting the right goods or services or ideas to the right people at the right place, time, and price, using the right promotion techniques and utilizing the appropriate people to provide the customer service associated with those goods, services, or ideas. This concept is referred to as the "right" principle and is the basis of all marketing strategy. We can say that marketing is finding out the needs and wants of potential buyers (whether organizations or consumers) and then providing goods and services that meet or exceed the expectations of those buyers. Marketing is about creating exchanges. An exchange takes place when two parties give something of value to each other to satisfy their respective needs or wants. In a typical exchange, a consumer trades money for a good or service. In some exchanges, nonmonetary things are exchanged, such as when a person who volunteers for the company charity receives a T-shirt in exchange for time spent. One common misconception is that some people see no difference between marketing and sales. They are two different things that are both part of a company's strategy. Sales incorporates actually selling the company's products or service to its customers, while marketing is the process of communicating the value of a product or service to customers so that the product or service sells.

To encourage exchanges, marketers follow the "right" principle. If a local Avon representative doesn't have the right lipstick for a potential customer when the customer wants it, at the right price, the potential customer will not exchange money for a new lipstick from Avon. Think about the last exchange (purchase) you made: What if the price had been 30 percent higher? What if the store or other source had been less accessible? Would you have bought anything? The "right" principle tells us that marketers control many factors that determine marketing success.

Most successful organizations have adopted the marketing concept. The marketing concept is based on the "right" principle. The marketing concept is the use of marketing data to focus on the needs and wants of customers in order to develop marketing strategies that not only satisfy the needs of the customers but also the accomplish the goals of the organization. An organization uses the marketing concept when it identifies the buyer's needs and then produces the goods, services, or ideas that will satisfy them (using the "right" principle). The marketing concept is oriented toward pleasing customers (be those customers organizations or consumers) by offering value. Specifically, the marketing concept involves the following:

Focusing on the needs and wants of the customers so the organization can distinguish its product(s) from competitors' offerings. Products can be goods, services, or ideas.

Integrating all of the organization's activities, including production and promotion, to satisfy these wants and needs

Achieving long-term goals for the organization by satisfying customer wants and needs legally and responsibly

Today, companies of every size in all industries are applying the marketing concept. Enterprise Rent-A-Car found that its customers didn't want to have to drive to its offices. Therefore, Enterprise began delivering vehicles to customers' homes or places of work. Disney found that some of its patrons really disliked waiting in lines. In response, Disney began offering FastPass at a premium price, which allows patrons to avoid standing in long lines waiting for attractions. One important key to understanding the marketing concept is to know that using the marketing concept means the product is created after market research is used to identify the needs and wants of the customers. Products are not just created by production departments and then marketing departments are expected to identify ways to sell them based on the research. An organization that truly utilizes the marketing concept uses the data about potential customers from the very inception of the product to create the best good, service, or idea possible, as well as other marketing strategies to support it.

Customer Value

Customer value is the ratio of benefits for the customer (organization or consumer) to the sacrifice necessary to obtain those benefits. The customer determines the value of both the benefits and the sacrifices. Creating customer value is a core business strategy of many successful firms. Customer value is rooted in the belief that price is not the only thing that matters. A business that focuses on the cost of production and price to the customer will be managed as though it were providing a commodity differentiated only by price. In contrast, businesses that provide customer value believe that many customers will pay a premium for superior customer service or accept fewer services for a value price. It is important not to base value on price (instead of service or quality) because customers who only value price will buy from the competition as soon as a competitor can offer a lower price. It is much better to use marketing strategies based on customer relationships and service, which are harder for the competition to replicate. Southwest Airlines doesn't offer assigned seats, meals, or in-flight movies. Instead the budget carrier delivers what it promises: on-time departures. In "service value" surveys, Southwest routinely beats the full-service airlines such as American Airlines, which actually provide passengers with luxuries such as movies and food on selected long-haul flights.

Customer Satisfaction

Customer satisfaction is a theme stressed throughout this text. Customer satisfaction is the customer's feeling that a product has met or exceeded expectations. Expectations are often the result of communication, especially promotion. Utilizing marketing research to identify specific expectations and then crafting marketing strategy to meet or exceed those expectations is a major contributor to success for an organization. Lexus consistently wins awards for its outstanding customer satisfaction. JD Powers surveys car owners two years after they make their purchase. Its Customer Satisfaction Survey is made up of four measures that each describe an element of overall ownership satisfaction at two years: vehicle quality/ reliability, vehicle appeal, ownership costs, and service satisfaction from a dealer. Lexus continues to lead the industry and has been America's top-ranked vehicle for five years in a row.

"Lexus Rises to the Top in Customer Satisfaction," Automotive News, http://www.autonews.com, August 25, 2015.

Building Relationships

Relationship marketing is a strategy that focuses on forging long-term partnerships with customers. Companies build relationships with customers by offering value and providing customer satisfaction. Once relationships are built with customers, customers tend to continue to purchase from the same company, even if the prices of the competitors are less or if the competition offers sales promotions or incentives. Customers (both organizations and consumers) tend to buy products from suppliers whom they trust and feel a kinship with, regardless of offerings of unknown competitors. Companies benefit from repeat sales and referrals that lead to increases in sales, market share, and profits. Costs fall because it is less expensive to serve existing customers than to attract new ones. Focusing on customer retention can be a winning tactic; studies show that increasing customer retention rates by 5 percent increases profits by anywhere from 25 to 95 percent.

"What Is Customer Retention?" Customer Insight Group, https://www.customerinsightgroup.com, April 20, 2017.

Customers also benefit from stable relationships with suppliers. Business buyers have found that partnerships with their suppliers are essential to producing high-quality products while cutting costs. Customers remain loyal to firms that provide them greater value and satisfaction than they expect from competing firms.

Frequent-buyer clubs are an excellent way to build long-term relationships. All major airlines have frequent-flyer programs. After you fly a certain number of miles, you become eligible for a free ticket. Now, cruise lines, hotels, car rental agencies, credit-card companies, and even mortgage companies give away "airline miles" with purchases. Consumers patronize the airline and its partners because they want the free tickets. Thus, the program helps to create a long-term relationship with (and ongoing benefits for) the customer. Southwest Airlines carries its loyalty program a bit further than most. Members get birthday cards, and some even get profiled in the airline's in-flight magazine!

1. Explain the marketing concept.

2. Explain the difference between customer value and customer satisfaction.

3. What is meant by relationship marketing?

Summary of Learning Outcomes

What is the marketing concept and relationship-building?

Marketing includes those business activities that are designed to satisfy consumer needs and wants through the exchange process. Marketing managers use the "right" principle-getting the right goods or services to the right people at the right place, time, and price, using the right promotional techniques. Today, many firms have adopted the marketing concept. The marketing concept involves identifying consumer needs and wants and then producing products (which can be goods, services, or ideas) that will satisfy them while making a profit. Relationship marketing entails forging long-term relationships with customers, which can lead to repeat sales, reduced costs, and stable relationships.

Glossary

customer satisfaction

The customer's feeling that a product has met or exceeded expectations.

customer value

The ratio of benefits to the sacrifice necessary to obtain those benefits, as determined by the customer; reflects the willingness of customers to actually buy a product.

exchange

The process in which two parties give something of value to each other to satisfy their respective needs.

marketing

The process of discovering the needs and wants of potential buyers and customers and then providing goods and services that meet or exceed their expectations.

marketing concept

Identifying consumer needs and then producing the goods or services that will satisfy them while making a profit for the organization.

relationship marketing

A strategy that focuses on forging long-term partnerships with customers by offering value and providing customer satisfaction.

# data[].attributes.attachment_link.description
Creating Products and Pricing Strategies to Meet Customers' Needs What is the marketing concept and relationship-building? Marketing is the process of getting the right goods or services or ideas to the right people at the right place, time, and price, using the right promotion techniques and utilizing the appropriate people to provide the customer service associated with those goods, services, or ideas.

# data[].attributes.headline
Chapter 12: Distributing and Promoting Products and Services

# data[].attributes.subject
Chapter 12: Distributing and Promoting Products and Services

# data[].attributes.body
This chapter is split into 12 segments which go into detail about Advertising, Supply Chain Management, and the distribution of products and services.

Distribution is the act of managing the movement of materials from one place to another, and is a fundamental aspect of business. Businesses distribute goods through a series of distribution channels to get to where they need to go. The suppliers give raw materials to the producer, the producer creates the product, distributes it to a wholesaler or a distribution center, which then goes to a retail, which is then purchased by a customer.

Supply-chain management is used to coordinate this into a seamless process to help improve customer satisfaction as much as possible. Supply-chain managers have 2 roles: a communicator who listens to customer demands and relays it to the supplier, and a physical flow process that engineers the movement of goods through the entire chain. Supply-chain managers are vital as they coordinate, monitor, and manage the entire process from buying resources, scheduling, processing, inventory management, and transportation and storage of goods. The importance of this role cannot be understated.

Lastly, there's advertising. Advertising can take many forms, from newspaper articles, television broadcasts, adverts, or paid promotions, but at its core the point of advertising is to spread awareness and intrigue about your product. The more people that know about your product, the more likely people will be to buy it. The more popular your product gets, the more it spreads and the more money you'll make. Personal Selling is a popular form of advertising which gives a face-to-face sales presentation, demonstrating it to a potential audience. This form of advertising gives a detailed, hands-on explanation of the product and its virtues, and can be targeted towards specific audiences. As a result, it's a very successful method.

# data[].attributes.attachment_link.readable_text
Globalization has become an undeniable part of commerce over the last few decades, as large companies have grown first to source labor and parts from developing regions, and then to start selling in those same areas as they grew in wealth and buying power. Supply chains have had to keep in step, passing through numerous countries to obtain goods most efficiently and cost effectively, and growing more complex as a result. And on the other end, the supply chain grows more frayed in order to deliver to countless countries for consumption. For the largest companies, managing a supply chain can require dedicated teams in every area the chain touches. It's safe to say that supply chain management is both an art and a science.

This article will cover what a supply chain is, with examples; discuss how supply chain management works and its principles; and vital concepts in the field. Then we'll move on to current issues and where the field is going. Finally, you'll find useful resources, templates, and education programs. Ready? Let's get started.

What Is a Supply Chain?

A supply chain is a collection of suppliers required to create one specific product for a company. The chain is made up of nodes or "links," which can include multiple manufacturers for parts, then the completed product, then the warehouse where it is stored, then its distribution centers, and finally, the store where a consumer can purchase it. The concept of the chain is important, because each link is connected in a specific direction and order, and the next link cannot be reached without going through the previous one. Each link adds time and costs, and can involve labor, parts, and transportation. Every product a company carries may have its own supply chain, though they may use certain suppliers for multiple products. You can see why this gets so complicated, especially for international supply chains.

The process described above was that of a typical retail supply chain. However, there are many different types in practice. Here are three examples from well-known masters of supply chains:

Example: Walmart and "Big Box" Retailers
The "Big Box" store, which represents one of the major disruptions of the retail model from the last century, thrives on size, ubiquity, and well-planned supply chains to drive out the competition. How else would a company like Walmart make a profit on a t-shirt made overseas that retails for $5.00?

Walmart succeeds by having fewer links in its supply chain, and buying more generic goods directly from manufacturers, rather than from suppliers with brand names and markup. It uses "Vendor Managed Inventory" to mandate that manufacturers are responsible for managing products in warehouses owned by Walmart. The company is also is particularly choosy with suppliers, partnering only with those who can meet the quantity and frequency it demands with low prices, and with locations that limit transportation needs. They manage their supply chain like one firm, with all partners operating on the same communication network.

By buying at large enough quantities to take advantage of economies of scale, moving products directly from manufacturers to warehouses, and then delivering to stores which are large enough to be distribution centers, it reduces links in the supply chain and cost per item, translating to low prices for consumers.

Example: Amazon and "Ecommerce Platforms"
Having overtaken Walmart as the world's largest retailer in the last decade, Amazon's "online big box" concept is a perfect example of unique supply chains. As an e-commerce shop, obviously they cut the retail store out and ship from distribution center to consumer's homes directly. Where Amazon innovates is both in its supplier-side and its final supply chain link - delivery.

Just about anyone can sell things on Amazon because it's a platform, not just a shop. As a result, Amazon has more things than any other online store, so when people shop online, they think of Amazon. Then, it produces everyday goods cheaply, and underbids suppliers. Next, their warehouses make serious use of automation to store items going to like destinations together, ready for immediate transport. Finally, its investments in delivery staff and technology make 2-day shipping a basic expectation, and even same-day delivery a possibility. Amazon ditches third-party logistics (3PL) and fulfills orders itself.

Example: Tesla and Specialized, Owned Chains
Automotive manufacturing has come a long way since Henry Ford used assembly line manufacturing to speed up the production of a single car model in a single color. Now, in a time when even American carmakers are opening factories abroad, Tesla is making innovative, incredibly popular, and luxurious cars right in California, a location with incredibly costly real estate.

Rather than having a long supply chain of cheap part makers, they have a vertically integrated supply chain, with a full-service auto plant near its corporate headquarters and plans for a supplier park and a massive battery factory, and Tesla owns it all. Even more interesting is the digital supply chain the company promotes - new firmware and algorithm updates are pushed out to existing car owners over the cloud.

What Is Supply Chain Management?

The Basics of Supply Chain Management Processes

There are key supply chain processes that you must take into consideration to effectively understand and manage them. These processes are all at play regardless of the type of supply chain you're using.

Customer relationship management (CRM) comes first, because as the principles of SCM state, you must adapt everything in the supply chain to the customer. If no one is buying, there's no need to produce anything. At the front of your supply chain, where a store's staff interacts with its consumers, they must have plans in place for ongoing relationships. They need CRM tools to gather customer information for marketing and market research, all to determine the products and services to offer in the future.

Customer service management is another process that ties in, as it is where you gather negative and positive feedback to determine future needs.

Demand management is closely linked with the previous two, as it takes customer interactions and orders into account to determine the workload all the way up the supply chain. At its core, customers buying more means make more, and customers buying less means make less. Customer forecasting is an important task that analysts must perform well to determine the current demand and what it will be in the future, to prevent waste in the supply chain.

Product development is an important part of the supply chain that is informed by consumer demand. You must work with CRM and customer service data to determine what they want, which influences new products, product line extensions, and also what to stop making. You must integrate suppliers in this process because it affects cost, quality, and delivery time.

Supplier relationship management goes without saying - if you want to produce your products on time and on budget, you need a solid rapport with everyone you're outsourcing to in the chain. This impacts manufacturing flow management, which ensures everything gets where it needs to go without delay, and at the correct spec.

Order fulfilment involves coordinating with distribution centers and either retail locations or 3PL to get the product direct to consumers. You've now made it all the way back to the beginning of the cycle, and need to pay attention to new CRM and customer service data.

Returns management, also known as the "reverse supply chain," is a vital part of the flow of products that doesn't fit perfectly into the clean supply chain cycle. It involves picking up online orders from 3PL locations or from consumers' addresses and accepting returns at retail locations. Once these items are put back into inventory, they must be ready to get to a different customer while the product run is still live.

What Supply Chain Managers Look for When Managing Supplier Relationships

One of the most complex parts of SCM is handling all the other people in the supply chain. They have their own needs and motivations, and to keep them all happy and working together with partners they are only loosely affiliated with is a challenge - especially when trying to meet deadlines and turn a profit. The following are what managers should focus on most in such relationships:

Org Chart and Leadership Style: How is the supplier's organization set up? Is it a vertical or horizontal structure? Is the leadership strong and long lasting, or fickle and prone to change? You need to know who you'll be interfacing with, and who will be the next one in line should some shakeup occur. Business relationships are always between people, and don't always survive a reorg.

Management Style: How do the leaders at this supplier run their shop? Make sure it works with your crew. A micromanager at a relatively replaceable link in your supply chain will waste inordinate time, just as a hands-off manager at a vital link could result in sloppy delivery or substandard product quality.

Company Culture: Always important for working with suppliers, determine what kinds of people rise to the top, and how everyone acts when nobody's watching. If, for example, middle managers are constantly in fear for their jobs because of ruthless quarterly performance reviews, they may over-promise, make excuses, or otherwise be unstable work partners.

Product Flows: Once you know that you can work with the people, make sure their facilities are in order. Are they equipped for orders of the size and frequency you plan to make? How do they handle emergency, fast-turn around orders? What about other customers - are they only able to use their facilities for your product flows at certain portions of the month due to full inventory? Leave no stone unturned.

Information Flows: Just as vital is the ability to control information about the day-to-day flow of materials, and to communicate and coordinate long-term plans. Is the supplier up on their product details, inventory, and SKU organization? Is their security and encryption up to the standards of your company, and your industry? Big data is useless if the right people don't see it in time.

Rewards and Risks: Take into account opportunities and threats of working with this supplier. Maybe they're well-equipped to handle your exact product because they also work with your competitors. Perhaps they are new and establishing themselves, so offer a substantial discount, but may not be able to deliver on time? Do what's best for the company, and use risk assessment to keep your whole supply chain operable.

Vital Supply Chain Management Concepts to Know

The Future of Supply Chain Management

Aside from the issues of the day, it's also vital to see where the field is going. The future of SCM is bright, but certainly evolving. We asked a group of experts and innovators in supply chain management to discuss what they believe the future of SCM holds:​
Over the next decade, we will see massive and disruptive forms of innovation both in terms of technology that expedites the speed at which customers receive their products (drone delivery) as well as technologies that drastically enhances the online shopping experience for customers, (virtual reality). While these and other technologies no doubt have the opportunity to significantly change the landscape of online shopping and the supply chain, I expect we will see firms diverge on two different strategies. Some will rush to implement these costly new technologies in order to drive down the total time between an order being placed and last mile delivery, while other firms will stand by the current landscape (for most B2C online sellers) of product delivery in approximately two-days, acting cautiously, particularly in regards to the cost of these new technologies versus their impact on the overall value chain for consumers. Certainly, there are niche industries where significant investments in drone delivery technology will provide a distinct competitive advantage, but I predict that for many B2C online sellers, the impact on the overall value chain of these new technologies will be misaligned with a consumer's perception of value, and therefore make the initial cost of these new technologies unjustified.
Embracing big data is an essential principle of modern SCM, specifically real-time data which has the potential to improve the efficiency of a supply chain and negate potential risks to strategy. We know that logistics optimization through technological innovations and data integration can make supply chains more efficient and more financially sound. The future of the multi-modal SCM depends on successful integration with data and systems to achieve synchromodality. To achieve this, there needs to be a connection to all available transport modalities in the form of a real-time data flow. Once any issues with connectivity are addressed, a ranking system is required to consider a variety of variables such as dock schedules and material restrictions. Pricing data is another integral component. The great advantage of a synchromodal platform is that it's informed by every available option and makes a selection based on key factors like speed requirements. There is still significant work to be done in terms of how best to access and integrate a supply chain partner's real-time data but, as these platforms are developed, we're likely to see faster order processing times for large shipments and systems which can help generate a better ROI. The way we understand it, SCM is changing because now an efficient supply chain can be a competitive asset as opposed to a cost center. Probably the most dynamic link in the supply chain in recent years has been the "last mile": that movement of goods from a DC to a final destination in the home. E-commerce king Amazon has done much to challenge and ultimately rewrite the rules of last mile delivery. Last mile delivery has also produced a new warehousing subsector: the locker. Studies show that online shoppers not only want their packages now, they also want their packages delivered to places other than their homes. These lockers can be viewed as "micro warehouses" and will come with additional costs. We expect many to be operated by an emerging sector of third-party logistics (3PL) providers specializing in this particular segment of the supply chain. Lockers are now common in Europe, where densely populated and congested urban centers make them a natural fit. We anticipate that lockers will also become the next boom sector within logistics/distribution site selection in the United States. Amazon already has automated lockers in six states, while the U.S. Postal Service has lockers located within post offices in the Washington, D.C., area. Upstart third-party logistics providers will be looking for sites where they can locate lockers, such as in transit centers, apartment buildings, convenience stores, or any establishment that provides off-hours access for picking up packages. Also, the growing online meals industry is expected to fuel the need for temperature-controlled lockers for the delivery of perishables.

Careers in Supply Chain Management

Supply Chain Management Templates

Outside of the physical work of checking inventory, or the personal work of communicating with different members of the supply chain's links, much of your work as a supply chain manager is using systems and dashboards to get an understanding of logistics, operations, and flows. What follows are some templates that can help manage and streamline workflow, while understanding and sharing inventory reports and more.

Download Risk Management Matrix Template

Excel | Word | PDF | Smartsheet

Download Stock Inventory Control Template

Excel | Smartsheet
‌ Download Supply Chain Dashboard Template ‌ Download Microsoft Excel Template for Choosing MRP Software ‌ Download RFP Vendor Template

A Better Way to Manage Supply Chain & Manufacturing Operations

Creating efficient processes for supply chain management is essential to the success of overall manufacturing operations. When every process must feed seamlessly into the next, top manufacturers count on Smartsheet to amplify their efforts and transform raw materials into affordable, quality goods.

Smartsheet is a work management and automation platform that helps enterprises and teams work better. Whether for supply chain project scheduling and execution, production calendars and communication, or compliance visibility and tracking, Smartsheet helps to ensure efficient and effective workflows. Improve supply chain visibility with real-time data, increase accuracy with an always-up-to-date picture of projects and strategic initiatives, and accelerate overall production. Reduce inventory and eliminate disruptions to flow, and better facilitate communication with vendors and suppliers.

In fact, the team at Shaw Industries Group, Inc. (the world's largest carpet manufacturer and leading floorcovering provider) relies on Smartsheet as their work management solution and have seen big results. Torrance Ford, Director of Supply Chain Business Solutions, explains, "As a global flooring provider, complexity that comes from having hundreds and hundreds of systems in place is a barrier to our business objectives. With Smartsheet, we've eliminated many of these one-off systems and simplified our process. We have less to maintain and we're more flexible and more efficient, creating a more sustainable business model."

Discover how Smartsheet can help ensure your supply chain operations are a success.
Try Smartsheet for Supply Chain Management

# data[].attributes.attachment_link.title
Supply Chain Management: Principles, Examples & Templates | Smartsheet

# data[].attributes.attachment_link.description
Globalization has become an undeniable part of commerce over the last few decades, as large companies have grown first to source labor and parts from developing regions, and then to start selling in those same areas as they grew in wealth and buying power.

# data[].attributes.headline
Chapter 14: Using Financial Information and Accounting

# data[].attributes.subject
Chapter 14: Using Financial Information and Accounting

# data[].attributes.body
This chapter is split into 8 segments which go into detail in the basic aspects of Accountancy, such as the profession and what is, the core financial statements, and how to read, analyze, and calculate basic financial information.

Accountancy is the process of documenting, classifying, summarizing, and analyzing financial information, and helps to provide a detailed overview of a business' finances. Financial data is sorted and input into a series of financial statements, which are used to document and calculate whatever information is needed by a business.

There are 4 primary types of financial statements: The Balance Sheet, Income Statement, Statement of Owner's Equity, and Statement of Cash Flow. The Balance Sheet summarizes all of a business' assets, liabilities, and stockholder's equity, giving a picture of what the business' finances were like at a specific point in time. The Income Statement covers all the revenue and expenses incurred by the business over a period of time, used to calculate the total profits/losses of the business. The Statement of Owner's Equity is used to calculate the total Capital the owner of the business has at a specific point in time. Lastly, the Statement of Cash Flow is a summary of all the money flowing through the business, giving you a firm idea of when, where, and how cash is flowing through the business. Each financial statement is valuable in its own right, and each one is calculated as part of the Accounting Cycle.

Once the financial statements are created, Ratio Analysis is used to calculate and interpret information from the statements. This process can highlight potential problems, and helps give a better understanding of how well the business is doing in a certain regard, but as it is based on historical data, it should generally be taken with a grain of salt.

There are 4 types of Ratios: Liquidity Ratios are used to measure a firm's ability to pay off any short-term debts they incur. Profitability Ratios measure how well a firm can use its resources to generate profit as efficiently as possible. Activity Ratios measure how well a firm can use its assets. Lastly, Debt Ratios measure how well a firm uses borrowed funds.

# data[].attributes.headline
Chapter 16: Understanding Financial Management and Securities Market

# data[].attributes.subject
Chapter 16: Understanding Financial Management and Securities Market

# data[].attributes.body
This chapter is split into 8 segments which discuss Financial Management, the Securities Market, and Short/Long-term Financing.

Most of this chapter is focused on discussing the roles that Financial Managers play within a business and what things are involved in that job. Financial Managers are responsible for tracking how money flows in and out of the firm, and they coordinate with the other departments of the business to determine how funds will be used, how much is needed, and where to get it from. Their job is closely tied with accounting, but while an Accountants job is to prepare the financial information of the business, a Financial Manager's job is to use the information prepared by the Accountants in order to create financial plans.

A Financial Managers main goal is to increase the firms value as much as possible. The value of a publicly owned company is based on the share price of its stock, while the value of a privately owned company is equal to how much the business can be sold for. To this end, a Financial Manager works to maximize profits in both the short-term and long-term. Putting funds in opportunities with as positive a risk-return trade-off as possible. Marketable Securities, short-term investments which can be easily turned into cash, are quite popular as they are typically a very safe investment with a high return.

Lastly, when doing business, you have to keep in mind that different countries have different cultures, laws, customs, and beliefs. These factors can all greatly affect how business is conducted overseas, and adapting to overcome these hurdles is important.

# data[].attributes.attachment_link.readable_text
Financial Management is a critical topic in business. The reason is that a company cannot function without the proper use of funds. It might even suffer stunted growth. To understand and apply the right management practices in the handling and use of funds, one has to know how valuable financial management is to a business.

In this post, we shall discuss financial management, its objectives, meaning, and function in an organization.

What is the Meaning of Financial Management?

Before dividing into the function and objectives of financial management, let's define what the term means. Through the definition, one would appreciate the importance of the concept and why it needs to be considered in the business environment.

The most popular and acceptable definition of financial management as given by S.C.Kushal is that "Financial Management deals with procurement of funds and their effective utilization in the business".

Weston and Brigham: Financial Management "is an area of financial decision-making, harmonizing individual motives and enterprise goals".

Joshep and Massie: Financial Management "is the operational activity of a business
that is responsible for obtaining and effectively utilizing the funds necessary for efficient operations"

Financial Management is critical to any company, whether small or big. It is like the lifeline of the business. It is also a vital activity that must be performed in any organization.

However, financial management entails the process of planning, organizing, monitoring, and also controlling the financial resources of an organization. The idea for doing such is to be able to achieve the vision or goals of the company at the stipulated time frame.

Financial Management is a regular practice in a business environment. It involves managing a company's financial resources to ensure there is little or no wastage.

It controls every single thing regarding the company's financial activities which includes the procurement of funds, use of funds, payments, accounting, risk assessment, and other things that are related to finances.

And that is one of the reasons it is considered to be an integral part of the company because, without proper use of funds, the business can go down. It might also not have what it takes to carry out production or activities.

The general principles of management are also applied to the financial management of the company too. But the main focus shouldn't be to create principles or department to manage the finances of the business.

They must be set up to follow the best practices, use the required financial management tools, and also deploy the right strategies to minimize cost, and ensure production or business activities function smoothly.

In other words, the use of business funds matters. It's the reason financial management is like the engine room of the company and can affect every other department if not handled properly.

So in order to eliminate any form of barrier that may hinder the growth of the business, firms must ensure that the right financial management mechanism is put in place.

The Objectives of Financial Management
There are objectives or reasons firms implement these management strategies to grow their business.
1. Profit Maximization

One of the reasons a company employs a financial manager is to maximize profit while managing the finance of the company.

The gain can be in the short or long-term. But the main focus is that the individual or department handling the financial issues of the company must ensure that the company in question is making sufficient profit.

2. Proper Mobilization of Finance

The collection of funds to run the business is also an integral part of financial management that the manager needs to handle appropriately.

Once the manager concludes the estimation of the amount needed for a business process, the required amount can then be requested from any legal sources such as debenture, shares, or even request for a bank loan. But the point is that there should be a proper balance between the money the firm has and the amount borrowed.

3. The Company's Survival

The survival of the company is essential. That is one of the reasons the management considers hiring financial managers in the first place. The manager has to make adequate financial decisions to ensure the company is successful.

4. Proper Coordination

There must be a proper understanding and corporation among the various departments. The finance department must understand and agree with other departments within the company for the business to function smoothly.

5. Lowers Cost of Capital

Financial managers also try their very best to reduce the cost of capital, which is something that is vital to the business. They ensure money borrowed attracts little interest rates so the company can maximize profit.

Financial Management Functions

These are the duties of a fiscal manager. They are there to ensure that everything concerning finances within a company is in order.
Below are Financial Management Functions:
1. Financial Planning and Forecasting

It is the financial manager's responsibility to plan and estimate the business's financial needs. He needs to provide details regarding the amount of money that would be required to purchase different assets for the company.

The management through the financial manager needs to know what they need to spend on working capital and fixed assets for the business too.

Another vital duty of the financial manager is to make futuristic plans for funds that the company would need. And the manner in which the funds will be realized and used is also of utmost importance to the financial manager.

2. Determination of capital composition

Once the Planning and Forecasting have been made, the capital structure has to be decided. The mix of debt and equity used to finance the company's future profitable investment opportunities is referred to as capital structure.

3. Fund Investment

The financial manager has to ensure that funds made available to the business are used adequately to grow the business. The cost of acquiring the said fund and value of the returns need to be compared and balanced.

The financial manager also needs to look into the channels of the business that is yielding higher returns and improve them.

4. Maintain Proper Liquidity

Cash is the best source for maintaining liquidity. The business requires it to buy raw materials, pay salaries, and tackle other financial needs of the company.

However, the financial manager has to determine if there is a demand for liquid assets. He also has to arrange these assets in a manner that the business won't experience scarcity of funds.

5. Disposal of Surplus

Selling surplus assets and investing in more productive ways will increase profitability and therefore increase the ROCE.

6. Financial Controls

Financial control may be construed as the analysis of a company's actual results, approached from different perspectives at different times, compared to its short, medium, and long-term objectives and business plans.

Conclusion

Financial management is a hot topic in the business world because of the importance of finance to the business.

The reason for establishing a company is to make a profit and also run for many years. However, it's the financial manager's responsibility that the finances of the company are used adequately.

About Sonia Kukreja

# data[].attributes.attachment_link.title
Financial Management - Meaning, Objectives and Functions - Management Study HQ

# data[].attributes.attachment_link.description
Financial Management is a critical topic in business. The reason is that a company cannot function without the proper use of funds. It might even suffer stunted growth. To understand and apply the right management practices in the handling and use of funds, one has to know how valuable financial management is to a business.

# data[].attributes.body
This chapter is split into 6 segments which discuss business as a career, interpersonal skills, and long-term goal planning.

When conducting business, having good interpersonal skills is key. Being able to think on your feet is valuable in day-to-day activities. Being able to connect with other people is valuable for building comradery. Being able to listen and act on feedback is important for building trust and a positive reputation. Knowing how to persuade people is important for getting ahead in life, and influencing business decisions. Persuasion rests on trust, trust rests on honest and integrity. If you're true to your word and build integrity, building trust comes easy. knowing how to exploit what power you have as effectively as possible is important for managing your role in the business. Knowing how to handle conflict and redirect it towards something positive is valuable for making things run more smoothly. Knowing your way through a conversation, being able to build trust, and knowing what to do in any given situation is invaluable for getting ahead in a business.

On top of that, being flexible and planning things out in advance is just as important. What goal do you have in mind? What do you need to accomplish that goal? What options do you have? These are all important things to keep in mind. Creating a plan helps you to understanding what you want to do and how your going to do it; helping to make your life much less stressful. Everyone has dreams, what matters is whether you can take those dreams, twist them into a realistic goal and move towards it. That being said, taking care of yourself is just as important as taking care of your future.

# data[].attributes.attachment_link.title
Importance of Interpersonal Skills | What and Why is it Important?

# data[].attributes.attachment_link.description
Interpersonal skills are also known as human skills. These are very important. Understand the Importance of Interpersonal Skills in life