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Introducing the Contemporary Business World
Part Summary Part 1, Intro duc ing the Contemporary Business World, provides a general overview of business today, Including Its economic roots, the environment in which It operates, the ethical prob lems and opportunities facing business firms, the importance of entrepreneurship and the various forms of ownership available to business firms, and the globalization of business. • We begin in Chapter 1, The Canadian Business System, by examining the role of business in the economy of Canada and other market economies. '.Ve al90 present a brief history of buslness in Canada. • Then, in Chapter 2, The Environment of Business, we examine the external environ ments that influence business activity. These include the economic, technological, socio cultural, legal-political, and general business environments. n the opening cases in Chapters 1 to 5, you • will read about five interesting s ituatiollS: Next, in Chapter 3, Conducting Business I Ethically and Responsibly, we look at ind (1) opportunities and challenges in the mobile vidual ethics and corporate social responsibil p hone market, (2) inflation and deflation, ity, and how these affect the firm's customers, (3) the unethjcal behaviour of business managers employees, and investors. at Livent, (4) fumjly b usiness stories, an d (5) Tim • In Chapter 4, Entrepreneurship, Small Hortons' international strategy. All of these situa Business, and New Venture Creation, we tions, and many more t hat are described in this examine the important concepts of entre text, have a common thread: they all demonstrate preneurship, small business, and the various the key elements of business, as weU as the excite forms of business ownership that have evolved to facilitate business activity. ment and complexity of business activity. Each case tells a part of the story of our contemporary • Finally, in Chapter 5, The Global Context of Business, we look at why countries business world. engage in international trade, how companies organize to operate intcmotionolly, tho development of free trade agreements, and factors that help or hindef- international trade.
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Understanding the Canadian Business System
After reading this chapter, you should be able to:
1!•11 Define the nature of Canadian business and Identify Its main goals.
l!•fM Describe different types of global economic systems according to the means by which they control the factors of pro duction through input and output markets.
l!•d Show how demand and supply affect resource distri bution in Canada.
1!•11 Identify the elements of private enterprise and explain the various degrees of competition In the Canadian economic system.
i!•IW Trace the history of business in Canada.
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Opportunities and Challenges in the Mobile Phone Market
uring the last decade,a Canadian company called Research In Motion (RlM) has emerged as a high-tech D star in the mobile phone industry. The company was started in 1984 by t\VO engineering students Mike Lazaridis at the University of\Vaterloo and Douglas Fregin at the University o f\Vindsor. Its first wire less handheld device-called the Jnter®ctive Pager-was introduced in l 996.1l1e now-famous BlackBerry hit the market in l998.1l1e BlackBerry 850, which combined email, a wireless data network, and a tiny QWERTY keyboard, was introduced in 1999. Other products have been developed since then, including the BlackBerry Pearl (2006), the Blac kBerry 8300 How Will This Help Me? (2008), the BlackBerry Storm 2 (2009), a 3G versio n All businesses are subject to the influences of of its Pearl flip phone (2010), and OS 6.0 (2010). economic forces. But these same economic Tite latter product is a touch-screen smart phone forces also provide astute managers and that is designed to browse the web faster than pre entrepreneurs with opportunities for profits vious models. ln the fi rst quarter of 2010, RIM was and growth. The ideas presented in this one of the top five mobile phone companies in the chapter will help you to better understand world, and at the 2010 Wireless ¥ffipo Enterprise (1) how managers deal with the challenges and sium trade show, Lazaridis announced RIM's plans opportunities resulting from economic forces, to dominate the global smart phone market. and (2) how consumers deal with the chal Rll\1 raised $30 million from venrure capital lenges and opportunities of price fluctuations. firms in the years before its initial public offering (IPO) in 1998 that raised $115 million. RIM was
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RIM is a remarkable Canadian success story, but industry analysts see potential challenges on the hori zon for companies in the smart phone market.The market potential is huge, but competition is intense and new product introductions are occurring at a dizzying pace. For example, Nokia has introduced a smart phone-the Booklet 3G-that is designed to bridge the gap between a PC and a cellphone. The device (described as a mini-laptop) gives consumers the computing power of a PC with the mobility of a cellphone.Another new product is Motorola's Droid phone, which was launched byVerizon, the largest U.S. wireless carrier (and RIM's biggest customer). A third entry comes from Google, which has devel oped a touch-screen mobile phone that uses Google's own Android operating system (tllis product may also cause problems for Apple's iPhone).A fourth new product is Apple's iPhone, which will be a strong competitor to the BlackBerry as RIM shifts its emphasis from corporate clients to consumers. There are also two industry trends that make it difficult to predict the future for any of the competitors in the smart phone industry. The first is the so-called "bring your own device" trend, which means tl1at companies are shifting the responsibility for having a phone onto employees.TI1e second trend is "sand boxing,• which means separating work functions from the rest of the smart phone for security reasons, and allowing employees to use the phone at work without losing access to other applications like games or social networking. Both tl1ese trends may hurt RIM in tl1e corporate market because employees may decide to buy something other tl1an a BlackBerry. Some analysts are now fairly pessimistic about RIM's future; they think the company may continue to grow, but that shareholder returns will decline. Another major area of concern is patent infringement lawsuits. During the past decade, RIM and other firms have sued and been sued for patent infringement. In 2006, RIM agreed to pay Virginia-based NTP $612.5 million for infringing on NTP's patent. RIM also sued Samsung after Samsung introduced a smart phone called the Blacl"ack. In 2009, Klausner Technologies filed suit against RIM for infringing one of its visual voicemail patents.These lawsuits have created great uncertainty in the smart phone industry. Yet another problem is the negative publicity RIM received regarding stock options. In 2007, the com pany announced a $250 million restatement of earnings after it was learned that hundreds of stock options had been backdated (timed to a low share price to make tl1em more lucrative for managers who received them). In 2009, Canadian regulators were seeking $80 million in penalties from co-CEOs Mike Lazaridis and Jim Balsillie, and several other executives agreed to pay penalties for backdating stock options. All of these things have had a negative effect on RIM's stock price. In 2007, stock market analysts began saying that RIM's stock was overvalued (it was then selling for $84 per share). By August 2008, the stock had defied predictions and had increased to $123 per share, but by early 2010 it had dropped to $61 per share. RIM spent $1.2 billion to buy back some of its shares, wllich should have increased the share price because fewer shares were on the market, but RIM still has to demonstrate that it can compete with other companies that are bringing out new models of smart phones. In April 2010, RIM announced a series of initiatives to increase investor confidence in the company, but analysts were skep tical, and by the end of]une 2010, the price of RIM's stock had declined to $54 per share. RIM has taken several strategic actions in an attempt to improve its future prospects. Historically, RIM's international footprint has not been large (about 80 percent of RIM's revenue comes from the U.S., Canada, and the U.K.). But in 2009, RIM signed a deal with Digital China to distribute BlackBerrys in Cllina.The potential market in China is obviously large, but consumers in China may not be willing to pay the high price of a BlackBerry. As well, the production of unauthorized copycat phones (knock offs) is a problem in China. For example, the"BlockBerry" is one of the competing phones sold in Cllina. RIM is also responding to competitive threats by positioning the BlackBerry as a general purpose smart phone for the average consumer, not just business users. More stylish models are being pro duced and are aimed at students, "soccer moms," and consumers in general. RIM also developed a new advertising campaign, sponsored a high. profile tour of Irish rock group U2, and provided better web browsers and applications for internet shopping. RIM's security standards mean it is safe for custom ers to do things like shop online from their smart phone. According to the research firm IDC, there were 450 million mobile internet users in 2009, but that number should increase to 1 billion by 2013. Over 80 percent of RIM's new subscribers are individuals, 4 Part I: Introducing the Contempornry Business World http://www.coursesmart.com/print?xmlid=9780132146746/1&pagestoprint=10 9/27/2011 CourseSmart - Print Page 5 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 5 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. not businesses. One positive trend for RIM is increasing consumer interest in smart phones. About 40 percent of the mobile phones purchased in 20 LO were BUSINESS An smart phones, and that proportion will organization that aeeke increase over the next few years. to earn profi1B by pro.rKing goods and services. The Idea of Business i!·f* Economic PROFIT What remaina I leiI ~ anythng) Biter a business's expenses and Profit Systems are BUbtracted from ~8 sales revenuee. The opening case Illustrates the dynamic and rapidly Around the NOT -FOR· PROFIT changing nature of modern business activity, and the ORGANIZATION opportunities and challenges that are evident. It also shows World An organization that hem business managers must pay attention to many dif provides goocl8 and A Canadian business Is dif services to customere, ferent things, Including the actions of competitors, rapid ferent in many ways from one but does not eeek to technological change, new product development, corpo make a profit wHie in China, and both are differ rate strategy, risk management, stock prices, and a host of dong so. ent from businesses In Japan, other variables that you will read about in this book. ECONO France, or Peru. A major deter MIC SYSTEM Let's begin by asking what you think ofwhen you hear The way in 'htlich a minant of how organizations the word business. Do you think of large corporations nation allocate&~~ operate is the kind of eco IBIIOU'OOS among ~8 like Shoppers Drug Mart and Walmart, or smaller com nomic system that character citizens. panies like your local supermarket or favourite restau izes the country in which they FACTORS OF rant? Do you think about successful companies like do business. An economic PRODUCTION CN and Research In Motion, or less successful com The resouroee used system allocates a nation's to panies like GM Canada? Actually, each of these firms prcduce goods Er1d resources among its citizens. 8er11icas: labolr, capital, is a business-an organization that produces or sells Economic systems differ In entrepreneu11, and goods or services In an effort to make a profit. Profit natural terms of who owns and con reeouroes. is what remains after a business's expenses have been trols these resources, known LABOUR The mental subtracted from its revenues. Profits reward the owners as the "factors of production" and physical tranng of businesses for taking the risks involved in invest and !alerts (see Figure 1.1). of people; ing their time and money. In 2008, the most profitable sometimes called human reSOU'cae. Canadian companies were Encana Corp. ($6.3 billion), the Canadian Wheat Board ($5.7 billion), and Canadian Factors of Production CAPITAL The lunda Natural Resources Ltd. ($4.9 billion).1 The key difference between needed to operate an enterprise. The prospect of earning profits is what encourages economic systems Is the way people to start and expand businesses. Today, busi In which they manage the fac- nesses produce most of the goods and services that we tors of production-the basic consume, and they employ many of the working people in resources that a country's businesses use to produce Canada. Profits from these businesses are paid to thou goods and services. Traditionally, economists have sands upon thousands of owners and shareholders, and focused on four factors of production: labour, capital, business taxes help support governments at all levels. In entreprenours, and natural rosources. Newer perspec addition, businesses help support charitable causes and tives tend to broaden the idea of "natural resources" to provide community leadership. A 2010 study by KPMG include all physical resources. In addition, information of the G7 Industrialized countries revealed that Canada resources are often Included now.3 ranked as the most cost-effective place to do buslness.2 In addition to for-profit business firms, there are also Labour The people who work for a company represent many not-for-profit organizations in Canada. Not-for the first factor of production-labour. Sometimes called profit organizations do not try to make a profit; rather, human resources, labour Is the mental and physical they use the funds they generate (from government grants capabilities of people. Carrying out the business of a or the sale of goods or services) to provide services to huge company such as Imperial Oil requires a labour the public. Charities, educational institutions, hospitals, force with a wide variety of skills ranging from manag labour unions, and government agencies are examples ers to geologists to truck drivers. of not-for-profit organizations. Business principles are helpful to these not-for-profit organizations as they try to Capital Capital refers to the funds that are needed to achieve their service goals. start a business and to keep it operating and growing. Chapter 1: Understanding the Canadian Business System 5 http://www.coursesmart.com/print?xmlid=9780132146746/1&pagestoprint=10 9/27/2011 CourseSmart - Print Page 6 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 6 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. For example, Imperial Oil needs N atural Resources Natural resources include all ENTREPRENEUR capital to pay for its annual drill physical resources such as land, water, mineral deposits, An incilliduaJ who organiz.ee and men ing costs, which run into the and trees. Imperial Oil makes use of a wide variety of natural ages lal:xxr, capital, millions of dollars each year. resources. It obviously has vast quantities of crude oil to and nalu'al resOU"Ces Major sources of capital for busi process each year. But Imperial Oil also needs the land to pr Factors of productiDn Capital Entrepreneurs Figure 1.1 Factors of production are the basic resources a business uses to create goods and services. The four factors are natural resources, labour, capital, and entrepreneurs. 6 Part 1: Introducing tbe Contempornry Business World http://www.coursesmart.com/print?xmlid=9780132146746/1&pagestoprint=10 9/27/2011 CourseSmart - Print Page 7 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 7 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. ownership is private; in others, the factors of production economist Karl Marx, commu are owned by the government. Economic systems also nism is a system in which the COMMAND ECONOMY An differ in the Wa:>JS decisions are made about production government owns and operates economic system in and allocation. A command economy, for example, all sources of production. Marx which gowmnent relies on a centralized government to control all or most envisioned a society in which controls all or most factors of production factors of production and to make all or most produc individuals would ultimately and make& ell or most tion and allocation decisions. In market economies, contribute according to their abil production decisions. individuals-producers and consumers-control pro ities and receive economic ben MARKET ECONOMY duction and allocation decisions through supply and efits according to their needs. He M economic system demand. also expected government own i1 wt'ich indillidJals control all or moat ership of production factors to factors of production be only temporary. Once society and make all or most Comm and Economies The two most basic forms of had matured, government would production decisions. command economies are communism and socialism. "wither away" and the workers COM MUNISM As originally proposed by nineteenth-century German would gain direct ownership. A type of command economy in 'Mlich the QOIIemmenl ONOS and operates all indJstries. ENTREPRENEURSHIP AND NEW VENTURES A Shrine to Wine Wine connoisseurs, also known as oenophiles, have In addition to market development strate a love of and devotion to wine, and they take just as gies, Genuwine Cellars is credited with some other much care in the procurement and storage of their vino good moves. "Genuwine is doing all the right things as they do in the tasting. Robb Denomme and Lance a growing company should do-lean manufactur Kingma own Winnipeg-based Genuwine Cellars, ing, continual investments in technology, importing which sells custom-designed wine cellars, some of contract manufactured goods from Asia, setting up a which have six-figure price tags. The company was design office in Latin America to take advantage of a started somewhat by accident in 1995 when some lower cost structure and access to skilled profession one asked Kingma if he thought he could build a als, the list goes on," sa:ts Joanne MacKean, senior wine cellar. He took on the challenge, and the first manager, Business Development Canada. Further, order led to another, and he eventually partnered Genuwine Cellars is one of the largest wine cellar man with Denomme, who was just 17 at the time. As the ufacturers in North America and the only company with saying goes, the rest is history. Today, the business is a manufacturing facility in Canada. Very little competi a multimillion-dollar operation selling to clients around tion, niche market, upscale consumer-so just what's the world, with the majority of sales being to the U.S. "in store" for this business? Genuwine's international success probably According to Denomme, the recent recession wouldn't have happened, or at least not as easily, had some effect, but the company is still experienc without the help of the Department of Foreign Affairs ing growth. Denomme's enthusiasm and drive are not and International Trade (DFAIT). According to Robb, quashed, however. He says, "You've got to keep a 'Working with the TCS [Trade Commissioner Service] positive attitude." Sounds like this entrepreneur looks you get results, you get where you want to go. Trade upon his wine glass as being half full rather than half commissioners are there to help and always get back empty. to you with the answers you need." The TCS is a divi sion of Foreign Affairs and its goal is to help companies succeed globally. Not only did TCS help Genuwine Critical Thinking Questions Cellars get connected with a business consultant, 1. Discuss the factors of production as they apply to it also helped with financing. Other governmental Genuwine Cellars. agencies, including the Prairie Centre for Business 2. What do you think about the company's decision Intelligence and the National Research Council, have to move some of its operations to Latin America also provided business support. because of a lower cost structure? Otapter I : Understanding the Canadian Business System 7 http://www.coursesmart.com/print?xmlid=9780132146746/1&pagestoprint=10 9/27/2011 CourseSmart - Print Page 8 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 8 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. But Marx's predictions were vendors are free to charge what they want, and custom SOCIALISM A kind of command economy in faulty. During the last 20 years, ers are free to buy what they choose. If both vendors' which the government most countries have aban apples are of the same quality, the customer will likely owns and operates the doned communism in favour of buy the cheaper ones. But if the $1.50 apples are fresher, main industries, while a more market-based economy. the customer may buy them instead. Both buyers and individuals own and operate less crucial Even countries that still claim sellers enjoy freedom of choice (but they also are sub induetriee. to be communist {for example, ject to risks, as the financial meltdown of 2008 demon MARKET An exchange China, Vietnam, and Cuba) now strated). process between contain elements of a market A GlobeScan poll of over 20 000 people in 20 coun buyers and seller& of based economy. Whether com tries asked people whether they agreed with the follow a particular good or eervice. munism can be maintained ing statement: "The free market economy is the best alongside a market-based system." Where do you think the highest support for the INPUT MARKET Firms buy resoc.rces economy remains to be seen. free market economy was found? Not in Canada, the that they need in the In a less extensive com United States, Germany, or Japan, but in China, where production of good& mand economic system called 74 percent of people polled agreed with the statements and eeMoe8. socialism, the government This is a surprising finding, given the Chinese gov OUTPUT MARKET owns and operates only selected ernment's strong support of the communist economic Rrms atpply goode and &e 8 Part 1: Introducing the Contempomry Business World http://www.coursesmart.com/print?xmlid=9780132146746/1&pagestoprint=10 9/27/2011 CourseSmart - Print Page 9 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 9 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. factors of production and encourages entrepreneurship Canada and the U.S. meant by offering profits as an incentive. This process con that government was once MIXED MARKET trasts markedly with that of a command economy, in again a part-owner of some ECONOMY which individuals may be told where they can and can business firms. A few countries An economic system wth elements of both a not work, companies may be told what they can and are even pursuing a policy of OOfTYTlard eoc:rar>f and cannot manufacture, and consumers may have little or na t iona lization-converting a mMu!t eoc:rar>f; in no choice as to what they purchase or how much they private firms into government jTQCtice, typic8 of most natiala' economies. pay for items. owned firms. Venezuela, for example, nationalized its tele PRIVATIZATION Mixed Market Economies Command and market communications industry. The transfer of activities from the government to economies are two extremes, or opposites. In reality, Deregula t ion means a the private eector. most countries rely on some form of mixed market eco n reduction in the number of laws NATIONALIZATION omy that features characteristics of both command and affecting business activity and The transfer of activities market economies. One trend in mixed market econo in the powers of government from private frm9 to the mies that began in the 1990s is privatization-<:onvert enforcement agencies. This government ing government enterprises into privately o.vned compa trend also developed during DEREGULATION nies. In Canada, for example, the air traffic control system the 1990s, and deregulation A reduction in the num was privatized, and the federal government sold several occurred in many industries, ber of laws affecmg business actM!y. other corporations, including Canadian National Railway including airlines, pipelines, and Air Canada. The Netherlands privatized its TNT Post banking, trucking, and Group N.V., and India privatized 18 industries, includ communications. But this trend Ing iron, steel, machinery, and telecommunicatlons.8 In has also slowed (and even reversed in some cases) due to 2010, the Organisation for Economic Co-operation and the 2008 recession. For example, there have been calls for Development (OECD) said that Canada Post's monopoly a dramatic tightening up of the laws regulating business should be ended and it should be privatized.9 However, activity, particularly in the financial sector. The British when a worldwide recession began in 2008, the trend Petroleum (BP) oil spill in the Gulf of Mexico in 2010 caused slowed. Government bailouts of Chrysler and GM in both the U.S. government to put pressure on BP to reimburse OUTPUT MARKETS Goods Services - II EEl lnCDII [ FIRMS HOUSEHOLDS • Supply products in output markets • Demand products in output markets • Demand resources in input markets • Supply resources in input markets INPUT MARKETS ~ ~~; ~~ Entrepreneurs ~ Figure 1.2 Circular flow Natural resourc.::es I Information resourJ in a market economy. Otapter 1: Understanding the C2nadian Business System 9 http://www.coursesmart.com/print?xmlid=9780132146746/1&pagestoprint=10 9/27/2011 CourseSmart - Print Page 10 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 10 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. Individuals and businesses CANADIAN that were harmed by the spill. Despite becoming a territory of the communist RADIO-TELEVISION People's Republic of China in 1997, Hong Kong AND TELECOMMU Incidents like these have created remains one of the world's freest economies. In NICATIONS COM a dilemma for government policy Hong Kong's Lan Kwal Fong district, for example, MISSION (CRTC) makers; a 2009 study by the traditional Chinese businesses operate next door RegUatea an:lll4l9' to well-known international chains. ..,_ &II aepecte of the Conference Board of Canada CBnadian broadca&ting showed that deregulation {In ayatem. tandem with privatization and CANADIAN WHEAT increased competition) caused a BOARD R~1111 the sharp increase in productivity in price fanners r.ceiYe sectors like freight and airlines.1o for their wMat. As a result of the recession of 2008, mixed market econo mies are now characterized by more government involvement than was evident just a few years ago. Governments In mixed marl Interactions between Business and Government In Canada's mixed market economy, there are many important interactions between business and govern ment. The ways in which government influences busi ness and the ways business Influences government are described below. of economic activity in Canada.12 Crown corporations How Government Influences Business exist at both the provincial and federal levels. Government plays several key roles In the Canadian eco nomy, and each of these roles influences business activity Government as Regulator Federal, and provincial in some way. The roles government plays are as follows. governments in Canada regulate many aspects of busi ness activity through administrative boards, tribunals, Government as a Customer Government buys thou and commissions. Illustrative examples include the sands of different products and services from busi Canadian R adio-television and Telecommunications ness firms, including office supplies, office buildings, Commission {CRTC) {which issues and renews broad computers, battleships, helicopters, highways, water cast licences) and the Canadian Wheat Board (Which treatment plants, and management and engineering con regulates the price of wheat). Provincial boards and sulting services. Many businesses depend on government commissions also regulate business activity, but differ purchasing, if not for their survival then at least for a cer ent situations exist In different provinces. For example, tain level of prosperity. Total government expenditures in the provinces of Quebec and B.C. allowed mixed martial 2009 were $234 blllion.11 arts events such as the UFC, but Ontario didn't (Ontario 1 Government as a Competitor Government also com began allowing these events in 2011). 3 Reasons for regu lating business activity include protecting competition, petes with business through Crown corporations, which protecting consumers, achieving social goals, and pro are accountable to a minister of parliament for their con tecting the environment. duct. Crown corporations like Hydro Quebec {revenues of $12.7 billion), Canada Post ($7.4 billion), and the Canadian Promoting Competition Competition is crucial to Wheat Board {$8.4 billion) account for a significant amount a market economy, so government regulates business 10 Part 1: Introducing lbe Conrempor.uy Business World http://www.coursesmart.com/print?xmlid=9780132146746/1&pagestoprint=10 9/27/2011 CourseSmart - Print Page 1 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 11 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. activity to ensure that healthy competition exists among agreed with Labatt, and the HAZARDOUS business firms. Without these restrictions, a large com merger went ahead sooner than PRODUCTS ACT pany with vast resources could cut its prices and drive it otherwise would have.17 There Regulatee b!rned prod smaller firms out of the market. The guidelines for Cana was, however, some interesting ucts Er"ld products that em be add but must be da's competition policy are contained in the Competition fallout later. The federal indus letlelled hazardous. Act, Which prohibits a variety of practices (see Table 1.1). try minister began an inves Section 61, for example, prohibits something called resale tigation after a Federal Court T OBACCO ACT Prohibits dgerette price maintenance. Labatt Brewing Co. recently pled judge accused the Competition adwrtiairg on blboards guilty to resale price maintenance and was fined $250 000 Bureau of providing mislead and in retai stores, Er"ld after its sales representatives gave money to store opera ing information in order to get a assigns financial penal tors Who agreed to not lower prices on soma brands of court order for Labatt's records ties to violators. beer. This activity meant that customers had to pay higher during its review of the pro WEIGHTS AND prices for beer. 14 posed margar.ts MEASURES ACT Sets standards of The Act prohibits agreements among companies that accuracy for weighing are designed to reduce competition. Formerly, the govern Protecting Consumers The and measuring devices. ment had to prove that such agreements actually reduced federal government has initi TEXTILE LABELLING competition, but recent changes to the legislation mean that ated many programs that pro ACT Reg.Jiates the the mere existence of a conspiracy is assumed to be proof tect consumers. Consumer labelling, sale, importa that competition has been reduced.15 Another big change tion, and advertising and Corporate Affairs Canada of consuner textile is the dramatically increased fines for misleading mar1 Table 1.1 The Competition A c t Section45 Prohibits conspiracies and combinations formed tor the purpose of unduly lessening competition in the production, transportation, or storage of goode. Persona convicted may be ifr9riaoned for'-" to five yeare or fined up to $1 million or both. Section 50 Prohibits illegal trade practices. A company may not, for example, cut prices in one region of Canada while selling at a higher price everywhere else if this substantially lessens competition. A company may not sell at "unreasonably low pricee" if this substantially lessens competition. (This section doee not prohibit credit unions from retuming surpluses to their members.) Section 51 Prohibita giving allowances and rebates to buyers to cover their advertising expenses, unleae these allowances are made available proportionally to other purchasers who are in competition w ith the buyer given the rebate. Section 52 Prohibita marketing (promotion) activ~iea that are false or misleading. Includes telemarketing activities. Section 53 Prohibita the deceptive notice that a person hae won a prize it the recipient ia asked to pay money aa e condition of wiming the prize. Section 54 Prohibits charging the higher price when two prices are shown on a product. Section 55.1 Prohibits pyramid selling (a participant in the plan receives compensation for reauiting other indviduals into the p lan). Section61 Prohibits resale price maintenance. No person who produces or supplies a product can attempt to rnluence upward, or discourage reduction of, the price of the good in question. It ia also illegal for the producer to refuse to supply a product to a reseller simply because the producer believes the reseller will cut the price. Section 74 Prohibits ba~-and-11witch selling. No person can advertise a product at a bargain p rice if there is no supply of the product available to the consOO"lE!I". (This tactic baits prospects into the store, where salespeople switch them to higher priced goode.) This sec1ion also controls the uee of conteets to sell goode, and prohibits the sale of goods at a price higher than the advertised one. http://www.coursesmart.com/print?xmlid=9780132146746/11&pagestoprint=10 9/27/2011 CourseSmart - Print Page 2 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 12 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. FOOD AND The Hazardous Products Act requires poisonous, DRUG ACT flammable, explosive, or corrosive products to have Prohibita the l8le of warning labels to protect consumers who use them. bod Lnfit for hunan consumption and regu lates food advertiling. CANADA WATER ACT Controls water quality in fr8lh and l1llnl9 WBIB111 of Careda FISHERIES ACT Regtjates the ENVIRONMENTAL CONTAMINANTS ACT Esta~ mgUations for ai'bome lllb!otancee tl-at we a danger to tunen health or to the em.;ronment. REVENUE TAXES Taxa!l whose mai1 and the Food and Drug Act airborne substances that are a danger to human health or purpose is to hnd (which prohibits the sale of food the environment). gowmment eervices and programe that contains any poisonous or harmful substances). Consumers Government as a Taxation Agent Taxes are Imposed PROGRESSIVE are also protected by municipal and collected by the federal, provincial, and local govern REVENUE TAXES r-levied at a higher bylaws such as "no smoking" ments. Revenue taxes (e.g., income taxes) are levied by ruteonhig,erinc:ome bylaws. governments primarily to provide revenue to fund various tm 12 Part 1: lmrodudng t.be ConlempOr:lt)• Business World http://www.coursesmart.com/print?xmlid=9780132146746/11&pagestoprint=10 9/27/2011 CourseSmart - Print Page 3 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 13 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. government organizations. Examples include the Export private-sector consulting engi Development Corporation (which assists Canadian export neers on projects like city water LOBBYIST A pen!Oil ers by offering export insurance against non-payment by systems. Some business lob hired by a company or an industry to represent foreign buyers and long-term loans to foreign buyers of byists have training in the par ~s interasts with gov Canadian products), Natural Resources Canada (which ticular industry, public relations errment officials. provides geological maps of Canada's potential mineral experience, or a legal back TRADE producing areas), and Statistics Canada (which provides ground. A few have served as ASSOCIATION data and analysis on almost every aspect of Canadian legislators or government regu An organization dedi society). Industry Canada offers many different programs lators. cated to promoting the nterests and assist designed to help small businesses. The Canada Business The federal Lobbying Act ng the members of a program, for example, provides information on government requires lobbyists to register with pertic:Uar industry. programs, services, and regulations in order to improve the the Commissioner of Lobbying MARKET start-up and survival rates of small and medium-sized busi so it is clear which individuals An exchange process nesses. It also encourages businesses to focus on sound are being paid for their lobby between buyers End business planning and the effective use of market research. ing activity. It also sets rules for sellers of a particular good o r service. DFAIT helps Canadian companies doing business interna accountability and transparency, tionally by promoting Canada as a good place to invest and and requires lobbyists to report to carry on business activities. It also assists in negotiating detailed information about their communications with what and administering trade agreements. are known as Designated Public Office Holders (DPOHs).22 There are many other government incentive pro For many lobbying efforts, there are opposing points of view. grams, including municipal tax rebates for companies For example, the Canadian Cancer Society and the Tobacco that locate in certain areas, design assistance programs, Institute present very different points of view on cigarette and remission of tariffs on certain advanced technology smoking and cigarette advertising. production equipment. Government incentive programs Employees and owners of small businesses that can may or may not have the desired effect of stimulating the not afford lobbyists often join trade associations, which economy. They may also cause difficulties with our trad may act as an industry lobby to influence legislation. They ing partners, as we shall see in Chapter 5. Some critics also conduct training programs relevant to the particular also argue that business firms are too willing to accept industry, and they arrange trade shows at which mem government assistanc~ither in the form of incentives bers display their products or services to potential custo or bailouts-and that managers should put more empha mers. Most publish newsletters featuring articles on new sis on innovation and creativity so business firms can bet products, new companies, changes in ownership, and ter cope with economic difficulties when they arise, as changes in laws affecting the industry. they did during the 2008--2009 recession. Corporations can influence legislation indirectly by influencing voters. A company can, for example, launch an Government as a Provider of Essential Services The advertising campaign designed to get people to write their various levels of government facilitate business activ MPs, MPPs, or ML.As demanding passage--<>r rejectio~ ity through the services they supply. The federal govern of a particular bill that is before parliament or the provincial ment provides highways, the postal service, the minting of legislature. money, the armed forces, and statistical data on which to base business decisions. It also tries to maintain stability through fiscal and monetary policy (discussed in Chapter 2). ''·II The Canadian Provincial and municipal governments provide streets, &m age and sanitation systems, police and fire departments, Market Economy utilities, hospitals, and education. All of these activities cre ate the kind of stability that encourages business activity. Understanding the complex nature of the Canadian eco nomic system is essential to understanding Canadian How Business Influences Government business. In this section, we will examine the workings Businesses also try to influence the government through of our market economy, including markets, demand, sup the use of lobbyists, trade associations, and advertising. ply, private enterprise, and degrees of competition. A lobbyist is a person hired by a company or industry to represent that company's interests with government offi Demand and Supply in a Market Economy cials. The Canadian Association of Consulting Engineers, In economic terms, a market is not a specific place, like a for example, regularly lobbies the federal and provincial supermarket, but an exchange process between buyers governments to make use of the skills possessed by and sellers. Decisions about production in a market 01apter 1 : Understanding the Canadian Business System 13 http://www.coursesmart.com/print?xmlid=9780132146746/11&pagestoprint=10 9/27/2011 CourseSmart - Print Page 4 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 14 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. economy are the result of mil drops. Conversely, the law of supply states that produc DEMAND Thewilling lions of exchanges. How much ers will offer (supply) more for sale as the price rises. ness and ability of of what product a company buyers to purchaae a offers for sale and who buys it product or setvioe. Demand and Supply Schedule To appreciate these depends on the laws of demand SUPPLY The wilng laws in action, consider the market for pizza in your and supply. nesa and ability of pro town. If everyone is willing to pay $25 for a pizza (a ducers to offer a good relatively high price), the local pizzeria will produce or service for safe. The Laws of Supply and a large supply. If, however, everyone is willing to pay Demand In a market economy, LAW OF DEMAND only $5 (a relatively low price), the restaurant will make decisions about what to buy The principle that fewer pizzas. Through careful analysis, we can deter buyers will purchaae and what to sell are deter (demand) more of a mine how many pizzas will be sold at different prices. mined primarily by the forces of product aa price drops. These results, called a demand and supply schedule, demand and supply. Demand are obtained from marketing research and other sys LAW OF SUPPLY The is the willingness and ability of pmaple that producers tematic studies of the market. Properly applied, they buyers to purchase a product wit offer(s~ more of help managers understand the relationships among dif or service. Supply is the willing a product as price rises. ferent levels of demand and supply at different price ness and ability of producers to DEMAND AND levels. SUPPLY SCHEDULE offer a good or service for sale. Aseesement of the rela The law of demand states that tionships between dif buyers will purchase (demand} fernnt levels of demand Demand and Supply Curves The demand and sup En:! supply at dfferant more of a product as its price ply schedule can be used to construct demand and price levels. E-BUSINESS AND SOCIAL MEDIA SOLUTIONS Virtual Goods: An Emerging E-Market Not too long ago, people doubted the commercial sales Hard-core virtual garners are willing to spend good potential of bottled water because a perfectly good sub money to ensure that they have the best gear available stitute was available for virtually no cost. At the time, in games like World of Warcraft. many skeptics made comments like "What's next, are we Facebook links people to the virtual wortd and has going to sell air?" Today, consumers purchase approxi over 500 million users. The company is now trying to mately 200 billion litres of bottled water worldwide each capitalize on its popularity by adding a new revenue year. The skeptics did not foresee an era dominated by stream. It plans to charge 30 percent on virtual game the internet, smart phones, and social media props (similar to Apple's approach to apps). It is also M. least bottled water is a physical product. But testing the extended use of its Facebook credits. If all how much is an avatar worth? How much would you goes as planned, Zynga (which has 120 million game spend on a virtual good? If your answer is $0, you don't users) may be forced to adopt this model. Facebook know what's going on in the virtual gaming world. Have could collect as much as $500 million over the next you heard of Zynga? World of Warcraft? Mafia Wars? three years from Zynga and other gaming companies, FarmVille? H you answered "no" to all these questions, including Electronic Arts, CrowdStar, Slide, RockYou, you may be shocked to learn that, in 2010, virtual goods and Digital Chocolate. One thing is certain, there is sales were expected to reach $1.6 billion in the U.S. nothing virtual about the revenue potential. alone, and are projected to grow to $3.6 billion by 2012. As we've noted, a market is an exchange process between buyers and sellers of a particular good or Critical Thinking Questions service. This definition fits the evolving virtual goods 1. Have you ever purchased a virtual good? If so, world as well. Whether you are buying a potato to describe it. Were you satisfied? If not, what do you make French fries (to eat), or a virtual potato to plant in think of the prospects for this growing market? your own FarmVille virtual garden (for entertainment), 2. What do you think of Facebook's new revenue you are involved in a market of buyers and sellers. stream model? Will it work? 14 Part 1: Introducing the Contempornry Business World http://www.coursesmart.com/print?xmlid=9780132146746/11&pagestoprint=10 9/27/2011 CourseSmart - Print Page 5 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 15 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. supply curves for pizza A demand curve shows how price-the price at which the DEMAND CURVE many products-in this case, pizzas-will be demanded quantity of goods demanded Graph allowirg how (bought) at different prices. A supply curve shows how and the quantity of goods sup many lrits MARKET PRICE (EQUILIBRIUM PRICE) Profit-m&lCirming price Figure 1.3 at v.hich the quent11y of Demand and Supply. goode denlMded and the~ d gooclll at.ppied we equal. DEMAND AHI) SUPPlY SCHEDUUS 4 19 18 17 16 .. 15 8 l~ ii 12 -0 1011 • 9 ·i!! 8 "' 7 ..6s 3 2 I I I I I I I I I I I I I I I I I I I I I ~~~~~§~~~§~~~~~§~~~§------N Quantity of Pizzas Demanded EQUIUBRIUM PRICE s (DEMAND AND SUPPLY) 20 19 18 17 16 .. 15 ; .9 l~ .e "' 12 0 l6 0"' I I -~ ~ -~ I "' 7 I 6 "' I ..5 : Demond 3 1 Curve 2 I I I I I I I I I I I I I I I I I I I I I I 111111111 11111111111 ~~~~~§R2~8~~g~~§~~~8...... - ...... ,....-N ~~~~~§R2~~~~~~~~~~~~ Quantity of Pizzas Supplied Quantity of Pinos Chapter 1: Understanding the Canadian Business System 15 http://www.coursesmart.com/print?xmlid=9780132146746/11&pagestoprint=10 9/27/2011 CourseSmart - Print Page 6 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 16 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. Surpluses and Shortages What would happen if the Canada is the dominant supplier of maple syrup owner tried to increase profits by making more pizzas to for the world market. But variable weather condi tions can create conditions of either surplus or sell? Or, what if the owner wanted to reduce overhead, shortage. cut back on store hours, and reduced the number of piz zas offered for sale? In either case, the result would be an inefficient use of resources. For example, if the restaurant supplies 1200 pizzas and tries to sell them for $10 each, 200 pizzas will not be purchased. The demand schedule clearly shows that only 1000 pizzas will be demanded at this price. The pizza maker will therefore have a surplus-a situation in which the quantity supplied exceeds the quan tity demanded. The restaurant will thus lose the money that it spent making those extra 200 pizzas. Conversely, if the pizzeria supplies only 800 pizzas, a shortage will result because the quantity demanded will be greater than the quantity supplied. The pizze ria will "lose" the extra money that it could have made by producing 200 more pizzas. Even though consum ers may pay more for pizzas because of the shortage, MANAGING IN TURBULENT TIMES The High Price of High Prices Economic theory tells us that when demand for a com push to convert com into biofuel. In countries like Haiti, modity increases, its price goes up, and people try to Cameroon, Senegal, and Ethiopia, citizens have rioted find substitutes that are cheaper. For example, when over higher prices for important staple items such as the price of oil is high, companies use com to make beans and rice. In Pakistan and Thailand, army troops ethanol to add to gasoline, and palm oil is used to were deployed to prevent the theft of food from ware make diesel fuel (called biodiesel). But, as more pro houses. The World Bank has identified 33 countries ducers start using com or palm oil, the demand for that are at risk for serious social upheaval because those commodities goes up and so does their price. of high food prices. To cope with the problem, some During 2006, for example, the price of palm oil rose countries are slashing import duties and imposing from less than US$400 per metric tonne to more than export duties. This is just the reverse of what countries US$500 per metric tonne. normally do. When prices of commodities rise rapidly, there are usually some unanticipated outcomes. One of these is increased criminal activity. As the price of stainless Critical Thinking Questions steel and aluminum rose during the last few years, 1. It is obvious that negative outcomes can occur thieves began stealing items such as beer kegs, rail with high prices. Can high prices ever lead to posi way baggage carts, railroad tracks, light poles, and tive outcomes? Explain. highway guardrails. These items were then sold to 2. Consider the following statement: "The high scrap yards for cash. price of commodities like copper is not a concern The impact of stealing is limited to lost revenue because we do not need copper to survive, but the (it's only money), but sky-high prices for food can high price of food is a concern because it threat actually threaten people's lives. Global food prices ens people's lives. The central governments of the increased 83 percent between 2005 and 2008, and world should therefore coordinate their efforts and that put a lot of stress on the world's poorest coun put in place rules to ensure that food prices are tries. In some countries, families are spending one-half kept low." Do you agree or disagree with the state their income just on food. One culprit, ironically, is the ment? Explain your reasoning. 16 Part 1: Introducing the Contemporary Business World http://www.coursesmart.com/print?xmlid=9780132146746/11&pagestoprint=10 9/27/2011 CourseSmart - Print Page 7 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 17 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. the restaurant will still earn lower profits than it would and sellers know the price that have if it had made 1000 pizzas. In addition, it may risk others are paying and receiv SURPLUS angering customers who cannot buy pizzas. To optimize ing in the marketplace, firms Situation in •htlich profits, therefore, all businesses must constantly find it easy to enter or leave the quartity supplied exceeds quM tity seek the right combination of price charged and quan market, prices are set by the demanded. tity supplied. This "right combination" is found at the forces of supply and demand, equilibrium point. and no firm is powerful enough SHORTAGE Situation in •htlich Maple syrup is a quintessential Canadian commodity individually to influence the quartity demanded (we produce 80 percent of the total world's supply), but price of its product in the mar exceeds quM tity its price fluctuates because weather Influences the sup ketplace. Agriculture is usually 84lpied. ply. Unfavourable weather reduced the supply In 2008, considered to be a good exam PRIVATE but good weather in 2009 caused yields to Increase by ple of pure competition in the ENTERPRISE 85 percent over 2008.23 Price fluctuations in several other Canadian economy. There are tv-. economic system characterized by private commodities are described in the boxed insert entitled thousands of wheat farmers, property rights, free "The High Price of High Prices."24 the wheat produced on one dom of choice, profits, farm is essentially the same and http://www.coursesmart.com/print?xmlid=9780132146746/11&pagestoprint=10 9/27/2011 CourseSmart - Print Page 8 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 18 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. because the actions of any technology allows wine bottles to be sealed with plastic MONOPOLY one firm in an oligopolistic corks that are cheaper and work just as well. The natural A market oc industry market can significantly affect wine cork industry has lost its monopoly. 28 In Canada, with orty one producer, the sales of all other firms.26 who can set the price laws such as the Competition Act forbid most monopo of ita product ard/or Most oligopolistic firms avoid lies. Natural monopolies- such as provincial elec reeourcee. price competition because it tric utilities-are closely watched by provincial utilities NATURAL reduces profits. For example, boards, and the assumption that there is such a thing as MONOPOLY the four major cereal makers a natural monopoly is increasingly being challenged. For A market oc industry (Kellogg, General Mills, Gen example, the Royal Mail Group's 350-year monopoly of in which having only one prodU08<' is moat eral Foods, and Quaker Oats) the British postal service ended in 2006, and rival com efficient because it em charge roughly the same price panies are now allowed to compete with Royal Maii.29 In meet all of coneur1ers • for their cereals. Rather than India, private couriers like FedEx and United Parcel Ser demand foe the compete on price, they empha vice now provide more than half the delivery business in product. size advertising, which claims that country after they were allowed to compete with India that their cereals are better tast Post, which had a monopoly on mail delivery for several ing or more nutritious than the hundred years.30 competition's. Entry into an oligopolistic market is diffi cult because large capital investment is usually necessary. Thus, oligopolistic industries (such as the automobile, A Brief History rubber, and steel industries) tend to stay oligopolistic. As ''·IW the trend toward globalization continues, it is likely that of Business in Canada more global oligopolies will come into being.27 In this section, we will trace the broad outlines of the devel opment of business activity in Canada Table 1.2 highlights Monopoly When an industry or market has only one some important dates in Canadian business history.31 producer, a monopoly exists. Being the only supplier gives a firm complete control over the price of its pro duct. Its only constraint is how much consumer demand The Early Years will fall as its price rises. For centuries, wine bottles were Business activity and profit from commercial fishing sealed using natural cork made from tree bark. But a new were the motivation for the first European involvement 18 Part I: Introducing the Contemporary Business World http://www.coursesmart.com/print?xmlid=9780132146746/11&pagestoprint=10 9/27/2011 CourseSmart - Print Page 9 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 19 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. in Canada. In the late 1400s, ships financed by English These raw materials were entrepreneurs came to the coast of Newfoundland to then used to produce finished INDUSTRIAL fish. By the late 1500s, the Newfoundland coast was goods such as fur coats, which REVOLUTION being visited by hundreds of fishing vessels each year. were sold at high prices to A major chEnge n Beginning in the 1500s, French and British adven settlers in Canada. Attempts goods production that began in England in the turers began trading with the native peoples. Items such to develop industry in Canada rrid-eighteenth century as cooking utensils and knives were exchanged for were thwarted by England and and was characterized beaver and other furs. One trading syndicate made over France, which enjoyed large by a shift to the factory system. maee produc 1000 percent profrt on beaver skins sold to a Paris furrier. profits from mercantilism. As a tion, and speciaization Trading was aggressive and, over time, the price of furs result, Canadian manufacturing of labour. rose as more and more Europeans bid for them. Originally was slow to develop. FACTORY SYSTEM the fur trade was restricted to eastern Canada, but by A process in v..tlich the late 1600s, coureurs de bois were travelling far to the The Factory System and al the mactlnery, materials, and wor\(era west in search of new sources of furs. the Industrial Revolution reql.ired to produce a European settlers who arrived in Canada in the six British manufacturing took good in large quantities teenth and seventeenth centuries initially had to farm a great leap forward around are brought together in or starve. Gradually, however, they began to produce 1750 with the coming of the one place. mora than they needed for their own survival. The gov Industrial Revolution. This ernments of the countries from which the settlers came revolution was made possible (notably England and France) were strong supporters of by advances in technol- the mercantilist philosophy. Under mercantilism, colo ogy and by the development of the factory system. nists were expected to export raw materials like beaver Instead of hundreds of workers turning out items one pelts and lumber at low prices to the mother country. at a time in their cottages, the factory system brought Table 1.2 Some Important Dates in Canadian Business His to ry 1490 English foshermen active off the coast of 1926 U.S. replaces Great Britain as Canada's largest trading Newfoundland partner 1534 Accourt of first tradng with Aboriginal peoples 1927 Armand Bombardier sells first "auto-neige" (forerunner writien by Jacques Cartier of the enowmobile) 1670 Hudson's Bay Company founded 1929 Great stock market crash 1779 North West Company forms 192S-33 Great Depression 1785 Molson brewery opens 1900 Canadian Airways Limited formed 1805 First Canadian paper mill bui~ at St. Andrew's, 1932 Canadian Radio Broadcasting Corporation formed Quebec ~~ became the CBC in 1936) 1809 First steamboat (the Accommodation) put into 1935 Bank of Canada begins operations service on the St Lawrence River by John Molson 1817 Bank of Montreal chartered 1947-51 Early computer bui~ at the University of Toronto 1821 Hudson's Bay Company and North West Company 1947 Leduc Number 1 o il well driUed in merge Alberta 1830-00 Era of canal buildng 1949 A.V. Roe (Avro) makes Canada's first commercial jetliner 1 8~ First era of railroad building 1965 Auto Pact signed w~h the U.S. 1855 John Redpath opens first Canadian sugar refinery 1969 Canada becomes world's largest potash in Montreal producer 1857-68 Finst oil well in Canada drilled near Sarnia, Ontario 1989 Free trade agreement w~h U.S. comes into effect 1861 Toronto Stock Exchange opens 1993 North American Free Trade Agreement comes into effect 1869 Eaton's opens for business in Toronto 2000 Tech bubble bursts; stock prices drop sharply 18~ Firat western land boom 2003 Canadian ntemet pharmacies begin selling praacription d rugs to U.S. c~izens 1885 Last spike driven to complete the Canadian 2006 Softwood lumber dispute with U.S. Pacifoc Railroad settled 1 897~ Klondike gold rush 2007 Canadian dollar reaches par with U.S. dollar 1917-22 Creation of Canadian National Railways 2008 Oil pricee reach record high of $147 per barrel 2()()8...00 Worldwide recession occurs; stock markets drop sharply Otapter I: Understanding the Canadian Business System 19 http://www.coursesmart.com/print?xmlid=9780132146746/11&pagestoprint=10 9/27/2011 CourseSmart - Print Page 10 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 20 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. together In one place all of during the entrepreneurial era, some Individuals became MASS the materials and workers immensely wealthy through their aggressive business PRODUCTION required to produce items in dealings. Some railway, bank, and Insurance executives The manJacture of large quantities, along with made over $25 000 per year in the late 1800s, and their products of urlform quality in large newly created machines capa purchasing po.ver was immense. Entrepreneurs such as quanlibee. ble of mass production. Joseph Flavelle, Henry Pellatt, and John MacDonald lived SPECIALIZATIO N Mass production offered in ostentatious mansions or castles. The breaking da1.n ot savings in several areas. It The size and economic power of some firms meant oomplax openlltonl avoided unnecessary duplica that other businesses had difficulty competing against irto einlJie taska that them. At the same am easily learned and tion of equipment. It allowed time, some business executives perbmed. firms to purchase raw materi decided that it was more profitable to collude than to als at better prices by buying compete. They decided among themselves to fix prices ENTREPRENEURIAl and divide up markets. by ERA The period c;lri'lg large lots. And most important, Ht.rt these actions, Canadian lhe last half of 1he nhl· It encouraged specialization consumers called for more regulation of business. In 1889, teenth cent..-ywhen of labour. No longer did pro the first anti-combines legislation was passed in Canada, bu.._ operated duction require highly skilled and legislation regulating business has increased ever with vwy little goyam ment reg.jation lind craftspeople who could do all since. businesses made large the different tasks required to profite, often at the make an Item. A series of semi expenae of coneunere. The Production Era skilled workers, each trained to The concepts of specialization and mass production PRODUCTION ERA perform only one task and sup that originated in the Industrial Revolution were more The period during lhe ported by specialized machines early twentieth cent..-y fully refined as Canada entered the twentieth century. and when bueineseee tools, greatly increased The Scientific Management Movement focused man focueed almoat exolu output. agement's attention on production. Increased efficiency aively on improving In spite of British laws productivity and manu via the "one best way" to accomplish tasks became facll.ring methods. against the export of technol the major management goal. Henry Ford's introduc ogy and manufacturing to North tion of the moving assembly line in the United States in America, Canadian manufac 1913 ushered in the production era. During the produc turing existed almost from the beginning of European tion era, less attention was paid to selling and market settlement. Modest manufacturing operations were evi ing than to technical efficiency when producing goods. dent in sawmills, breweries, grist mills for grinding grain, By using fixed workstations, increasing task specializa tanneries, woollen mills, shoemakers' shops, and tailors' tion, and moving the work to the worker, the assembly shops. These operations were so successful that by 1800 line increased productivity and lo.vered prices, making exports of manufactured goods were more important all kinds of products affordable for the average person. than exports of fur. It also increased the available labour pool because many With the advent of steam power in the early 1800s, people could be trained to carry out assembly line tasks. manufacturing activity began to Increase rapidly. By Former1y, the labour pool was limited because relatively 1850, more than 30 factories--employing more than 2000 few people had the high skill levels of craftspeople. peopl~ined the Lachine Canal alone. Exports of timber During the production era, large business&S began sell to England In 1850 were 70 times greater than what they ing stock-making shareholders the owners-and relying had been in 1800. The demand for reliable transportation on professional managers. The growth of corporations and was the impetus for canal building In the mid-1800s and improved production output resulting from assembly lines then the railroad-building boom in the mid- and late 1800s. carne at the expense of worker freedom. The dominance of big firms made it harder for individuals to go Into business The Entrepreneurial Era for themselves. Company towns run by the railroads, min One of the most significant features of the last half of ing corporations, and forest products firms gave individu the nineteenth century was the emergence of entrepre als little freedom of choice over whom to work for and what neurs willing to take risks in the hope of earning huge to buy. To restore some balance within the overall system, profits. Adam Smith in his book The Wealth of Nations both government and labour had to develop and grow. argued that the government should not Interfere in the Thus, this period S 20 Part 1: Introdudng the Contemporary Business World http://www.coursesmart.com/print?xmlid=9780132146746/11&pagestoprint=10 9/27/2011 CourseSmart - Print Page 1 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 21 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. intervene in the economic system on a previously unimagi an array of products within a nable scale. Today, business, government, and labour are particular field (toothpaste or SALES ERA The period during the frequently referred to by economists and politicians as the beer, for example), and gives 19:308 ard 19408 ...nan three countervailing powers in our society. All are big. All customers a chance to pick t::usnesses focused on are strong. Yet, none totally dominates the others. what best suits their needs. eaes fa-ces, advertieng, ard l China opened its economy to foreign investors in the 1980s and joined the World Trade Organization In 2001 . Now the Chinese buy as many cars as the Germans. They also buy more cellphones than anyone anywhere, and the opening of the Chinese market has created a windfall for makers of wireless handsets, including Motorola (U.S.), Siemens (Germany), Samsung (South Korea), and Nokia (Finland). __JSil::f!~tj i:!:l:!i~i, Chapter I : Understanding the canadian Business System 21 http://www.coursesmart.com/print?xmlid=9780132146746/21&pagestoprint=10 9/27/2011 CourseSmart - Print Page 2 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 22 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. technology, information sys browser are helping businesses "go global."32 The internet GLOBAL ERA tems, and communication affects both domestic and global business activity in three The period during the capabilities. Canadians drive major ways: late t~~entieth and early twenty-firllt centll)l cars made in Japan, wear • The internet gives a dramatic boost to trade in all sec when a truly global sweaters made in Italy, drink tors of the economy, especially services. The internet economy emerged. beer brewed in Mexico, and lis- makes it easier for all trade to grow, and this is par ten to stereos made in Taiwan. ticularly true for trade in services on an international But we're not alone in this. In scale. The growth of call centres in places like India is this g lobal era, people around the world buy products an example of this international trade in services. and services from foreign companies. • The internet levels the playing field, at least to some While some Canadian businesses have been hurt by extent, between larger and smaller enterprises, regard foreign imports, numerous others have profited by explor less of what products or services they sell. In the past, ing new foreign markets themselves. Global and domestic a substantial investment was typically needed to enter competition has also forced all businesses to work harder some industries and to enter foreign markets. Now, than ever to cut costs, increase efficiency, and improve however, a small business based in central Alberta, product and service quality. We will explore a variety of southern Italy, eastern Malaysia, or northern Brazil can important trends, opportunities, and challenges of the set up a website and compete quite effectively with global era throughout this book. much larger businesses located around the world. • The internet holds considerable potential as an The Internet Era effective and efficient networking mechanism among The rapid increase in internet usage has facilitated global businesses. Business-to-business (B2B) networks business activity. Both large and small businesses are can link firms with all of their suppliers, business cus not restricted to thinking only in terms of local markets. tomers, and strategic partners in ways that make it Web-based services that are offered through a web faster and easier for them to do business together. mybusinessla~ To improve your grade, visit the MyBusinessLab website at www.pearsoned.ca/mybusinesslab. This online homework and tutorial system allows you to test your understanding and generates a personalized study planf just or you. It provides you w ith study and practice tools directly related to this chapter's content. MyBusinessLab puts you in control of your own learning! Test yourself on the material for this c hapter at www.pearsoned.ca/mybusinesslab. Summary of Learning Objectives 1. Define the nature of Canadian business and open and expand businesses. The benefits of busi identify its main goals. Businesses are organiza ness activities also extend to wages paid to workers tions that produce or sell goods or services to make a and to taxes that support government functions. profit. Profits are the difference between a business's 2. Describe different types of global economic revenues and expenses. The prospect of earning systems according to the means by which they profits encourages individuals and organizations to control the factors of production through input 22 Part I: Introducing the Contempornry Business World http://www.coursesmart.com/print?xmlid=9780132146746/21&pagestoprint=10 9/27/2011 CourseSmart - Print Page 3 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 23 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. and output markets. An economic system is a enterprise, privata property rights, freedom of choice, nation's system for allocating its resources among profits, and competition. Degrees of competition vary its citizens. Economic systems differ in tenns of who because not all Industries are equally competitive. owns or controls the five basic factors of production: Under conditions of pure competition, numerous labour, capital, entrepreneurs, physical resources, and smaU firms compete In a market governed entirely information resources. In command economies, the by demand and supply. In monopolistic competition, government controls all or most of these factors. In there are a smaller number of sellers, and each one marlcet economies, 'Nhich are based on the principles tries to make its product seem different from the of capftalsm, Individuals and businesses control the products of competitors. An oligopoly involves only factors of production and exchange them through irput a handful of sellers who fiercely compete with each and output marlcets. Most coootries today have mixed other. A monopoly involves only one seller. marlcet economies that are dominated by one of these 5. Trace the history of business in Canada. Modern systems but Include elements of the other. The pro business structures reflect a pattern of development cesses of deregulation and privatization are important over centuries. Throughout much of the colonial means by which many of the world's planned econo period, sole proprietors supplied raw materials to mies are moving toward mixed market systems. English manufacturers. The rise of the factory system 3. ShO'N hO'N demand and supply affect resource during the Industrial Revolution brought with it mass distribution in Canada. The Canadian economy is production and specialization of labour. During the strongly Influenced by markets, demand, and supply. entrepreneurial era In the nineteenth century, large Demand is the willingness and ability of buyers to corporations-and monopolies~merged. During purchase a good or service. Supply Is the willingness the production era of the early twentieth century, and ability of producers to offer goods or services companies grew by emphasizing output and produc for sale. Demand and supply work together to set a tion. During the sales and marketing eras of the 1950s market or equilibrium price-the price at which the and 1960s, business began focusing on sales staff, quantity of goods demanded and the quantity of advertising, and the need to produce what consum goods supplied are equal. ers wanted. The 1980s saw the emergence of a global 4. Identify the elements of private enterprise and economy. Many Canadian companies have profited explain the various degrees of competition in from exporting their goods to foreign markets. The the Canadian economic system. The Canadian most recent development is the use of the Internet to economy is founded on the principles of privata boost business activity. Questions and Exercises Questions for Analysis 1. On various occasions, government provides finan 'Nhy it Is an example of pure competition and identify cial incentives to business firms. For example, the the factors that make it so. Then do the same for a Canadian government provided export assistance product In each of the other three competitive situa to Bombardier Inc. with its Technology Transfer tions described in the chapter (monopolistic competi Program. Is this consistent with a basically free tion, oligopoly, and monopoly). market system? Explain how this might distort the 5. Analyze how the factors of production Qabour, capi system. tal, entrepreneurs, natural resources, and informa 2. In recent years, many countries have moved from tion) work together for a product or service of your planned economies to market economies. Why do choice. you think this has occurred? Can you envision a 6. Government plays a variety of roles In the Canadian situation that would cause a resurgence of planned mixed economy (customer, regulator, taxation agent, economies? provider of services, etc.). Consider each of the 3. In your opinion, what industries in Canada should be roles discussed in the text and state your view as regulated by the government? Defend your arg..~ments. to whether government Involvement in each role is 4. Familiarize yourself with a product or service that is excessive, insufficient, or about right. What criteria sold under conditions of pure competition. Explain did you use to make your assessments? http://www.coursesmart.com/print?xmlid=9780132146746/21&pagestoprint=10 9/27/2011 CourseSmart - Print Page 4 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 24 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. Application Exercises 7. For a product that is not discussed in Chapter 1, 9. Visit a local shopping mall or shopping area Ust find an example where a surplus led to decreased each store that you see and determine what degree prices. Then find an example where a shortage led to of competition it faces in its immediate environment. increased prices. What eventually happened in each For example, if there is only one store in the mall that case? Why? Is what happened consistent with what sells shoes, that store represents a monopoly. Note economic theory predicts? those businesses with direct competitors (e.g., two 8. Choose a locally owned business. Interview the jewellery stores) and show how they compete with owner to find out (1) how demand and supply affect one another. the business, and (2) how each factor of production 10. Go to the library or log on to the internet and research is used in the business. 10 industries. Classify each according to degree of competition. TEAM EXERCISES Building Your Business Skills • the methods-other than price--you can use to Analyzing the Price attract new customers and/or retain current customers of Doing E-Business Analysis Goal Develop specific pricing strategies based on each of the To encourage students to understand how the competi following situations: tive environment affects a product's price. • Within a month after dropping the price to $15, one Situation of your competitors raises its price back to $20. • Two of your competitors drop their prices further-to Assume that you own a local business that provides inter net access to individuals and businesses in your com $12 per month. As a result, your business falls off by munity. Yours is one of four such businesses in the local 25 percent. market. Each of the four companies charges the same • One of your competitors that has provided custom price: $20 per month for unlimited DSL service. Your ers with a free webpage has indicated that it will business also provides users with email service; two of start charging an extra $2 per month for this optional your competitors also offer email service. One of these service. same two competitors, plus the third, also provides the • Two of your competitors have announced that individual user with a free, basic personal webpage. One they will charge individual users $12 per month, competitor just dropped its price to $15 per month, and but will charge businesses a higher price (not yet the other two have announced their intentions to follow announced). suit. Your break-even price is $10 per customer. You • All four providers (including you) are charging $12 per are concerned about getting into a price war that may month. One goes out of business, and you know that destroy your business. another is in poor financial health. Method Divide into groups of four or five people. Each group is Follow-Up Questions to develop a general strategy for handling competitors' 1. Discuss the role that various inducements other than price changes. In your discussion, take the foiiCMiing fac price might play in affecting demand and supply in tors into account: the market for internet service. • how the demand for your product is affected by price 2. Is it always in a company's best interest to feature the changes lowest prices? • the number of competitors selling the same or a 3. Eventually, what form of competition is likely to char similar product acterize the market for internet service? 24 Part I: Introducing the Contempornry Bu http://www.coursesmart.com/print?xmlid=9780132146746/21&pagestoprint=10 9/27/2011 CourseSmart - Print Page 5 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 25 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. Exercising Your Ethics 3. The hotel can raise its rates by approximately 15 per Making the Right Decision cent without attracting too much attention. It can also start charging for certain things it has been providing for free, such as local telephone calls, parking, and The Situation morning coffee. The staff members see this option as Hotel S is a large hotel in a Maritime city. The hotel is a one way to generate extra profits for the renovation franchise operation run by an international hotel chain. and to protect jobs. The primary source of revenue for the hotel is convention business. A major tropical storm is working its way up the east coast and is about to hit the city. When that happens, Team Activity heavy flooding is likely. Assemble a group of four students and assign each group member to one of the following roles: The Dilemma • A member of the hotel staff Because HotelS is a licensed operation, it must maintain • The Hotel S manager numerous quality standards in order to keep its licence. • A customer at the hotel This licence is important because the international man agement company handles advertising, reservations, and • A Hotel S Investor so on. If it were to lose its licence, it is almost certain that the hotel would have to reduce its staff. Action Steps For the past few years, members of the Hotel S team have been lobbying the investors who own the hotel to 1. Before discussing the situation with your group, and undertake a major renovation. They fear that without from the perspective of your assigned role, which of such a renovation, the hotel will lose its licence when the three options do you think is the best choice? it comes up for renewal in a few months. The owners, Write down the reasons for your position. however, have balked at investing more of their funds 2. Before discussing the situation with your group, and in the hotel itself but have indicated that hotel manage from the perspective of your assigned role, what are ment can use revenues earned above a specified level the underlying ethical issues, if any, in this situation? for upgrades. Write down the issues. The approaching storm has cut off most major transportation avenues and telephone service is also 3. Gather your group together and reveal, in tum, each down. The Hotel S staff are unable to reach the general member's comments on the best choice of the three manager, who has been travelling on business. Because options. Next, reveal the ethical issues listed by each the city is full of conventioneers, hotel rooms are in high member. demand. Unfortunately, because of the disrepair at the 4. Appoint someone to record the main points of hotel, it only has about 50 percent occupancy. Hotel S agreement and disagreement within the group. How staff have been discussing what to do and have identi do you explain the results? What accounts for any fied three options: disagreement? 1. The hotel can reduce room rates in order to help 5. From an ethical standpoint, what does your group both local citizens and out-of-town visitors. The hotel conclude is the most appropriate action that should can also provide meals at reduced rates. A few other have been taken by the hotel in this situation? hotels are also doing this. 6. Develop a group response to the following question: 2. The hotel can maintain its present pricing policies. Can your team identify other solutions that might help Most of the city's hotels are adopting this course of satisfy both extreme views? action. http://www.coursesmart.com/print?xmlid=9780132146746/21&pagestoprint=10 9/27/2011 CourseSmart - Print Page 6 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 26 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. BUSINESS CASE 1 Are We Running Out of Oil? Oil is a product that is much in the news these days (remember the huge oil spill in the Gulf of Mexico in 2010). Beyond the environmental issues of oil, several impor tant questions have been raised about this important commodity: /Ve we running out of oil? If so, when will it happen? Is oil production going to peak and then rapidly decline? Allswers to these questions are hotly debated. Much of the debate is focused on an idea called "peak oil theory," which says that oil production will soon peak and will then decline rapidly, causing a major oil crisis in the world. Opponents of the peak oil theory reject the argu ment and point to several predictions of peak oil theorists that have been wrong In the past. Illustrative claims of each group are summarized below. The Arguments of Peak Oil Supporters Those who support the Idea of peak oil make the follow ing arguments: • Output from oil fields around the world is declining (in some fields the decline is about 18 percent a year). 1963-1972 totalled 187 billion barrels, but new discov Declines are particularly evident in the Middle East, eries during 1993-2002 totalled only 16 biDion barrels. Europe, and the U.S. That means that 3-4 million bar • In 1956, M.K. Hubbert predicted that U.S. oil produc rels a day of new oil will have to be found for global oil tion would peak in the early 1970s, and he was right. production just to remain steady. The same thing will happen with world oil production. • Many big oil-producing countries are very secretive about their year-to-year production rates, so it is diffi The Arguments of Peak Oil Opponents cult to know just how fast their output is really declin ing. Their oil fields may be in worse shape than they Those who reject the peak oil theory make the following will admit. arguments: • Several top-level executives in the oil industry say • World oil production has been steadily increasing, that there is a limit to how much oil can be produced and in 2006 was the highest in history, averaging over each year (about 100 million barrels per day), and 85 million barrels per day (over 31 billion barrels per that ceiling may be reached as early as 2012. The year). Oil output will eventually plateau, but it will not International Energy Agency (lEA) also predicts that peak and then fall rapidly. oil production of more than 100 million barrels of oil • A widely used measure of oil reserves is "ultimate per day will be difficult to achieve. recoverable reserves" (URR). TrendUnes, a Canadian • Oil production will peak because of factors such as research company, notes that the world's URR is restricted access to oil fields, shortages of oil field increasing at an increasing rate. For example, during wori 26 Part 1: lnlroduciog tbe Contemporary Business World http://www.coursesmart.com/print?xmlid=9780132146746/21&pagestoprint=10 9/27/2011 CourseSmart - Print Page 7 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 27 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. • In 1979, the "life index" of oil was estimated to be Irrespective of what the supporters and opponents about 35 years (at 1979 consumption rates). That of peak oil say, there is another factor that bears on this meant that we would elC.perience an oil crisis early argument the business cycle. Most of the arguments in the twenty-first century. But by 2003, the life presented above were generated before the worldwide indelC. had actually risen to 40 years, and by 2007 it recession began In 2008. The recession substantially had risen to 45 years. These inaeases have occurred reduced demand for oil and caused its price to drop even though oil consumption rates now far elC.ceed from $147 a barrel to less than $40 in 2008 (in 2010 those of 1979. the price rose again to $75). In an attempt to prop up • There have been several major new discoveries in the price, the Organization of the Petroleum Exporting the last couple of years (for example, off the coast Countries (OPEC) countries cut output by 4 million bar of Brazil and in the Gulf of Mexico). The new Gulf of rels per day. This reduced output will extend the supply Mexico oil field may contain up to 15 billion barrels of of oil even further into the future. Some experts are now oil. If it does, that single new field would increase U.S. predicting that weak economic growth around the world oil reserves by 50 percent. The new oil field off the will mean that the demand for oil will be low for many coast of Brazil may contain 33 billion barrels of oil years to come. So, these developments support the opponents of peak oil. But peak oil supporters point out • M.K Hubbert's prediction for U.S. oil production was that that low demand for oil will cause less exploration correct, but his prediction for world production was for oil, and that means we will be facing an oil shortage far off the mark. He predicted that global oil produc in the future. tion would peak at 12 billion barrels per year by early It is difficult to know what is going to happen, isn't it? in the twenty-first century, but actual production in 2006 was 31 billion barrels. Critics of peak oil also use several general arguments Questions for Discussion from economics to support their claims that the peak oil 1. Which group-peak oil supporters or their idea Is not correct. First, they note that the higher the opponents-do you think makes more persuasive price of oil, the greater the amount that can be extracted arguments about the future of oil production and the in an economically viable way. Second, higher oil prices demand for oil? Explain your reasoning. will also discourage consumption, and that will make the in support of peak existing supply of oil last longer. Third, higher oil prices 2. After considering the arguments against it, draw a graph will motivate the development of alternate sources of fuel, oil theory and the arguments of world oR production and that will also make the existing oil supply last longer. that shONS your predictions from now until the year 2100. Show your prediction Fourth, new technologies for extracting oil are constantly being developed and old technologies are being refined. of annual world oil production-In billions of barrels This means that more oil can be extracted than was on the vertical axis and time on the horizontal axis. Defend your predictions. originally thought. For example, Canadian and Japanese researchers have succeeded in extracting natural gas 3. Consider the following statement: " There are so many from structures called gas hydrates. The energy locked in uncertainties that must be taken into account when gas hydrates may exceed the total world supply of energy trying to predict world oil production that it is irTVJOS available from coal, oil, and natural gas combined. If this sible to have any confidence in anyone's predictions." new technology becomes commercially viable, it will have Do you agree or disagree with the statement? Explain a dramatic effect on the total supply of fossil fuels. your reasoning. ~i '----'. >U'I"'LIFE- http://www.coursesmart.com/print?xmlid=9780132146746/21&pagestoprint=10 9/27/2011 CourseSmart - Print Page 9 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 29 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. The Court System The Role of Law in Canadian LAW The set of lUes In Canada, the judiciary branch Wid stwldatds that a Society of government has the responsi eociety agrees l4JOO to bility of settling disputes among govern the beheviou"of rte citizene. Law is the set of rules and standards that a society organizations or Individuals by agrees upon to govern the behaviour of its citizens. Both applying existing laws. Both COMMON LAW the British and the French influenced the development provincial and federal courts The U'lWritten law of Eng/ and. derived from exist to hear both criminal and of law in Canada. In 1867, the British North America precedent and legal (BNA) Act created the nation of Canada. The BNA Act civil cases. The Supreme Court judgmenta. was "patriated" to Canada In 1982 and is now known of Canada is the highest court In STATUTORY LAW as the Constitution Act. This act divides legislative Canada. It decides whether to Written law de...eloped powers in Canada between the federal and provincial hear appeals from lower courts. by city oounolla, pro governments. vinclellegiolatURIII, and parliament. AOMINSTRATIVE Business Law LAW The rules and Sources of Law regtJationoo that gowm The law in Canada has evolved and changed in response Business firms, like all other ment agenciee and to our norms and values. Our laws have arisen from three organizations, are affected OOI'l'f'lliMIOI deYelop based on their irter sources: (1) customs and judicial precedents (the source by the laws of the country. pretallona of at.allAay of common law), (2) the actions of provincial and federal Business law refers to laws that krN&. legislatures (the source of law specifically affect ho.v business statutory ~ and (3) rulings BUSINESS LAW by administrative bodies (the source of administrative firms are managed. Some laws I.BN8 that epedficaly law). affect all businesses, regard affect how~ Common law is the unwritten law of England, derived less of size, industry, or loca firma ..... ITll>'liiQed. from ancient precedents and judges' previous legal opin tion. For example, the Income ions. Common law is based on the principle of equity, Tax Act requires businesses to the provision to every person of a just and fair remedy. pay Income tax. Other laws may Canadian legal customs and traditions derive from British have a greater impact on one industry than on others. For common law. All provinces except Quebec, which uses example, pollution regulations are of much greater con the French Civil Code, have laws based on British com cern to Vale than they are to Carlson Wagonlit Travel. mon law, and court decisions are often based on prec Business managers must have at least a basic under edents from common law. That Is, decisions made in standing of eight important concepts in business law: earlier cases that Involved the same legal point will guide 1. contracts the court. 2. agency statutory law is written law developed by city coun cils, provincial legislatures, and parliament. Most law in 3. bailment Canada today is statutory law. 4. property Administrative law Is the rules and regulations that 5. warranty government agencies and commissions develop based 6. torts on their Interpretations of statutory laws. For example, Consumer and Corporate Affairs Canada develops regu 7. negotiable instruments lations on false advertising using federal legislation 8. bankruptcy Appendix 11:. Business Law 29 http://www.coursesmart.com/print?xmlid=9780132146746/21&pagestoprint=10 9/27/2011 CourseSmart - Print Page 10 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 30 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. Contracts An example will demonstrate these three alternatives. CONTRACT lvl ag,_. Agreements about transactions Suppose that Barrington Farms Inc. agrees to deliver ment between two par 100 dozen long-stemmed roses to the Blue tiee to act In a !!p8Cifiad are common in a business's Violet Flower w~ a to perfam day-to-day activity. A contract Shop the week before Mother's Day. One week before the certain acle Is an agreement between two agreed-upon date, Barrington informs Blue Violet that it EXPRESS CONTRACT parties to act in a specified cannot make the delivery until after Mother's Day. Under Cleaty~the way or to perform certain acts. the law, the owner of Blue Violet can choose among any terms of an~ A contract might. for example, of the following actions. IMPUED CONTRACT apply to a customer buying a Specifies the neoaaseoy product from a retail establish Discharge Blue Violet can also ignore its obligations in behiMoul'l of the par the contract. That is, it can contract w~h another supplier. ties to the cortracl. ment or to two manufactur ers agreeing to buy products BREACH OF Sue for Damages Blue VIOlet can legally demand pay or services from each other. A CONTRACT When ment for losses caused by Barrington's failure to deliver contract may be either express one perty to an agree the promised goods on time. Losses might Include any ment falls, wilhout legal or Implied. An express con increased price Blue Violet would have to pay for the reason, to live 1.4' to the tract clearly specifies (either agreemant"e provlalon.. roses or court costs Incurred In the damage su~. orally or In writing) the terms AGENCY of an agreement. By contrast, PRINCIPAL Require Specific Performance If monetary damages RELATIONSHIP an Implied contract depends are not sufficient to reimburse Blue Violet, the court can Eetabliehed when one on the two parties' behaviours. force Barrington to live up to Its original contract. party (the agent) le For example, if you hire a fish authorized to ad on ing guide to help you catch fish, behalf of another perty Agency (the poincipS). you have an implied contract that obligates you to pay the In many business situations, one person acts as an BAILOR-BAILEE agent for another person. Well-known examples include RELATIONSHIP fishing guide for the service you In a baior-baiee rela receive. actors and athletes represented by agents who negotiate lionel"ip, the bailor (the A valid contract includes contracts for them. An agency-principal relationship is property OWOII) ..,._ estab6shed when one party (the agent) is authorized to p 30 PMt 1: lnlroduclng the Conrempor.uy Business World http://www.coursesmart.com/print?xmlid=9780132146746/21&pagestoprint=10 9/27/2011 CourseSmart - Print Page 1 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 31 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. The Law of Property intentional tort Is a wrong Property includes anything of tangible or intangible value ful act intentionally com PROPERTY At¥Hng of tangible or intangible mitted. If a security guard that the owner has the right to possess and use. Real vaUe that the ONnef property is land and any permanent buildings attached in a department store sus I'M the riglt to poe to that land. Personal property is tangible or intan pects someone of shoplifting -anduee. gible assets other than real property. Personal prop and uses excessive force to REAL PROPERTY erty includes cars, clothing, furniture, money in bank prevent him or her from leav lsnd and MY perma accounts, stock certificates. and copyrights. ing the store, the guard might nent tUOOge 8ltBched to thailand. be guilty of an intentional Transferring Property From time to time, businesses and tort. Other examples are libel, PERSONAL PROP individuals need to transfer property to another person or embezzlement, and patent ERTY Tangble or intangible asaet& other business. A deed Is a document that shows ownership of infringement. than real property. real property. It allows the transfer of title of real property. Negligence is a wrongful DEED A docl1Tl80t A lease grants the use of an asset act that inadvertently causes for a specified that 8howe owroenotip period of time in return for payment. The business or indi injury to another person. For of real property. vidual granting the lease Is the lessor and the tenant is example, if a maintenance crfNJ LEASE Gmnls the use the lessee. For example, a business (the lessee) may rent in a store mops the floors with of M -• for a epeoi space in a mall for one year from a real estate develop out placing warning signs In the fied period of time in ment firm (the lessor). area, a customer who slips and ret1.m for payment. A title shows legal possession of personal property. It falls might bring a negligence TITLE Shows legal allows the transfer of title of personal property. When you suit against the store. poeeeteion of peraonal buy a snowmobile, for example, the former owner signs the In r11c11nt y11ars, thll most property. title r:Ner to you. publicized area of negligence has WARRANTY A prorn been product liability. Product iee that the prodJct or liability means that businesses I8IVioe wil perfoon 88 Warranty the ...... hes prorrised are liable for injuries caused to itwil. When you buy a product or service, you want some assur product users because of negli EXPRESS WAR ance that it will perform satisfactorily and meet your needs. gence in design or manufactur A warranty is a promise that the product or service wiD RANTY A apecific ing. Strict product liability means daim that the 11l81"U perform as the seller has promised it will. that a business is liable for inju factu'8f makee about a There are two kinds of warranties-express and ries caused by their products product. implied. An express warranty is a specific claim that even if there is no evidence of IMPLIED WARRANTY the manufacturer makes about a product. For example, negligence in the design or man A euggestion that a a warranty that a screwdriver blade is made of case ufacture of the product. product wll petfonn hardened steel is an express warranty. An implied • • the rnerufactlnf claims itwiU. warranty suggests that a product will perform as the manufacturer claims it will. Suppose that you buy an out Negotiable Instruments TORT A wrongftj Negotiable instruments are civil act that one party board motor for your boat and the engine burns out in types of commercial paper inftlcte on another ard one week. Because the manufacturer implies by selling that restAte in irjuy to that can be transferred among the motor that it will work for a reasonable period of time, the peraon, to the per individuals and business firms. eon· a property, or to the you can return it and get your money back. Cheques, bank drafts, and per!on'e good name. Because opinions vary on what Is a "reasonable" cer time, most manufacturers now give limited-time warran tificates of deposit are exam INTENTIONAL TORT AwrongfU ties on their products. For example, they will guarantee ples of negotiable instruments. The Bills of Exchange Act act intentionally their products against defects in materials or manufacture oorrmilted. specifies that a negotiable for six months or one year. instrument must NEGUGE.NCE A WIOfYiiU act that Torts • be written; redvertenlly caJ!IEl8 irfuy to .-.other pencn. A tort is a wrongful civil act that one party inflicts on • be signed by the person another and that results in injury to the person, to the who puts it into ctculation person's property, or to the person's good name. An (the maker or drawer); Appendix A: Business Law 31 http://www.coursesmart.com/print?xmlid=9780132146746/31&pagestoprint=10 9/27/2011 CourseSmart - Print Page 2 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 32 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. • contain an unconditional cash floN problems, reduced demand for their products, PRODUCT LIABILITY promise to pay a certain or some other problem that makes it difficult or Impossible The iability of buai ,._ for irjuie8 amount of money; for them to resolve their financial problems. In recent years, caused to product • be payable on demand; and large businesses like Eaton's, Olympia & York, and Enron ueera becm.e of negl have sought the protection of bankruptcy laws. Three main genoe in deeig1 • be payable to a specific per factors account for the increase in bankruptcy filings: or manufactl.ring. son (or to the bearer of the BANKRUPTCY The instrument). 1. The increased availability of credit C 32 P:ltt 1: Introducing the Contemporary Business World http://www.coursesmart.com/print?xmlid=9780132146746/31&pagestoprint=10 9/27/2011 CourseSmart - Print Page 3 of 10 User name: Grux G Book: Business Essentials, Sixth Canadian Edition Page: 33 No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in violation of the law or Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. The International Framework trading with one another for centuries, many customs and INTERNATIONAL LAW The very general governing exchanges of Business Law traditions set of cocperative have gradually evolved into agreement& and Laws vary from country to country, and many busi practice. Although some trad glid&linee e•teblllhed by countries to gowm ing practices still follow ancient nesses today have International markets, suppliers, and the actions of f'1dio.ldJ.. competitors. Managers in such businesses need a basic unwritten agreements, there all, bu..._ and understanding of the international framework of business has been a clear trend in recent nallon8 themselves. law that affects the ways in which they can do business. years to approach interna- Issues such as pollution across borders are matters of tional trade within a formal legal international law-the very general set of cooperative framework. Key features of that agreements and guidelines established by countries framework include a variety of formal trade agreements to govern the actions of individuals, businesses, and (see Chapter 5). nations themselves. Organizations such as the WTO and EU also provide International law has several sources. One source is legal frameworks within which participating nations agree custom and tradition. Among countries that have been to abide. Appendix A: BUSiness law 33 http://www.coursesmart.com/print?xmlid=9780132146746/31&pagestoprint=10 9/27/2011