Engage in Life-Long Learning

Benefits of a College or University Credential

Why should you enroll in a college or university program? One of the most compelling reasons to attend college or university is to obtain credentials, learn skills and gain knowledge that will help you earn more money than you could without a postsecondary credential than you could over your lifetime.  Some of the other benefits of obtaining a higher education credential include the following:

1. Increased Job Prospects. When looking for work in Canada, Canadian employers like to see that you attended a Canadian school because managers often recognize these schools. If you did not attend a Canadian school, it may be helpful to get a credential evaluation as doing so will help employers compare the school you attended in another country to Canadian schools. There are various associations that perform credential evaluations such as World Education Services (WES) that compares your academic accomplishments to standards in Canada and the U.S.  These credential evaluations help institutions like schools, employers, licensing boards, and immigration authorities better understand your educational background.
2. Higher Wages. Workers with four-year degrees earn higher wages and experience lower levels of unemployment than those with only a high school diploma. Generally, the higher levels of education you have when working in Canada the more money you earn.
3. Increased Job Security. You may be better equipped for economic turmoil if you have a college or university credential.
4. Greater Life Satisfaction. More schooling could lead to a happier life. People with bachelor’s degrees tend to be happier than those without one.
5. Easier Access to Health Insurance and Other Benefits. College and university graduates are more likely to work for companies that offer health insurance benefits than high school graduates.

Continue to Learn

Lifelong learning is the ongoing, voluntary, and self-motivated pursuit of knowledge for either personal or professional reasons. Lifelong learning is a workplace necessity for most employees. It can help employees adapt to changing work demands, improve their performance, and increase their job satisfaction. Many organizations will provide professional development funds for employees’ personal learning and growth. Some companies may require employees to commit to a set number of months or years with the company after completing a company-funded professional development program.

Build the Skills Employers Need

In addition to the above benefits of obtaining a college or university credential, you will also build new skills that will help you obtain a job, retain the position, and be successful in growing your career. Specific jobs may require specific hard skills, such as a Web Designer who needs hard skills in using software in order to build websites. Beyond hard skills, soft skills are required in order for you to communicate, work in teams, and manage yourself professionally in the workplace. Soft skills are considered transferrable skills and are often considered employability skills.  Employability skills are the skills you need to enter, stay in, and progress in the world of work—whether you work on your own or as part of a team. Some of the most important employability skills you will need is the ability to work well with others, be a productive team member, and communicate well with others. Did you know that 90% of projects require team participation as opposed to individual responsibility, and 31% of companies say that miscommunications about project objectives is the number one reason why projects fail?

The Conference Board of Canada provides The Employability Skills Toolkit for download. The Toolkit is a guide to the skills needed to adapt and succeed in the world of work. It includes explanations and descriptions of these skills and ways to build them. The Toolkit includes key information about how to become job-ready and exercises to practice and apply what you have learned. These activities encourage thinking about which skills you have, which skills you may need to work on, and how you can improve them. The updated version of the Toolkit also includes information on how to prepare for and succeed in the future of work. To help you understand some of the skills that are in high demand by employers, you’ll find new content on digital skills and social and emotional skills. Given the impacts of technology and automation on the working world, this version of the Toolkit also includes a new section on how to develop a change-ready, lifelong learning mindset, which is essential to help you navigate job transitions.

Employability skills fall into four broad categories as shown in Figure 1.1 below.

 

According to a blog post by Matt Gavin at Harvard Business School Online, every professional should know the following business fundamentals:

1. Analytics. The demand for professionals with a keen understanding of business analytics and data science is on the rise.
2. Financial Accounting. No matter your profession, understanding the meaning behind the numbers on financial statements can be a boon to your career.
3. Economics. Beyond an in-depth knowledge of your industry’s market demands, studying economics can equip you with the necessary skills to craft a successful business strategy and help your firm succeed against competitors.
4. Leadership. The ability to lead and mobilize others is vital for all professionals.
5. Negotiation. Knowledge of effective bargaining tactics can help you resolve conflicts that are otherwise deadlocked and equip you with the skills needed to maximize value in agreements.
6. Strategy. An understanding of strategy formulation and execution can help professionals across all industries, making it easier for their organizations to meet business goals and adapt to new challenges and opportunities.
7. Global Business. Many of today’s largest and most successful organizations, such as Apple and Walmart, are multinational corporations conducting business worldwide. In an age of globalization, it’s highly beneficial for today’s professionals to broaden their knowledge of international business.

Communication Skills

The communication skills identified by the Conference Board of Canada include the following.

• Read and understand information presented in different ways (e.g., words, graphs, charts, diagrams).
• Write and speak so others can pay attention and understand.
• Listen and ask questions to understand and appreciate the points of view of others.
• Share information using different technologies (e.g., phone calls, e-mail, social media, the Internet).
• Use relevant knowledge and skills to explain or clarify ideas.

Teamwork Skills

In every job you will be required to work with people. In college and university, you often work with your peers on group projects.  Interacting with colleagues, managers, customers, and suppliers is part of everyday communication.

The teamwork skills identified by the Conference Board of Canada, Work with Others, include the following:

• Understand and work within the roles of a group.
• Make sure that a team’s purpose and aims are clear.
• Respect and support the thoughts, opinions, and contributions of others.
• Recognize and respect people’s diversity and perspectives.
• Accept and provide feedback in a useful and kind manner.
• Add to a team by sharing information and skills.
• Lead or support when it’s appropriate.
• Understand the role of conflict in a group in reaching solutions.
• Manage and settle conflict.

The teamwork skills identified by the Conference Board of Canada, Participate in Projects and Tasks, include the following:

• Design or carry out a project with well-defined outcomes.
• Develop a plan, ask for feedback, and apply it.
• Work to shared standards of quality.
• Choose and use the right tools for a task or project.
• Adapt to changing information and conditions.
• Keep an eye on the success of a project or task throughout and find ways to improve.

Play the YouTube video below, “Employability Skills – Have You Got them?” to learn about the soft skills you need to succeed in your academic career as well as your business career.  Transcript for “Employability Skills – Have You Got Them?” Video [PDF–New Tab].  Closed captioning is available on YouTube.

Study Smarter Not Harder

College and university can be challenging when it comes to allocating time for studying and completing assignments.

Study Tips

Below is a list of 10 study tips that will help get you through those long study sessions.

1. The Pomodoro Technique. Set a timer for 25 minutes and dive into your work. When the timer rings, you’ve earned a five-minute break. Repeat four times, then take a longer break. This study method is proven to boost focus and helps prevent study fatigue.
2. Block Distracting Apps. Set your phone to Do Not Disturb to silence notifications.
3. Learn by Chunking. Break down complex information into bite-size pieces, or “chunks”. Focus on one section at a time. This makes information more manageable and less intimidating, allowing your brain to form patterns and connections, enhancing recall and understanding.
4. Study After Exercising. Physical activity increases blood flow, delivering more oxygen and nutrients to your brain. This can enhance cognitive functions like memory, problem-solving, and attention.
5. Listen to Recorded Lectures at 2x Speed. After attending your lectures, make it a habit to re-listen to them at double speed if there are recordings available. This technique helps reinforce what you’ve already heard and allows you to cover more material in less time.
6. Reward Yourself. Incorporating a reward system into your study routine can significantly enhance your motivation and productivity.
7. Study with All of the Lights On. A well-lit study environment can significantly impact your ability to concentrate and stay alert. Natural light in particular is associated with improved energy levels and mood.
8. Study in Groups. If you’re studying the same information as the people around you, it can actually help deepen your understanding of the material. You’ll be able to share your different perspectives, quiz each other on the material, and fill in gaps in each other’s knowledge.
9. Teach to Learn. They say the best way to deeply learn anything is to teach it to someone else. Many colleges and universities have tutoring positions for students who have achieved high grades in their courses.  Check with your institution’s library or student services department. You can teach a colleague about course concepts while you make some extra money at the same time.
10. Use Mnemonics. Mnemonics are memory aids that help you recall complex information through simple associations, like acronyms, rhymes, or visual imagery. They transform hard-to-remember data into a format that’s easier to remember.

SQ4R Reading System

A technique you might apply to reduce reading time is the SQ4R reading system. The SQ4R reading system is designed to help you study your textbook and apply reading and notetaking skills. The letters in SQ4R stand for five steps: survey, question, read, reflect, recite, and review. These steps will help you gain more from what you read and be better prepared for quizzes and exams. In other words, you will maximize the return on your time investment for reading!

Learning Style

It is important for you to identify your learning style.  Which way do you learn best?  Do you learn best by doing, by observing, by listening, by watching, or through a combination of these things.  Learning styles refers to the different methods of learning or understanding new information, the way a person takes in, understands, expresses and remembers information. There are 4 predominant learning styles: Visual, Auditory, Read/Write, and Kinaesthetic. Often colleges and universities have assessments you can take that will help you identify your learning style as well as your strengths and abilities. The majority of people have one dominant learning style, although most people benefit from several different learning styles. When learning is presented in a way that is consistent with someone’s dominant learning style, they tend to learn more quickly and with less frustration.

When you are enrolled in a course, and you find you are struggling to learn the concepts, you may need to make a plan to help yourself. For example, if the professor is teaching in lecture format and you need more examples and videos then after class you might search online for videos or examples that will help you understand what the professor’s lecture was about.  You might also ask questions and request additional exercises or a meeting with the professor, or maybe, you would do better by obtaining a tutor. You need to be proactive in your education and feel free to discuss issues that you may have with the professor, your academic advisor and your peers.  You may be able to form a learning-buddy relationship with a peer which may help you both understand the lessons better.

Student Support

Identify what support the institution provides for students and utilize what you need to be successful.  Ask yourself these questions:

• Does the school provide tutors at no charge?
• Does the school provide help with math beyond the classroom?
• Does the school offer extra English tutoring?
• Does the school have an Accessibility Office that can provide students with accommodation?
• Does the school loan laptops or other learning devices to students?
• Does the school allow access to library resources when off campus?
• Does the library provide lessons to students on researching, citing, and using the library resources?
• Does the student association have clubs that might help students study?
• Does the school provide study spaces?
• Does the student association provide information on housing, used books, clothing, food, etc.?
• Does the school provide open educational learning resources?
• Does the school offer student scholarships?
• Does the library have learning strategists that can help with time management, stress management, and study tips?

You will need to find answers to your many questions. Use the college or university website and read about student experience, student support, student services that the institution provides. When you are in need of support ask for it.  You academic advisor, international advisor, professor, program coordinator, and service areas at the college or university can help.  Everyone working at the college or university is there to support your learning journey and provide you with the tools and resources you need to be successful.

Grades

One of the most important things you need to understand in each course is the course outline (also referred to as course syllabus).  You need to review this the first week of class and ask your professor questions if you do not understand how you will be graded.  The course outline should provide you with a breakdown of what you can expect to be taught in the course, what the course learning outcomes (sometime called objectives) are, and how you will be assessed on your learning.  Often assessment due dates are provided in advance, and you should record these in a calendar and always, always, work ahead of due dates.  When you leave assignments until the night before they are due to complete them you are not preparing for success. So many things may go wrong, such as a technology failure or you may find you do not understand some of the instructions or you may find the assignment is much more time consuming than you had thought.  You should always plan ahead and be prepared for things that may go wrong. Plan to have your assignments completed a day or two ahead of the due date, that way if your technology does fail, you will be able to use another device, or if you don’t understand some instructions then you have time to clarify these with the professor.

It is important to keep your grades as high as you can. You do this by planning your time well, keeping a calendar and working ahead of due dates, asking questions when you need help, and completing the learning tasks you are assigned. When students do the readings assigned, watch the videos assigned, and attend and participate in class, they often do very well in achieving high grades. Your GPA score (Grade Point Average) is a cumulation of the grades across the courses throughout your program. To graduate your institution will have a minimum GPA score you must achieve, and should you wish to further your education in the future your GPA score may factor into whether or not you will be accepted for enrollment at specific colleges or universities.  If you decide in the future to study another program at a different institution you may want to apply for transfer credit and most colleges and universities have minimum grade requirements for accepting transfer credits (this is often a C grade, but check with the institution). Many schools calculate GPAs differently, but you can usually find this information on the institution’s website.

Academic Integrity

Academic integrity is a commitment to acting with honesty, trust, fairness, respect, and responsibility in academic work and studies. A few questions to ask yourself when completing school assignments include the following.

1. Can I ask a friend to share their work with me?
2. Can I hire someone to do the work for me?
3. Can I get a generative AI such as ChatGPT to do the work for me?
4. Can I use an assignment mill such as Course Hero to find the assignment answer posted by someone else?

The answer to each of these questions is generally, NO!

Generative AI

With that said, there may be occasions when your professor allows you to use generative AI to help you research or get started with a writing assignment. When you do use ChatGPT or other AI tools you will need to cite it as a source of information in the same way you would cite a website, video, book, or other source of information you may use.  Remember that you may only use the resources permitted by the professor to aid you in completing assignments, otherwise, your work may be identified as plagiarized or in breach of the academic integrity policy.  Be sure you familiarize yourself with the institution’s policies, and specifically the academic integrity policy.

Avoid Plagiarism

Formatting standards for documentation are common in higher education as well as in the workplace. Most companies have documentation standards that apply to all correspondence that leaves the company, such as business letters, reports, flyers, brochures, marketing media, website media, and social media. Businesses work hard to portray a certain image to the public and they want that image to be consistent across all their communication channels. A citation style dictates the information necessary for a citation and how the information is ordered, as well as punctuation and other formatting. Popular citation styles such as APA and MLA provide guidelines to authors in how to format documents for professionalism, for crediting other people’s words and ideas via citations and references to avoid plagiarism, and for describing other people using inclusive, bias-free language.

Most college and university libraries provide style guides for APA, MLA and other document formats. The Online Writing Lab (OWL) Purdue Citation Chart provides examples of various citations for both in-text and reference list citations. Additional details are available at the OWL Purdue website.  Review OWL Purdue APA Formatting Guidelines and the library guides from CSUDH are also very comprehensive.

Play the YouTube video below, “Introduction to Citation Styles: APA 7th ed.” to learn about the purpose and basic conventions of citing sources in-text and in a reference list using the American Psychological Association (APA) Style, 7th edition, 2019.  Transcript for “Introduction to Citation Styles: APA 7th ed.” Video [PDF–New Tab].  Closed captioning is available on YouTube.

Develop Habits that Support Your Success

The 7 Habits of Highly Effective People

The book entitled “The 7 Habits of Highly Effective People” written by Stephen R. Covey is based on Covey’s belief that the way we see the world is entirely based on our own perceptions. In order to change a given situation, we much change ourselves, and in order to change ourselves, we must be able to change our perceptions.

Spend a little time researching the following seven habits to really understand what they mean:

1. Be Proactive. Control your environment rather than have it control you.
2. Begin with the End in Mind. Envision the desired outcome and concentrate on activities that help in achieving it.
3. Put First Things First. Manage time and effort so that the required tasks are prioritized.
4. Think Win-Win. Co-operative effort so there are no losers.
5. Seek First to Understand, Then to Be Understood. Listen to others first, let them know they have been heard before you speak.
6. Synergize. People cooperating together can often achieve more than one person could alone.
7. Sharpen the Saw. Take time to think, learn, and analyze.

9 Tips for Building a Successful Career You Enjoy

Career success can be highly subjective, meaning each person gets to define what success looks like for them. For some people, a successful career is one that provides the most enjoyment. For others, a successful career is one that provides certain financial benefits. Regardless of how you define it, achieving your goal of a successful career can be an exciting and empowering experience.

1. Identify Your Goals. What are your personal and professional goals? Have you identified your career interests? You may want to schedule an appointment with a career advisor. Most colleges and universities provide a Careers office with career advisors who can help you determine your career interests, search for employment, develop your resume and cover letter for specific jobs, and practice your interview skills.  It’s definitely worth a visit to your Careers office.
2. Keep Track of Progress. Set SMART goals as these are goals that are specific, measurable, attainable, relevant and time-based. Using this structure can be a good way to support your success and make adjustments if needed.
3. Make a Plan. Identify your skills and abilities and then search for a career you may like to do. Do you have the skills you need? If not, then how will you get them? This is a good time to connect with a career advisor and take a few career assessments to help you identify your strengths and weaknesses and find opportunities for you to learn and grow and prepare yourself for the career you want.
4. Stay Positive. A positive outlook can support you in building a successful career by keeping your mind open to new possibilities and career paths. Practice interrupting negative thoughts and replacing them with a positive alternative, if possible. Try to spend time with other positive people to reinforce these thought patterns, if it makes sense for you to do so.
5. Reflect Often. Frequently reflecting on your career progress, current circumstances and future options can help you build a successful career.
6. Know Your Strengths. When you know your strengths, you can tailor your job search accordingly and find a position that suits your unique skills. You can also use this information to understand where to focus your attention in professional development and expand your strengths accordingly.
7. Network Effectively. Your connections with other industry professionals can help you grow, make you aware of new and interesting career paths and even make your career more enjoyable.
8. Keep a Growth Mindset. Growth mindset is a phrase that refers to the belief that anything can be learned if you give enough effort to learning it.
9. Practice Mindfulness. Mindfulness, or paying attention to your internal and external state of being, can help you build a successful career by developing self-awareness, confidence and a sense of calm. Try researching mindfulness techniques or visiting with a mindfulness specialist to learn ways to do so.  Mindfulness is a practice in which you focus your awareness in the present without judgement. You create an intention to be conscious of your thinking, feeling and sensations within the current situation. You fully engage in the present moment. Interestingly, mindfulness has been researched extensively and has all kinds of positive outcomes. For example, in a global study, those who practiced mindfulness reduced depression 19%, reduced anxiety 13% and improved wellbeing 7%, according to research published in the British Journal of Health Psychology. In business, mindfulness can improve productivity, biases, decision-making, behaviour, creativity, and well-being. Mindfulness programs help leaders and employees reflect effectively, focus sharply on the task at hand, master peak levels of stress, and recharge quickly. In recent years, many big organizations have begun to invest in mindfulness. Google, Nike and Procter & Gamble, for example, provide meditation rooms and classes for employees. Here’s how you can practice mindfulness for the benefits in your academic and business careers: 1) Reduce Distraction, 2) Avoid Multi-Tasking, 3) Reduce Procrastination, 4) Reduce Emotional Reactivity, and 5) Avoid Team Issues.

Manage Time Effectively

Time management is an essential life skill and one that will make a huge difference in your career. Time management is the practice of planning and controlling how you use your time to be more productive and efficient. It involves prioritizing tasks, setting deadlines, and avoiding distractions. The goal of time management is to complete important tasks on time while also balancing your personal, professional, and academic responsibilities. Some benefits of effective time management include less stress, more time for creative or strategic projects, better work quality, and more self-confidence. Managing time is an essential part of every busy business professional’s job. Most professionals use an electronic calendar to track appointments, meetings, events, etc.

Play the YouTube video below, “Time Management Techniques for Stress Free Productivity” YouTube video below for some time management tips for stress-free productivity. Transcript for “Time Management Techniques for Stress Free Productivity” Video [PDF–New Tab]. Closed captioning is available on YouTube.

Manage Stress Effectively

Stress is a part of everyone’s life. Stress is a physical, mental, and emotional response to a difficult event. Stress Management offers a range of ways to help you better deal with stress and difficulty in your life. Engaging in activities that support self-care may help reduce stress and anxiety. These can include exercise and mindfulness practices.

Listed below are 16 evidence-based ways to relieve stress:

1. 

   Yoga is a good way to reduce stress

   Get more physical activity

2. Eat a balanced diet
3. Minimize phone use and screen time
4. Practice self-care
5. Try journaling
6. Reduce your caffeine intake
7. Spend time with friends and family
8. Create boundaries and learn to say no
9. Avoid procrastination
10. Take a yoga class
11. Practice mindfulness
12. Cuddle
13. Spend time in nature
14. Practice deep breathing
15. Spend time with a pet
16. Consider supplements

Taking Tests

Often students become stressed when there is a test to take. Your institution may provide some test-taking tips.  Below are a few test-taking tips from various colleges and universities.

• Centennial College
• Durham College
• Wichita State University
• Utah State University
• Southwestern University
• The Learning Portal, College Libraries Ontario

Manage Your Personal Finances

The chapter, “Managing Personal Finances”, goes into more detail on this subject, for now let’s get introduced to the concepts.

Students become stressed when they need to pay bills and don’t have enough funds to do so. Colleges and universities understand that students have complex lives and often need to work part-time jobs in order to pay their bills. With that said, as a full-time student, these institutions expect you to prioritize your studies since you have paid tuition fees to enroll. No student wants to fail a course and have to pay to re-take it, but if you do not focus on your studies this may happen.  Planning your time effectively is a good way to ensure you are spending enough time on your studies.

Entering college is an exciting and sometimes intimidating venture for many young adults—often it’s the first time many leave the warmth and safety of their parent’s home and have to live and manage on their own. One specific area that causes young adults difficulty is learning to budget.

A budget is a financial plan that estimates how much money you’ll make and spend over a specific period of time. It can be used by individuals, families, businesses, and governments. The chapter, “Managing Personal Finances” goes into more detail on this subject, for now let’s get introduced to the concepts.

Below are a few suggestions on how college students can more effectively manage their money while furthering their education:

• Set up a self-enforced budget and manage your credit card responsibly
• Utilize meal plans or make your own meals rather than eating out, and share expenses with roommates
• Investigate economic ways to buy essential items and supplies
• Distinguish between essential and non-essential purchases
• Take advantage of scholarships and grant awards
• Investigate off-campus housing and whether or not you can share a place with another student
• Get a paid, part-time job if your schedule permits, but don’t work full-time hours otherwise you may not have time to keep up with your studies
• Take advantage of free (on campus) or low-priced (Value Village, Salvation Army) options for food, clothing, and furniture
• If asked, request practical gifts for your birthday and other special occasions
• Buy used books when possible and resell them when you are finished with them, or checkout the library to see if you can borrow a course textbook
• Investigate whether or not you can remain on your parents’ health insurance plan instead of purchasing health insurance yourself

Creating and using a budget is not just for those who need to closely monitor their cash flows from month to month because money is tight. Almost everyone can benefit from budgeting. Building the right college student budget for your situation can help you stay on track for your financial life after graduation. Plus, learning to build and maintain a budget is an important skill to carry with you for the rest of your life. If you aren’t sure how to create the perfect college budget that works for you, then check out this free budgeting course. It will walk you through the steps of building a budget that actually sticks.

Play the YouTube video below, “Time Management Techniques for Stress Free Productivity” YouTube video below for some time management tips for stress-free productivity. Transcript for “How To: The Easiest and Simplest Way to Create a Monthly Budget! 6-Minute Process” Video [PDF–New Tab]. Closed captioning is available on YouTube.

Gain Business Work Experience

College and university students often wonder how they will gain business work experience. Many work part-time jobs while attending school, but these jobs are usually entry-level service jobs paying minimum wage. Some students have no work experience or have never worked in Canada. Most students hope to work in the field they are studying after they graduate.  So how can you gain business experience in your field of study that will help you obtain a job after you graduate?

Review the list below for some ideas on how to gain work experience:

1. Volunteering is a great way to gain work experience. When you volunteer you meet people, and these people could become references for you when you are searching for your next job. You also gain skills and knowledge that could be applied to future jobs.  Employers like to see that you have given back to the community or volunteered your time to help others–it says good things about your character.
2. Internships and Co-op Placements are good ways to gain work experience, build your professional network, learn new skills, and apply what you have learned in school.
3. Freelance projects can be a flexible way to build expertise. Platforms like Upwork and Fiverr offer numerous opportunities to work on real-world projects.
4. Experiential course projects can help you gain real business experience. Many institutions offer experiential course projects whereby you complete a real business project as part of your course. Riipen is a work-based learning platform to help educators, organizations, and learners collaborate on real industry projects to bridge the gap between education and employment. This approach is particularly effective for tech-oriented fields. These types of projects can be added to your resume and LinkedIn profile.
5. Gain leadership experience by joining student clubs or societies. Many colleges and universities have their own Enactus (entrepreneurship) chapter and Toastmasters (public speaking) club. Some institutions have badges, micro-credentials, specialized academic certificates, or stackable credentials for leadership, Indigenous Knowledges, entrepreneurship, global perspectives, sustainability, etc.
6. Gain practical experience by participating in workshops and lab sessions.
7. Gain business experience by getting involved in student-run businesses or start-ups.
8. Gain skills by utilizing online platforms to learn new skills. Some institutions provide free access to LinkedIn Learning which houses many courses on various subjects.

The Careers and Co-op office within your institution may provide support and resources that will help you find part-time work while you are studying and/or a co-op placement (if this is an option within your program).

Practice Business Etiquette

Business etiquette is a type of social and business behaviour that team members (whether at school or work) are expected to exhibit. It includes how people communicate, dress, and conduct themselves in meetings and social events. Adhering to business etiquette can help foster positive relationships and a harmonious work environment. Some examples of business etiquette include treating others with courtesy and consideration, controlling your emotions and actions, being accountable for your actions and obligations, and meeting deadlines and admitting mistakes.

So, what are some pet peeves you have? Pet peeves are the thing that annoy you, often things other people do that bother you. Check out this list of 87 Common Things That Annoy People. A good guideline is to try not to be the one who is annoying others, especially when working on a team or taking a potential customer out for lunch. Here are a few annoyances college students have shared with their professor over the years:

• “I don’t want to sit beside that person because they have bad body odour”.
• “I don’t want to use that bathroom stall because someone peed (urinated) all over the seat.”
• “It’s so annoying when that student keeps interrupting the professor with questions that aren’t even about the topic.”
• “I don’t like sitting with that person because they pick their nose in front of everyone. Yuck!”
• “Why can’t people just let us get off the elevator before pushing their way on?”
• “They are always late for team meetings or don’t even bother to show up. It’s like they don’t care.”

There are many things that annoy us all, but we need to remember that other people may have grown up with cultural norms that differ from your own. Cultural norms are the standards we live by. They are the shared expectations and rules that guide behavior of people within social groups. Cultural norms are learned and reinforced from parents, friends, teachers and others while growing up in a society. Norms often differ across cultures, contributing to cross-cultural misunderstandings.  For example, it may be customary in certain parts of China and India to belch after a meal, but in Canada and the U.S. this would be considered rude. Punctuality around the world varies: Being on time is important in Canada and U.S. business settings, but being on time is not a concern in Greece, Brazil, or Mexico.  In some cultures, they do not sit on toilet seats, so you may have noticed shoe prints on toilet seats or spillage, or unflushed toilets. This is a bathroom etiquette issue; in Canada toilet seats are expected to be clean and dry. The main thing with etiquette is respect the cultural norms of other people, and exercise professionalism, and practice business etiquette at the location you are in. You will learn more about cultural norms and inter-cultural communication when you complete a course in organizational behaviour or business communications.

Professionalism is a broad concept that includes a person’s attitude, work ethic, and conduct. It also involves being punctual, dressing appropriately, and having a positive attitude. Business etiquette is a key component of professionalism. Some of the traits of professionalism include being dependable and accountable, demonstrating a sense of etiquette, making ethical decisions, being a team player, and maintaining a positive outlook.

Watch “The Five Zones of Professional Etiquette” YouTube video below to learn about professional etiquette. Transcript for “The Five Zones of Professional Etiquette (Student Version)” Video [PDF–New Tab]. Closed captioning is available on YouTube.

 

References

(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks)

Business Eras in North America

North American business history is divided into the following several distinct time periods:

1. The Colonial Period (prior to 1776). Colonial society featured rural and agricultural production.
2. The Early Trade and Craftsmanship era (1776-1850s). Localized trade and craftsmanship. Small-scale production dominated by artisans and merchants.
3. The Industrial Revolution (1850s-1920s). Instead of independent, skilled workers specializing in building products one by one, business moved to a factory system with mass production aided by machines. These advancements in technology increased demand for manufactured goods, leading to enormous entrepreneurial opportunities.
4. The Production era (1920s-1940s). Emphasis on producing more goods faster, leading to production innovations such as assembly lines.
5. The Sales era (1940s-1960s). Post-World War II economies led to increased competition as supply often exceeded demand. Businesses emphasized persuasion (door-to-door sales) and advertising (radio and print ads) to drive sales without prioritizing customer preferences.
6. The Marketing era (1960s-1980s). Consumer orientation, seeking to understand and satisfy the needs and preferences of customer groups. The rise of market research and consumer behaviour studies. The 4Ps of marketing were introduced: product, price, place, promotion.
7. The Relationship era (1980s-2000s). Growth in technology, CRM systems, allowed companies to engage with customers more personally. Benefits derived from deep, ongoing links with customers, employees, suppliers, and other businesses.
8. The Digital and Social era (2000s-Present). New ways for businesses and consumers to communicate and share information through the Internet and social media.
9. The Sustainability and ESG era (2010s-Present). Businesses prioritize ethical and sustainable practices, emphasizing green energy, ethical sourcing, and community impact. They aim to balance customer satisfaction, profitability, and societal well-being. Sustainability is integrated into core operations, addressing climate change, fair labour, and social responsibility.

The Role of Government in Canadian Business

Canada’s system of government is based on the British parliamentary model and is quite distinct from the presidential system operating in the United States. Canada’s legislative and executive jurisdiction is constitutionally divided between the federal government and the ten provincial governments. A business may be regulated at three levels: federal, provincial, and municipal. A business may also be affected by the policies and decisions of regulatory and administrative bodies and tribunals.

Government influences business activity through the roles it plays. Some of these include the following:

• Government becomes a regulator when it controls many aspects of business activity through administrative boards, tribunals, and commissions. Regulations promote competition between businesses, protect consumers, achieve social goals, and protect the environment. For example, the Canadian Food Inspection Agency regulates dairy, egg, fish, and other food products.
• Government becomes a provider of incentives when it offers programs that help stimulate economic development. For example, the government offers funding for waste diversion initiatives, rebates for solar heating installations, and in some provinces, tax credits for employers who hire university and college students enrolled in co-operative education programs.
• Government becomes a provider of essential services when it supplies services that create the stability that encourages business activity, such as law enforcement (police) and health care (hospitals).
• Government becomes a taxation agent when taxes are imposed and collected by the three levels of government.  For example, the federal government collects income tax through the Canada Revenue Agency (CRA), the provincial government collects sales tax and receives a share of income tax, and the municipal government collects property tax.
• Government becomes a customer when it buys from businesses. The Government of Canada buys many kinds of products and services, from aircrafts to paper clips, from training services to scientific research.
• Government becomes a competitor when it competes with businesses through its Crown corporations, such as Canada Post, The Canadian Broadcasting Corporation (CBC), SaskTel, SaskEnergy, BC Hydro, and the Liquor Control Board of Ontario (LCBO).

Economic Benefits When Businesses Earn Profits

For-Profit Organizations

Take a moment to think about the many different types of businesses you come into contact with on a typical day. As you drive to class, you may stop at a gas station that is part of a major national oil company and grab lunch from a fast food chain such as Taco Bell, McDonald’s, or the neighbourhood pizza place. Need more cash? You can do your banking on a smartphone or another device via mobile apps. You don’t even have to visit the store anymore: online shopping brings the stores to you, offering everything from clothes to food, furniture, and concert tickets.

A business is an organization that strives for a profit by providing goods and services desired by its customers. Businesses meet the needs of consumers by providing medical care, automobiles, and countless other goods and services. Goods are tangible items manufactured by businesses, such as laptops. Services are intangible offerings of businesses that can’t be held, touched, or stored. Physicians, lawyers, hairstylists, car washes, and airlines all provide services. Businesses also serve other organizations, such as hospitals, retailers, and governments, by providing machinery, goods for resale, computers, and thousands of other items.

Revenue is the money a company receives by providing services or selling goods to customers. Costs are expenses including rent, salaries, supplies, transportation, and many other expenses a company incurs from creating and selling goods and services. For example, some of the costs Microsoft incurred by developing its software include salaries, facilities, and advertising. If Microsoft has money left over after it pays all costs, it has a profit. A company with costs greater than revenues incurs a loss. When a company such as Microsoft uses its resources intelligently, it can often increase sales, hold costs down, and earn a profit. Not all companies earn profits, but that is the risk of being in business. Risk is the potential to lose time and money or otherwise not be able to accomplish an organization’s goals. For example, the Canadian Red Cross faces the risk of not meeting the demand for victims of disaster (patients who need blood) if there are not enough blood donors. Businesses such as Microsoft face the risk of falling short of their revenue and profit goals. In Canadian business today, there is generally a direct relationship between risks and profit: the greater the risks, the greater the potential for profit (or loss).

The owner or shareholders of a business are not the only people who benefit from the business’s earned profits. A successful business provides employment opportunities, goods and services people need and want, tax payments to the government, and spends money buying resources which stimulates the economy.  Socially responsible firms contribute even more by adopting policies that promote the well-being of society and the environment while lessening the negative impacts on them.

Not-for-Profit Organizations

Not every organization that generates revenue and pays expenses is considered a for-profit business. Not all organizations strive to make a profit. A not-for-profit organization is an organization that exists to achieve some goal other than the usual business goal of profit at all costs. Often these organizations serve communities through social, educational, or political means. Organizations such as universities and colleges, hospitals, environmental groups, and charities are not-for-profit organizations. Charities such as Habitat for Humanity, the United Way, the Canadian Cancer Society, and the World Wildlife Fund are not-for-profit organizations, as are most hospitals, zoos, arts organizations, civic groups, and religious organizations. Over the last 20 years, the number of not-for-profit organizations—and the employees and volunteers who work for them—has increased considerably. Government is our largest and most pervasive not-for-profit group.

Like their for-profit counterparts, these groups set goals and require resources to meet those goals. However, their goals are not focused solely on profits. For example, a not-for-profit organization’s goal might be feeding the poor, preserving the environment, increasing attendance at the ballet, or preventing drunk driving. Not-for-profit organizations do not compete directly with one another in the same manner as, for example, Ford and Honda, but they do compete for talented employees, people’s limited volunteer time, and donations.

The boundaries that formerly separated not-for-profit and for-profit organizations have blurred, leading to a greater exchange of ideas between the sectors as for-profit businesses are now addressing social issues. Successful not-for-profits apply business principles to operate more effectively. Not-for-profit managers are concerned with the same concepts as their colleagues in for-profit companies: developing strategy, budgeting carefully, measuring performance, encouraging innovation, improving productivity, demonstrating accountability, and fostering an ethical workplace environment.

In addition to pursuing a museum’s artistic goals, for example, top executives manage the administrative and business side of the organization: human resources, finance, and legal concerns. Ticket revenues cover a fraction of the museum’s operating costs, so the director spends a great deal of time seeking major donations and memberships. Today’s museum boards of directors include both art patrons and business executives who want to see sound fiscal decision-making in a not-for-profit setting. Therefore, a museum director must walk a fine line between the institution’s artistic mission and financial policies.

Standard of Living

Successful businesses help to raise a country’s standard of living because they create the goods and services that are the basis of our standard of living. The standard of living of any country is measured by the output of goods and services people can buy with the money they have. It’s the ease with which people living in a time or place are able to satisfy their needs and wants. It is generally measured by standards such as income per person and poverty rate. Other measures are also used, such as access to and quality of health care, income-growth inequity, availability of employment, environmental quality, and educational standards. One measure of the standard of living is the Human Development Index (HDI), which was developed by the United Nations. Canada was ranked #18 out of 193 countries and territories worldwide on the 2023/2024 HDI report  (Refer to Table 2.1).

Table 2.1: Human Development Index 2023/2024 Rankings

Country	Rank
Canada	18
United States	20
Germany	7
United Kingdom	15
Switzerland	1
Norway	2
Hong Kong	4
China	75
Finland	12
India	134
Somalia	193
Pakistan	164
Yemen	186

Quality of Life

Businesses play a key role in determining our quality of life by providing jobs, goods, and services to society. Quality of life refers to the general level of human happiness based on factors including life expectancy, educational standards, health, sanitation, and leisure time. It takes into account not only the material standard of living, but also more intangible aspects that make up human life. Building a high quality of life is a combined effort between businesses, government, and not-for-profit organizations. In a Mercer Insights report for 2023, Vienna, Austria, ranked highest in quality of life, followed by Zurich, Switzerland; Auckland, New Zealand; and Copenhagen, Denmark. It may come as a surprise that not one of the world’s top cities is in the United States: seven of the top 10 locations are in western Europe, two are in Australia/New Zealand, and one is in Canada (#8 on the list). At the other end of the scale, Baghdad, Iraq, is the city scoring the lowest on the annual survey.

Business Trends

Businesses must observe trends in business as many trends stem from consumer demands and preferences. Companies must keep up with their competitors, observe changes in the business environment, and meet consumer demands if they wish to stay in business.

Some of the current business and consumer trends include the following:

• Artificial Intelligence. We will start to see organizations move beyond the hype and start integrating generative AI into business strategy. During the previous wave of AI transformation, we saw businesses like Google, Amazon and Netflix rethink their strategy from the ground up to center around deep learning. By doing this they transformed existing business models such as online advertising, retail and media streaming. Rather than existing products and services with a chatbot bolted on, think of generative tools and applications that enable entirely new possibilities across healthcare, manufacturing, education and many other industries.
• Young Consumers Spending. By 2030, 75 percent of consumers in emerging markets will be between the ages of 15 and 34. Among this group, young consumers aged 18 to 24 in Asian and Middle Eastern nations, such as India and Saudi Arabia, will be particularly important to consumer businesses, given their pent-up demand and willingness to spend.
• Retirement Spending. Despite the financial constraints that may accompany retirement, aging consumers across all income levels are willing to spend on discretionary items. In experiential categories such as travel, older consumers’ intent to splurge is even higher than that of millennials, who have historically been big travel spenders. High-income baby boomer and Silent Generation consumers (those whose household incomes exceed $100,000) are a sizable cohort in the United States, making up 30 percent of the market—and they’re more likely to spend on discretionary purchases, such as home improvement and gardening, compared with lower-income consumers their age.
• Customer Experience is King. Customer experience (CX) will increasingly be seen as the key differentiator between competing providers of goods and services. As markets mature and buyers become more discerning, businesses that excel in delivering friction-free, hyper-personalized, and memorable experiences will find they are well-positioned to rise above the competition.
• Sustainable Business and Circular Economies. Driven by both regulatory pressure and consumer demand, the move towards more environmentally friendly and sustainable business practices is certain to be a key driver of change. The development of circular economies – where the focus is on reusing materials and recycling resources in a “closed loop” system in order to reduce waste and minimize environmental footprint is a core focus.
• Brand Exploration. Weakening of brand loyalty is not limited to a specific age group. In the past, older consumers remained consistently loyal to their preferred brands, but today, they’re just as likely to embrace new brands and retailers. In Europe and the United States, Gen Zers and millennials are only slightly more likely than older consumers to trade down to lower-priced brands and retailers. One beneficiary of this rampant downtrading is private labels. Thirty-six percent of consumers plan to purchase private-label products more frequently, and 60 percent believe private brands offer equal or better quality.
• Wellness. The global wellness market is worth approximately $1.8 trillion and is growing 5 to 10 percent annually. In advanced economies, health and wellness products and services have been in high demand over the past several years. Today, these categories are also growing quickly in emerging markets, and in some cases, growth in intent to spend on health and wellness products in emerging markets is outpacing growth in advanced markets.
• Quality of Life. In both advanced and emerging markets, people are moving to seek out new opportunities and a better quality of life. In advanced markets like the United States, consumers are moving away from larger cities in the Pacific Northwest and the Northeast to “secondary cities,” or those with populations between 50,000 and 500,000 people. Two-thirds of the fastest-growing US cities are in the South and West. In these cities, the cost of living is lower than in larger cities, and remote work opportunities are plentiful. Millennials, Gen Xers, and boomers are propelling this trend.
• Social Commerce. For several years, China has led the world in the adoption of social commerce, in which consumers browse and buy directly through social media and content creation platforms. Today, social-commerce markets in both China and India continue to mature, while those in other emerging-market countries—such as Brazil, Saudi Arabia, and the United Arab Emirates—are close behind. Consumers in these countries consistently spend more on purchases made through social media platforms, compared with consumers in Europe and the United States.

Business Sectors

Businesses are often categorized into specific groupings called sectors, which can be based on business activities, how profits are managed, or the industry in which the business operates.

The Public Business Sector

The public business sector includes goods and services produced, delivered, and allocated by the government and public sector organizations (publicly controlled government business enterprises). The government sector includes all federal, provincial, municipal, and territorial government ministries and departments. It also includes public school boards, public universities and colleges, and public health and social service institutions. Public sector organizations operate in the marketplace, often in competition with privately owned organizations. Government may have direct or indirect control over public sector organizations, which are also referred to as Crown corporations. The aim of the public sector is to provide services that benefit the public as a whole, either because it would be difficult to charge people for the goods and services concerned or because people may not be able to afford them. The government can provide these goods and services at a lower price than if they were provided by a for-profit company.  Examples include public utilities, such as water and sewage, electricity, and gas, as well as nationalized industries such as coal and steel.

The Private Business Sector

The private business sector includes goods and services produced and delivered by private individuals or groups as a means of enterprise for profit. The sector is not controlled by government. These businesses can be small firms owned by just one person, or large multinational businesses that operate globally. Large businesses may have many owners. A public (or publicly traded) company within the private business sector is not part of the public sector (government-provided services and government owned organizations); it is a particular kind of private sector company that can offer its shares for sale to the general public (i.e., Microsoft, Apple, Proctor & Gamble).

The Non-Profit or Voluntary Sector

The non-profit or voluntary sector includes non-governmental, non-profit organizations that receive support from individual citizens, government, and businesses. Non-profit organizations (NPOs) are also referred to as private voluntary organizations (PVOs); not-for-profit organizations (NFPOs); or non-profit making, non-governmental organizations (NGOs). In the global business world, there is inconsistency in how these terms are defined. A non-profit organization could be a not-for-profit corporation or an unincorporated association. A not-for-profit corporation is usually created with a specific purpose in mind and could be a foundation or charity or other type of non-profit organization. A private voluntary association is a group of volunteers who enter an agreement to form an organized body to accomplish a purpose. For the purposes of this book, not-for-profit corporations, private voluntary organizations, and non-governmental organizations are classified in the non-profit and voluntary sector as non-profit organizations.

Non-profit organizations have the ability to respond to issues more quickly than government and are usually formed or expanded in reaction to a community need that is not being met by the government. The Canadian government recognizes the importance of the non-profit sector as a key partner in building a stronger Canada, and it supports the sector in a number of ways, such as partnering, streamlining funding practices and accountability, and developing knowledge on the non-profit sector.

Non-profit organizations operate in a variety of areas including sports, religion, arts, culture, fundraising, and housing. Various organizations include hospitals, universities and colleges, research organizations, business and professional associations, and unions. Non-profit organizations experience problems with planning for the future, recruiting the types of volunteers needed, and obtaining board members and funding. People who work in non-profit organizations may be paid employees or unpaid volunteers.

There can be confusion around which sector a business is in. Is a hospital in the public or private sector? Are all hospitals non-profit organizations? Is the private sector university a non-profit or a for-profit organization? This confusion exists because some types of organizations typically thought of as belonging to the non-profit sector can cross sectors. For example, in Ontario there are four types of hospitals, including public, private, federal and Cancer Care Ontario hospitals. Public sector hospitals are owned by the government and receive government funding. Private sector hospitals are privately owned, often by a for-profit company or a non-profit organization, and are funded through patient payments, insurers, grants, donations, and foreign embassies. Private hospitals and health care clinics are classified as being in either the private, for-profit or private, non-profit sectors and are quite common in the United States and Australia. Canada’s mix of public and private health care options leaves many people thinking that the hospitals in Canada belong to the public sector because hospital services are publicly delivered, funded, and governed, and hospitals are accountable to the public. In fact, hospital services in many provinces are delivered largely by private sector, non-profit organizations.

Similarly, Canada has private sector, for-profit and private sector, non-profit colleges and universities in addition to its many public, non-profit colleges and universities. Private colleges and universities are not operated by the government, although many have received public subsidies, and depending on the province they reside in, they may be subject to government regulations. Some of the world’s most renowned universities, such as Harvard University, Stanford University, and Massachusetts Institute of Technology (MIT), are private sector, non-profit universities.

Business Industries

Across the three sectors, businesses may be classified by industry, such as service-producing industries and goods-producing industries, using the North American Industry Classification System (NAICS).

Goods-Producing Industries

• Agriculture, forestry, fishing, and hunting
• Mining, oil and gas extraction
• Utilities
• Construction
• Manufacturing

Service-Producing Industries

• Wholesale trade
• Retail trade
• Transportation and warehousing
• Information and cultural industries
• Finance and insurance
• Real estate, rental and leasing
• Professional, scientific, and technical services
• Management of companies
• Administrative and support, waste management, and remediation services
• Educational services
• Health care and social assistance
• Arts, entertainment, and recreation
• Accommodation and food services
• Other services, except public administration
• Public administration

Business Participants, Stakeholders, and Functional Areas of Business

Participants

Business participants are the people who participate in conducting the work of the business. These always include the employees and managers, but often include suppliers, customers, and shareholders. Every business must have one or more owners whose primary role is to invest money in the business. When a business is being started, it is generally the owners who polish the business idea and bring together the resources (money and people) needed to turn the idea into a business. The owners also hire employees to work for the company and help it reach its goals. Owners and employees depend on a third group of participants— customers. Ultimately, the goal of any business is to satisfy the needs of its customers in order to generate a profit for the owners. Other participants can include suppliers and even competitors.

Stakeholders

Stakeholders are those affected by the business’s operations and its decisions. Examples of stakeholders include shareholders, investors, suppliers, the community, customers, employees, competitors, and governmental agencies. Consider your favorite restaurant. It may be an outlet or franchise of a national chain (more on franchises in a later chapter) or a local “mom and pop shop” without affiliation to a larger entity. Whether national or local, every business has stakeholders – those with a legitimate interest in the success or failure of the business and the policies it adopts. Stakeholders include customers, vendors, employees, suppliers, landlords, competitors, bankers, and others (see Figure 2.1). Other stakeholders include the general public, the environment and all the various government departments that impact the business. All have a keen interest in how the business operates, in most cases for obvious reasons. If the business fails, employees will need new jobs, vendors will need new customers, and banks may have to write off loans they made to the business. Stakeholders do not always see things the same way — their interests sometimes conflict with each other. For example, lenders are more likely to appreciate high profit margins that ensure the loans they made will be repaid, while customers would probably appreciate the lowest possible prices. Pleasing stakeholders can be a real balancing act for any company.

Functional Areas of Business

Functional areas in a business refer to different departments or sections that perform specific tasks, such as human resources, operations, accounting, and finance. Each functional area has a unique role in achieving the overall business objectives, and they need to work in cooperation to ensure that the company operates smoothly and effectively. Depending on who you ask, you may receive different answers about how many functional areas there are in a business.  It really depends on how the business is structured (more on this later).  Some people will say there are four functional areas, some say five, some say six or even seven. Examples of functional areas include human resources, operations, marketing, accounting, finance, information technology, strategy, leadership, team, marketing and sales, production and operations, research and development, employment and human resources, insurance and risk management, and so on .

Let us briefly explore each of the six functional areas listed below (Shown in Figure 2.2). When we look at the functional area of business, we are organizing the work in terms of the type of work. In small businesses, the owner may do the finance, accounting, and human resource functions along with overseeing the operations. In large businesses, these functions are often broken down into departments that have large groups of people working within each function.

Human Resources

The Human Resources (HR) functional area is an organizational function that is about searching for, selecting, training, and maintaining workers. HR managers are responsible for ensuring that the organization has all of the skills and capabilities necessary to run the business. HR managers develop staffing plans, recruit and select new employees, monitor the performance management process, and develop succession plans for advancement and replacement. They develop standards for compensation and benefits and assist managers with staff issues.

Operations

Operations is the organizational function that is focused on producing the goods and/or services of the business. Operations involve managing the processes and resources that create goods and services in a business. It is responsible for ensuring efficiency, quality, and cost-effectiveness in production, distribution, and delivery to meet customer demand and achieve organizational objectives. All companies must convert resources (labour, materials, money, information, and so forth) into goods or services. Some companies, such as Apple, convert resources into tangible products — iPads, iPhones, etc. Others, such as hospitals, convert resources into intangible products, e.g., health care. The person who designs and oversees the transformation of resources into goods or services is called an operations manager. This individual is also responsible for ensuring that products are of high quality. In many organizations, operations management includes managing the supply chain which controls the delivery of raw materials and the distribution of finished goods.

Marketing

Marketing plays a crucial role in a business by helping to identify, create, and satisfy customer needs and wants through the promotion of products or services. Effective marketing strategies can help businesses differentiate themselves from competitors, build brand awareness and loyalty, increase sales and revenue, and ultimately, achieve their business goals. Marketing consists of everything that a company does to identify customers’ needs (i.e., market research and consumer analysis) and ensure that products are designed to meet those needs. Marketers develop the benefits and features of products, including price and quality. They also decide on the best method of delivering products and the best means of promoting them to attract and keep customers. They manage relationships with customers and make customers aware of the organization’s desire and ability to satisfy their needs.

Accounting

Accounting is the organizational function that is focused on recording, keeping, analyzing and communicating financial information. Managers need accurate, relevant and timely financial information, which is provided by accountants. Accountants measure, summarize, and communicate financial and managerial information and advise other managers on financial matters. There are two fields of accounting. Financial accountants prepare financial statements to help users, both inside and outside the organization, assess the financial strength of the company. Managerial accountants prepare information, such as reports on the cost of materials used in the production process, for internal use only.

Finance

The financial functional area of a business is responsible for managing the company’s financial resources, including budgeting, accounting, financial reporting, cash flow management, and investment decisions. Its role is to ensure the financial stability and growth of the organization by optimizing financial performance and minimizing risks. Finance involves planning for, obtaining, and managing a company’s funds while maintaining the financial health of the business.

Financial managers address such questions as:

• How much money does the company need?
• How and where will it get the necessary money?
• How and when will it pay the money back?
• What investments should be made in the company’s plant and equipment?
• How much should be spent on research and development?
• Good financial management is particularly important when a company is first formed because new business owners usually need to borrow money to get started.

Information Technology

Information technology is the organizational function that aims to understand the information and data needs of the company in terms of obtaining, analyzing, and protecting information. Information is one of the critical assets of most businesses. Businesses such as Facebook are entirely information-based businesses. Information technology (IT) managers are concerned with building computer and network infrastructure, implementing security and privacy protocols, and developing user interfaces and apps for customers. Usually, there is a high level of integration between the business’s website or application and other departments within the business, such as finance, marketing and operations. Often, businesses must develop interfaces to send and receive information from other companies, including suppliers, and logistics and shipping providers. The global pandemic has also made it necessary for businesses to establish and improve their virtual presences. As the use of technology increases so do the number of threats and vulnerabilities. The number of potential risks involved in using information technology is rising, creating a security gap between the expectations of users and the ability of technology suppliers to meet those expectations. Data privacy concerns, protection and security now play an important role. Cybersecurity is changing the way things are done today more than ever before.

Factors of Production: The Building Blocks of Business

To provide goods and services, regardless of whether they operate in the for-profit or not-for-profit sector, organizations require inputs in the form of resources called factors of production. Four traditional factors of production are common to all productive activity: natural resources, labour (human resources), capital, and entrepreneurship. Many experts now include knowledge a fifth factor, acknowledging its key role in business success (Shown in Figure 2.3). By using the factors of production efficiently, a company can produce more goods and services with the same resources.

Natural Resources

Commodities that are useful inputs in their natural state are known as natural resources and these can be either renewable or non-renewable. Renewable natural resources are those that can grow again or can never run out and these include trees, water, air, and sources of power like solar and wind energy. Non-renewable natural resources are found in the ground and there are limitations to their availability as they cannot be replaced or renewed. These include land,  mineral and oil deposits. Sometimes natural resources are simply called land, although the term means more than just land. Companies use natural resources in different ways. International Paper Company uses wood pulp to make paper, and Pacific Gas & Electric Company may use water, oil, or coal to produce electricity. Today urban sprawl, pollution, and limited resources have raised questions about resource use. Conservationists, environmentalists, and government bodies are proposing laws to require land-use planning and resource conservation.

Human Resources

Labor, or human resources, refers to the economic contributions of people working with their minds and muscles. This input includes the talents of everyone—from a restaurant cook to a nuclear physicist—who performs the many tasks of manufacturing and selling goods and services.

Capital

The tools, machinery, equipment, and buildings used to produce goods and services and get them to the consumer are known as capital. Sometimes the term capital is also used to mean the money that buys machinery, factories, and other production and distribution facilities. However, because money itself produces nothing, it is not one of the basic inputs. Instead, it is a means of acquiring the inputs. Therefore, in this context, capital does not include money.

Entrepreneurs

Entrepreneurs are the people who combine the inputs of natural resources, labor, and capital to produce goods or services with the intention of making a profit or accomplishing a not-for-profit goal. These people make the decisions that set the course for their businesses; they create products and production processes or develop services. Because they are not guaranteed a profit in return for their time and effort, they must be risk-takers. Of course, if their companies succeed, the rewards may be great. Today, many individuals want to start their own businesses. They are attracted by the opportunity to be their own boss and reap the financial rewards of a successful firm. Many start their first business from their dorm rooms, such as Mark Zuckerberg of Facebook, or while living at home, so their cost is almost zero. Entrepreneurs include people such as Microsoft cofounder Bill Gates, who was named the richest person in the world in 2017, as well as Google founders Sergey Brin and Larry Page. Many thousands of individuals have started companies that, while remaining small, make a major contribution to the U.S. economy.

Knowledge

A number of outstanding managers and noted academics are beginning to emphasize a fifth factor of production—knowledge. Knowledge refers to the combined talents and skills of the workforce and has become a primary driver of economic growth. Today’s competitive environment places a premium on knowledge and learning over physical resources.

The Internal and External Business Environments

Internal Environment

The internal business environment in business refers to the elements within the organization that influence its operations and decision-making. It encompasses factors like the company’s culture, management practices, employees, and work processes. A manager should strive to create a well-managed or positive work environment within the organization. A well-managed internal environment has a significant role in influencing the organization’s operations and ensuring successful goal achievement. Some of the most important parts of the internal environment include communicating purpose to stakeholders through creating a mission statement (who we are, what we value), a vision statement (who we want to become), a strategy to achieve the company mission and vision and setting goals and objectives to gauge the company’s degree of success (refer to Figure 2.2).

These are the areas management has control over and can make changes to in response to strategic goals and changes that occur which impact the organization.

1. Management
2. Materials
3. Machinery
4. Money
5. Employees

An internal business analysis is a business analysis conducted by management or by consultants to evaluate the company’s strengths and weaknesses. Such analyses are often closely associated with the SWOT analysis which helps businesses identify the company’s strengths, weaknesses, opportunities, and threats. An internal business analysis is generally more concerned with the strengths and weaknesses of a business, while its opportunities and vulnerabilities fall more under the external business analysis.  When studying strengths and weaknesses, it is important to analyze them in light of their impact on customers, since the customer’s view of the company is ultimately the one that matters most. A SWOT analysis can be done on products, processes, companies, people, and just about anything you are trying to improve.

An internal analysis enables a firm to determine what it can do to improve internal capability to support the overall success of the business. There are other internal analysis managers can do to gauge how the company is performing, some of these include process mapping (to identify issues in processes), NOISE. SOAR, or SCORE analysis as alternatives to SWOT analysis; skills inventory tracking to determine what skills are missing or needed within the organization; succession planning to ensure employees are able to move into positions where someone else has retired; Gap Analysis, Core Competencies Analysis, OCAT, VRIO Analysis, Strategy Evaluation, McKinsey 7S Framework, etc. You will learn more about how managers analyze the business environments when you review the chapter on management.

Once complete, the organization should have a clear idea of where it’s excelling, where it’s doing okay, and where its current deficits and gaps are. The analysis gives management the knowledge to leverage the company’s strengths, expertise, and opportunities. It also enables management to develop strategies that mitigate threats and compensate for identified weaknesses and disadvantages.

External Environment

Micro-external environment

The micro-environment may be defined as including groups and organizations that have a direct relationship with the business. For example, suppliers, distributors, competitors, and external customers deal with the firm regularly and have a direct interest in the activities of the company because they are clearly affected by its actions (refer to Figure 2.4). It is important for any organization to monitor and analyze all elements of the micro-environment.  The Porter’s Five Forces model is used for a thorough analysis of the competitive environment. A commonly used method for assessing suppliers is the Kraljic Matrix. A method often used when conducting consumer analysis is Ferrell’s 6W model. You will learn more about how managers analyze the business environments when you review the chapter on management.

 

Macro-external environment

The macro-environment refers to the broader condition of an economy as opposed to specific markets. The macro-environment can be affected by GDP, fiscal policy, monetary policy, inflation, employment rates, and consumer spending. The state of the macro environment affects business decisions on things such as spending, borrowing, and investing. To what degree is a business vulnerable to macro-economic factors? It depends on the extent to which a company is dependent on the health of the economy and external factors for its success. If a company is relying more on the economic health of the country, then it will be more vulnerable to macro-economic changes. Banks, financial institutions, and credit card companies are a very good examples of such businesses that are heavily reliant on the macro-economic factors.

The macro-environment analysis involves brainstorming and a lot of research to initiate the process. It starts by creating a list of trends that would have positive and negative impacts on the business. The macro-environment can be analyzed by using the PEST, PESTLE or PESTEL analysis method (refer to Figure 2.3). This acronym represents external factors that affect the business including Political, Economic, Sociocultural, Technological, Environmental, and Legal (PESTEL). The business has little influence over the macro-environment, for example, if government enacts mandatory regulations on waste management, businesses must comply with these regulations to remain open. As consumers and employees, we see some of these laws and regulations in operation regarding safety conditions on products, foods, buildings, etc. Consumer trends and technological innovations also impact company operations. For example, consumers put pressure on fast food restaurants to offer healthier choices. Another example of external factors affecting business is when one company adopts new technology to serve customers faster and more conveniently, businesses must adapt in order to remain competitive. You will learn more about how managers analyze the business environments when you review the chapter on management.

Working in Teams

Types of Teams

Teams are a critical aspect of business. A team is a group of people with certain skills who share a common purpose, approach, and performance goals. All team members hold themselves responsible and accountable for reaching the team’s objectives. Teams are widely used in business and in many not-for-profit organizations, such as hospitals and government agencies. Teams are one of the most frequently discussed topics in employee training programs, because they require that people learn how to work well together. There are five common types of teams (Shown in Figure 2.5): Problem-solving teams, self-managed teams, cross-functional teams, virtual teams, and work teams.

 

7 Characteristics of Effective Teams

Effective teams share the following characteristics:

1. Clear Leadership. Successful teams usually have effective leadership, where one or several members act as team leaders. This helps unify the entire team to work toward the same goals. Effective leaders often provide guidance, motivation and focus.
2. Defined Goals. Before working on their tasks, an effective team may first establish their goals. The team might work together to identify common objectives that align with a company’s organizational goals.
3. Assigned Roles. When each team member has an assigned role, they can make effective contributions to their group and help ensure its success. A team’s roles might change throughout the lifetime of a project. Effective teams often reevaluate roles once the team is assembled to ensure each member can fulfill the expectations of their roles.
4. Open Communication. A team with open communication allows members to discuss their ideas and feel that their input matters. Successful teams often welcome diverse thoughts and opinions that help them solve problems and complete tasks in creative ways. Effective communication also involves active listening, where members make a conscious effort to hear their teammates’ ideas and reflect before responding to them.
5. Collaboration. Team members may collaborate continuously throughout a project’s lifetime to ensure they’re working on the right tasks and contributing to the planned outcomes. Collaborative work helps encourage innovation through the exchange of ideas and the collective expertise of a team.
6. Trust. Trust contributes to open communication, problem solving and collaboration. A successful team might rely on team-building exercises to increase trust between its members.
7. Conflict Resolution. Successful teams usually have effective methods for resolving any conflicts that may arise. During a disagreement, members may speak to one another calmly, respect each other’s ideas and focus on finding a compromise. Effective teams often view disputes as a way to improve their decision-making and problem-solving strategies.

Group Cohesiveness

Team cohesion is the strength and extent of interpersonal connection existing among the members of a group. It is this interpersonal bond that causes members to participate readily and remain motivated to accomplish the set goals. Cohesive teams have an attitude of “we-ness.”

Numerous factors may contribute to team cohesiveness, but in this section, we will focus on five of the most important ones:

• Size. The bigger the team, the less satisfied members tend to be. When teams get too large, members find it harder to interact closely with other members; a few members tend to dominate team activities, and conflict becomes more likely.
• Similarity. People usually get along better with people like themselves, and teams are generally more cohesive when members perceive fellow members as people who share their own attitudes and experience.
• Success. When teams are successful, members are satisfied, and other people are more likely to be attracted to their teams.
• Exclusiveness. The harder it is to get into a group, the happier the people who are already in it. Team status also increases members’ satisfaction.
• Time. The more time a group spends together, the stronger the bond between them will be. By interacting more often, members learn about each other’s strengths, weaknesses, and skills.
• Competition. Membership is valued more highly when there is motivation to achieve common goals and outperform other teams.
  Equitable and inclusive practices. Members value and celebrate each person’s authenticity, identity, and the unique perspectives that come with those; as well, the team members work to create inclusive and equitable practices in their day-to-day teamwork.

Maintaining team focus on broad organizational goals is crucial. If members get too wrapped up in immediate team goals, the whole team may lose sight of the larger organizational goals toward which it is supposed to be working. Let us look at some factors that can erode team performance.

Skills for Effective Teamwork

Sometimes we hear about a sports team made up of mostly average players who win a championship because of coaching genius, flawless teamwork, and superhuman determination. But not terribly often. In fact, we usually hear about such teams simply because they are newsworthy — exceptions to the rule. Typically, a team performs well because its members possess some level of talent. Members’ talents must also be managed in a collective effort to achieve a common goal.

In the final analysis, a team can succeed only if its members provide the skills that need managing. In particular, every team requires some mixture of four sets of skills:

• Communication Skills. The ways in which members communicate can positively and negatively affect relationships within the team and outside the team with managers, customers, vendors, etc.
• Technical skills. Teams must perform certain tasks, therefore they need people with the skills to perform them. For example, if your project calls for a lot of math work, it is good to have someone with the necessary quantitative skills.
• Decision-making and problem-solving skills. Because every task is subject to problems, and because handling every problem means deciding on the best solution, it is good to have members who are skilled in identifying problems, evaluating alternative solutions, and deciding on the best options.
• Interpersonal skills. Because teams need direction and motivation and depend on communication, every group benefits from members who know how to listen, provide feedback, and resolve conflict. Some members must also be good at communicating the team’s goals and needs to outsiders.

The key is ultimately to have the right mix of these skills. Remember, too, that no team needs to possess all these skills — never mind the right balance of them — from day one. In many cases, a team gains certain skills only when members volunteer for certain tasks and perfect their skills in the process of performing them. For the same reason, effective teamwork develops over time as team members learn how to handle various team-based tasks. In a sense, teamwork is always a work in progress.

Factors that Erode Team Performance

Just as there are factors and behaviours that contribute to teams working well together, there are some common factors that keep teams from working well together.

• Groupthink. It is easy for leaders to direct members toward team goals when members are all on the same page, i.e., when there is a basic willingness to conform to the team’s rules. When there is too much conformity, however, the group can become ineffective; it may resist fresh ideas and, what’s worse, end up adopting its own dysfunctional tendencies as its way of doing things. Such tendencies may also encourage a phenomenon known as groupthink, or the tendency to conform to group pressure in making decisions, while failing to think critically or consider outside influences.
• Lack of Motivation and Frustration. Remember that teams are composed of people, and regardless of whatever roles they happen to be playing at a given time, people are subject to psychological ups and downs. As members of workplace teams, they need motivation, and when motivation is low, so are effectiveness and productivity. The difficulty of maintaining a high level of motivation is the chief cause of frustration among members of teams. As such, it is also a chief cause of ineffective teamwork, and that is one reason why more employers now look for the ability to develop and sustain motivation when they are hiring new managers.
• Unwillingness to cooperate. Failure to cooperate can occur when members do not or would not commit to a common goal or set of activities. What if, for example, half the members of a product development team want to create a brand-new product and half want to improve an existing product? The entire team may get stuck on this point of contention for weeks or even months. Lack of cooperation between teams can also be problematic for an organization.
• Lack of managerial support. Every team requires organizational resources to achieve its goals, and if management is not willing to commit the needed resources, e.g., funding or key personnel, a team will probably fall short of those goals.
• Failure of managers to delegate authority. Team leaders are often chosen from the ranks of successful supervisors; first-line managers who give instructions on a day-to-day basis and expect to have them carried out. This approach to workplace activities may not work very well in leading a team, the success of which depends on building consensus and letting people make their own decisions.

Team Stages

Play the YouTube video below, “Forming, Storming, Norming, and Performing: Bruce Tuckman’s Team Stages Model Explained” to learn the stages a team goes through when starting a new project.  Transcript for “Forming, Storming, Norming, and Performing: Bruce Tuckman’s Team Stages Model Explained” Video [PDF–New Tab].  Closed captioning is available on YouTube.

Team Roles

Team roles can be divided into two categories, task-facilitating roles and relationship-building roles (Summarized in Figure 2.6).

Task-Facilitating Roles

Task-facilitating roles help the team accomplish goals. These roles include not only providing information when someone else needs it but also asking for it when you need it. In addition, it includes monitoring (checking on progress) and enforcing (making sure that team decisions are carried out). Task facilitators are especially valuable when assignments aren’t clear or when progress is too slow.

Relationship-Building Roles

Relationship-building roles help team members understand their roles, support them in their roles, and maintain or improve group cohesiveness. These types of roles includes activities that improve team “chemistry,” from empathizing to confronting. Bear in mind three points about this model: (1) Teams are most effective when there’s a good balance between task facilitation and relationship-building; (2) it’s hard for any given member to perform both types of roles, as some people are better at focusing on tasks and others on relationships; and (3) overplaying any facet of any role can easily become counterproductive. For example, elaborating on something may not be the best strategy when the team needs to make a quick decision; and consensus building may cause the team to overlook an important difference of opinion.

Class Team Projects

Throughout your studies you will be exposed to teams and teamwork concepts, and be required to complete projects by collaborating with your peers in teams. You will want to consider how to make your class team-based projects as successful as possible. To get insider advice on how to succeed on team projects in college, let’s look at some suggestions offered by students who have gone through this experience.

• Draw up a team charter. At the beginning of the project, draw up a team charter that includes: the goals of the group; ways to ensure that each team member’s ideas are considered; timing and frequency of meeting. A more informal way to arrive at a team charter is to simply set some ground rules to which everyone agrees. Your instructor may also require you to sign an existing team contract or charter similar to the one below.
• Contribute your ideas. Share your ideas with your group. The worst that could happen is that they won’t be used (which is what would happen if you kept quiet).
• Never miss a meeting or deadline. Pick a weekly meeting time and write it into your schedule as if it were a class. Never skip it.
• Be considerate of each other. Be patient, listen to everyone, involve everyone in decision making, avoid infighting, build trust.
• Create a process for resolving conflict. Do so before conflict arises. Set up rules to help the group decide how conflict will be handled.
• Use the strengths of each team member. All students bring different strengths. Utilize the unique value of each person.
• Don’t do all the work yourself. Work with your team to get the work done. The project output is often less important than the experience.

Resolving Team Conflict

Team conflict is the breakdown of interpersonal relationships between members of a team. Common reasons for team conflict include the following:

• Misunderstandings or poor communication skills
• Differing opinions, viewpoints, or personalities
• Biases and stereotypes
• Variations in learning and processing styles
• Perceptions of unfairness

Play the YouTube video below, “How to Deal with Conflict” to gain a few tips on how to work through a conflict with a team member.  Transcript for “How to Resolve Conflict in the Workplace” Video [PDF–New Tab].  Closed captioning is available on YouTube.

 

Attributions

The contents of this chapter is a compilation sourced from various OER resources, please refer to the Book Information for details.

References

(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks)

The Four Functions of Management (POLC)

The four functions of management–planning, organizing, leading and controlling–serve as the pillars that allow organizations to meet their goals. These functions are interdependent and equally important for ensuring the smooth operation of any business (Refer to Figure 3.1). The four management functions (POLC) can help managers increase organizational efficiency and effectiveness. Efficiency is using the least possible amount of resources to get work done, whereas effectiveness is the ability to produce a desired result. Managers need to be both efficient and effective in order to achieve organizational goals.

The management functions of planning, organizing, leading, and controlling are widely considered to be the best means of describing the manager’s job, as well as the best way to classify accumulated knowledge about the study of management. Although there have been tremendous changes in the environment faced by managers and the tools used by managers to perform their roles, managers still perform these essential functions.

Management Function 1 = Planning

Planning is the function of management that involves setting objectives and determining a course of action for achieving those objectives. Planning requires that managers be aware of environmental conditions facing their organization and forecast future conditions. It also requires that managers be good decision makers.

Planning is a process consisting of several steps. The process begins with environmental scanning which simply means that planners must be aware of the critical contingencies facing their organization in terms of economic conditions, their competitors, and their customers. Planners must then attempt to forecast future conditions. These forecasts form the basis for planning.

Planners must establish objectives, which are statements of what needs to be achieved and when. Planners must then identify alternative courses of action for achieving objectives. After evaluating the various alternatives, planners must make decisions about the best courses of action for achieving objectives. They must then formulate necessary steps and ensure effective implementation of plans. Finally, planners must constantly evaluate the success of their plans and take corrective action when necessary. There are many different types of plans and planning.

Levels of Management

There are three levels of management, and each level is responsible for specific planning, decision-making and activities.

The level of management you work in will determine the type of planning and decision-making you will do.  Figure 3.2 shows the three levels of management: Top Managers, Middle Managers, and First-line managers and the activities they do at each level. Top-level managers set objectives, scan the business environment, and plan and make decisions that affect the overall health of the organization. Middle-level managers allocate resources, oversee first-line managers, report to top-level managers and develop and implement activities. First-line managers (also referred to as customer-facing or front-line) coordinate activities, supervise employees, report to middle-managers, and are involved in day-to-day operations.

Managerial Decision-Making

Decision-making is the action or process of thinking through possible options and selecting one.  It is important to recognize that managers are continually making decisions, and that the quality of their decision-making has an impact—sometimes quite significant—on the effectiveness of the organization and its stakeholders. Stakeholders are all the individuals or groups that are affected by an organization (such as customers, employees, shareholders, etc.).

Members of the top management team regularly make decisions that affect the future of the organization and all its stakeholders, such as deciding whether to pursue a new technology or product line. A good decision can enable the organization to thrive and survive long-term, while a poor decision can lead a business into bankruptcy. Managers at lower levels of the organization generally have a smaller impact on the organization’s survival but can still have a tremendous impact on their department and its workers. Consider, for example, a first-line supervisor who is charged with scheduling workers and ordering raw materials for her department. Poor decision-making by lower-level managers is unlikely to drive the entire firm out of existence, but it can lead to many adverse outcomes such as:

• reduced productivity if there are too few workers or insufficient supplies,
• increased expenses if there are too many workers or too many supplies, particularly if the supplies have a limited shelf life or are costly to store, and
• frustration among employees, reduced morale, and increased turnover (which can be costly for the organization) if the decisions involve managing and training workers.

Managerial Skills

To be a successful manager, you’ll have to master a number of skills. To get an entry-level position, you’ll have to be technically competent at the tasks you’re asked to perform. To advance, you’ll need to develop strong interpersonal and conceptual skills. The relative importance of different skills varies from job to job and organization to organization, but to some extent, you’ll need them all to forge a managerial career. Throughout your career, you’ll also be expected to communicate ideas clearly, use your time efficiently, and reach sound decisions.

Technical Skills

You’ll probably be hired for your first job based on your technical skills — the ones you need to perform specific tasks — and you’ll use them extensively during your early career. If your college major is accounting, you’ll use what you’ve learned to prepare financial statements. If you have a marketing degree and you join an ad agency, you’ll use what you know about promotion to prepare ad campaigns. Technical skills will come in handy when you move up to a first-line managerial job and oversee the task performance of subordinates. Technical skills, though developed through job training and work experience, are generally acquired during the course of your formal education.

Interpersonal Skills

As you move up the corporate ladder, you’ll find that you can’t do everything yourself: you’ll have to rely on other people to help you achieve the goals for which you’re responsible. That’s why interpersonal skills, also known as relational skills — the ability to get along with and motivate other people — are critical for managers in mid-level positions. These managers play a pivotal role because they report to top-level managers while overseeing the activities of first-line managers. Thus, they need strong working relationships with individuals at all levels and in all areas. More than most other managers, they must use “people skills” to foster teamwork, build trust, manage conflict, and encourage improvement.

Communication Skills

Effective communication skills are crucial to just about everyone. At all levels of an organization, you’ll often be judged on your ability to communicate, both orally and in writing. Whether you’re talking informally or making a formal presentation, you must express yourself clearly and concisely. Talking too loudly, rambling, and using poor grammar reduce your ability to influence others, as does poor written communication. Confusing and error-riddled documents (including emails) don’t do your message any good, and they will reflect poorly on you.

Conceptual Skills

Managers at the top, who are responsible for deciding what’s good for the organization from the broadest perspective, rely on conceptual skills — the ability to reason abstractly and analyze complex situations. Senior executives are often called on to “think outside the box” — to arrive at creative solutions to complex, sometimes ambiguous problems. They need both strong analytical abilities and strong creative talents.

Time-Management Skills

Time management skills are techniques that help you plan and organize your time to complete tasks and achieve goals. Managers face multiple demands on their time, and their days are usually filled with interruptions. Ironically, some technologies that were supposed to save time, such as voicemail and email, have actually increased workloads. Unless you develop certain time-management skills, you risk reaching the end of the day feeling that you’ve worked a lot but accomplished little. What can managers do to ease the burden? Here are a few common-sense suggestions:

• Prioritize tasks, focus on the most important things first.
• Set aside a certain time each day to return phone calls and answer email.
• Delegate routine tasks.
• Don’t procrastinate.
• Insist that meetings start and end on time, and stick to an agenda.
• Eliminate unnecessary paperwork.

Decision-Making Skills

Every manager is expected to make decisions, whether alone or as part of a team. Drawing on your decision-making skills is often a process in which you must define a problem, analyze possible solutions, and select the best outcome. As luck would have it, because the same process is good for making personal decisions, we’ll use a personal example to demonstrate the process approach to decision making. Consider the following scenario: you’re upset because your midterm grades are much lower than you’d hoped. To make matters worse, not only are you in trouble academically, but also the other members of your business-project team are annoyed because you’re not pulling your weight. Your lacrosse coach is very upset because you’ve missed too many practices, and members of the mountain-biking club of which you’re supposed to be president are talking about impeaching you if you don’t show up at the next meeting. And your significant other is feeling ignored.

Strategic Planning

Strategic planning involves analyzing competitive opportunities and threats, as well as the strengths and weaknesses of the organization, and then determining how to position the organization to compete effectively in their environment. Strategic planning has a long time frame, often three years or more. It generally includes the entire organization and includes formulation of objectives. Strategic planning is often based on the organization’s mission, which is its fundamental reason for existence. An organization’s top management most often conducts strategic planning. Strategic managers are often involved with developing and writing company mission, vision, and values statements.

Understanding of the four stages of the industry life cycle (also referred to as the business cycle) include expansion, peak, contraction, and trough (discussed in the chapter on economics) and industry dynamics informs management’s investment decisions and risk management strategies. It can help companies manage their operational and financial decisions and activities so that they position themselves to achieve important goals, including product research and development, implementing innovative technology, expanding a customer base, and more. External factors that affect a business are often analyzed through a PEST analysis.

Planning begins at the highest level of management and works its way down through the organization.

Step one is usually called strategic planning: the process of establishing an overall course of action. To begin this process, a manager/owner should ask a couple of very basic questions: why, for example, does the organization exist? What value does it create? Sam Walton posed these questions in the process of founding Wal-Mart: his new chain of stores would exist to offer customers the lowest prices with the best possible service.

Once the purpose of the company has been identified, then the manager is ready to take the remaining steps in the strategic-planning process:

1. Write a mission statement that tells customers, employees, and others why the organization exists. Review this article, How to Write a Mission Statement, for tips on writing a missions statement.
2. Identify core values or beliefs that will guide the behavior of members of the organization. Review this article, 4 Steps to Creating Your Company Core Values, for tips on creating company core values.
3. Assess the company’s strengths, weaknesses, opportunities, and threats. Performing a SWOT Analysis is a good start here.  It is also important to conduct various business environment scans and analyze how these conditions will affect the business.
4. Establish goals and objectives, or performance targets, to direct all the activities that will be performed to achieve the mission. So, the next step in the strategic-planning process is establishing goals and objectives. Goals are major accomplishments that the company wants to achieve over a long period. SMART is an acronym used to guide and set goals: Specific, Measurable, Attainable, Relevant, and Time Based (Refer to Figure 3.3). Review this article, SMART Goals: What They Are and How to Write Them, for tips on how to write SMART goals.
5. Develop and implement tactical and operational plans to achieve goals and objectives.

Tactical Planning

Tactical planning is intermediate-range (one to three years) planning that is designed to develop relatively concrete and specific means to implement the strategic plan. Middle-level managers often engage in tactical planning.

Operational Planning

Operational planning generally assumes the existence of organization-wide or sub-unit goals and objectives and specifies ways to achieve them. Operational planning is short-range (less than a year) planning that is designed to develop specific action steps that support the strategic and tactical plans. First-level managers engage in operational planning.

Contingency and Crisis Planning

Contingency and Crisis Planning are plans for what actions to take when things go wrong. Perhaps your plans were flawed, or maybe something in the environment shifted unexpectedly. Successful managers anticipate and plan for the unexpected. Dealing with uncertainty requires contingency planning and crisis management.

Play the YouTube video below, “Types of Planning: Strategic, Tactical, Operational & Contingency Planning” to learn how the levels of planning interconnect.  Transcript for “Types of Planning: Strategic, Tactical, Operational & Contingency Planning.” Video [PDF–New Tab].  Closed captioning is available on YouTube.

Environmental Analysis

A business environment analysis is a systematic process that evaluates the internal and external factors impacting a business. Before planning can be done analysis of the business environments should be conducted through researching and analyzing market conditions, competition, trends and other external factors that could influence the business’s strategy. Environmental analysis plays an essential role in a company’s strategic planning by providing a clear and thorough understanding of external business factors and how they affect the company. Analyses help the company take advantage of opportunities, lower risks, and come up with good plans that lead to growth and success.

As this book is written for an introduction to business (usually a survey course at colleges and universities) you will not take these concepts into too much depth.  Later in your business studies when you complete management, leadership, analytics, and other courses you will utilize these analysis models to a fuller extent.

PEST Analysis

PEST is the term used for an external environment scan, whereby a business collects and analyzes data on the political, economic, social, and technological aspects of the business environment in which the business operates. PEST can be extended to include the legal, environmental, and ethical aspects of the business environment and when included, the acronym is referred to as PESTEL or PESTLE, PESTLEE. Many people refer to the analysis as a PEST analysis and include all the factors mentioned here (Refer to Figure 3.4).

 

SWOT Analysis

A SWOT analysis analysis is a framework for identifying and analyzing an organization’s strengths, weaknesses, opportunities and threats. These words make up the SWOT acronym. The primary goal of SWOT analysis is to increase awareness of the factors that go into making a business decision or establishing a business strategy.

Below each of the four points of SWOT is explained in more detail:

• Strengths. Your Strengths are internal positives about your company that you can control and that often provide you with a competitive advantage. Some examples might be the quality of your product, the effectiveness of your processes, your access to physical or team assets or other competitive advantages.
• Weaknesses. A Weakness is an adverse internal attribute about your company that negatively takes away from your Strengths. Some examples might include knowledge gaps on your team, a low-quality product, a lack of money or other tangible assets, bad locations and more.
• Opportunities. An Opportunity is an external factor that provides promise or is likely to contribute to your potential success. Some examples might include the growth rate in your industry, specific laws or policies that will benefit the need for your product, positive customer feedback or technological advancements.
• Threats. A Threat is an external factor that you have no control over, which could negatively impact your success. These are typically acknowledged so that you can provide a plan to overcome each one. Some examples include potential future competitors, costs of supply, upcoming market trends, negative technology changes and upcoming regulations or laws.

Play the YouTube video below, “SWOT Analysis” to learn how to analyze a company’s strengths, weaknesses, opportunities and threats.  Transcript for “SWOT Analysis” Video [PDF–New Tab].  Closed captioning is available on YouTube.

Competitor Analysis

A competitor analysis in business involves examining similar brands in the same industry to gain insight into other companies’ offerings, brands, sales, and marketing approaches.

Play the YouTube video below, “The Five Forces Analysis Explained” to learn how to apply the Five Forces Analysis to a coffee shop within this industry.  Transcript for “The Five Forces Analysis Explained” Video [PDF–New Tab].  Closed captioning is available on YouTube.

Management Function 2 = Organizing

A second key function of managers is organizing, which is the process of coordinating and allocating a firm’s resources in order to carry out its plans. Organizing includes developing a structure for the people, positions, departments, and activities within the firm. Managers can arrange the structural elements of the firm to maximize the flow of information and the efficiency of work processes. They accomplish this by doing the following:

• Dividing up tasks (division of labour)
• Grouping jobs and employees (departmentalization)
• Assigning authority and responsibilities (delegation)

Organizing is the function of management that involves developing an organizational structure and allocating human resources to ensure the accomplishment of objectives. The structure of the organization is the framework within which effort is coordinated. The structure is usually represented by an organization chart, which provides a graphic representation of the chain of command within an organization. Decisions made about the structure of an organization are generally referred to as organizational design decisions.

Organizational Structure

Businesses use organizational charts to depict the reporting structure within the organization. Depending on the number of layers in an organizational chart, the company’s command chain can be identified along with each manager’s span of control. Span of Control can be defined as the total number of direct subordinates that a manager can control or manage. The number of subordinates managed by a manager varies depending on the complexity of the work. The vertical lines in an organizational chart represent a few things, flows of communication as well as the authority relationships among people working at various levels of the organization.

Review the video below to learn more about the organizational structures businesses build.

Play the YouTube video below, “What is Organizational Structure?” to learn how companies structure for business operations.  Transcript for “What is Organizational Structure?” Video [PDF–New Tab].  Closed captioning is available on YouTube.

Organizing also involves the design of individual jobs within the organization. Decisions must be made about the duties and responsibilities of individual jobs, as well as the manner in which the duties should be carried out. Decisions made about the nature of jobs within the organization are generally called “job design” decisions.

Organizing at the level of the organization involves deciding how best to departmentalize, or cluster, jobs into departments to coordinate effort effectively. There are many different ways to departmentalize, including organizing by function, product, geography, or customer. Many larger organizations use multiple methods of departmentalization.

Organizing at the level of a particular job involves how best to design individual jobs to most effectively use human resources. Traditionally, job design was based on principles of division of labor and specialization, which assumed that the narrower the job content, the more proficient the individual performing the job could become. However, experience has shown that it is possible for jobs to become too narrow and specialized. For example, how would you like to screw lids on jars one day after another, as you might have done many decades ago if you worked in company that made and sold jellies and jams? When this happens, negative outcomes result, including decreased job satisfaction and organizational commitment, increased absenteeism, and turnover.

Many organizations have attempted to strike a balance between the need for worker specialization and the need for workers to have jobs that entail variety and autonomy. Many jobs are now designed based on such principles as empowerment, job enrichment and teamwork.

How Companies Get Jobs Done

Building an organizational structure engages managers in two activities: job specialization (dividing tasks into jobs) and departmentalization (grouping jobs into units).

• Job Specialization. Organizing activities into clusters of related tasks that can be handled by certain individuals or groups is called job specialization. This aspect of designing an organizational structure is twofold: 1) Identify the activities that need to be performed to achieve organizational goals. 2) Break down these activities into tasks that can be performed by individuals or groups of employees.
• Departmentalization. Departmentalization is grouping specialized jobs into meaningful units. Depending on the organization and the size of the work units, they may be called divisions, departments, or just plain groups. Traditional groupings of jobs result in different organizational structures, and for the sake of simplicity, the course textbook focuses on two types—functional and divisional organizations.

Types of Divisional Organization with Company Examples

A divisional organizational structure is a type of organizational structure where a company is divided into independent divisions that operate like their own companies within the larger organization. Each division has its own resources, teams, and responsibilities.

• Product Divisions. Structuring a company based on its product lines. Examples: General Motors uses product-based divisions for their various automotive lines – Buick, Cadillac, Chevrolet, and GMC.
• Customer Divisions. Structuring the company based on the needs of the customers. Example: Johnson & Johnson is divided into three consumer-based structures – consumer business, pharmaceuticals, and professional business.
• Process Divisions. Structuring the company based on processes needed to create the product or service. Example: Bowater Thunder Bay has several steps in production and opts for a process division structure.
• Geographical Divisions. Structuring the company so that responses to customers in their geographical areas can be done more effectively. Example: Adidas is set up so that it can operate effectively in the five regions of the world where it operates.

Management Function 3 = Leading

The third management function is leading—providing focus and direction to others and motivating them to achieve organizational goals.

A leader can be anyone in an organization, regardless of position, able to influence others to act or follow, often by their own choice. Managers are designated leaders according to the organizational structure but may need to use negative consequences or coercion to achieve change. In the organizational structure, top managers use leadership skills to set, share, and gain support for the company’s direction and strategy—mission, vision, and values, such as Jeff Bezos does at Amazon. Middle and supervisory management use leadership skills in the process of directing employees on a daily basis as the employees carry out the plans and work within the structure created by management. Top-level leadership demonstrated by Bezos was also exhibited by Jack Welch while leading General Electric and led to many studies of his approach to leadership. Organizations, however, need strong effective leadership at all levels in order to meet goals and remain competitive.

Leadership Style

There are four basic leadership styles, Autocratic, Democratic, Transformational, and Free-rein (Laissez-faire).

Autocratic Style

Autocratic leaders are directive leaders, allowing for very little input from subordinates. These leaders prefer to make decisions and solve problems on their own and expect subordinates to implement solutions according to very specific and detailed instructions. In this leadership style, information typically flows in one direction, from manager to subordinate. The military, by necessity, is generally autocratic. When employees are new with little experience, they may value an autocratic leader. When autocratic leaders treat employees with fairness and respect, they may be considered knowledgeable and decisive. But often autocrats are perceived as narrow-minded and heavy-handed in their unwillingness to share power, information, and decision-making in the organization. The trend in organizations today is away from the directive, controlling style of the autocratic leader. Although, In emergencies or highly structured environments requiring quick, decisive actions, autocratic style works well. For example, during a factory emergency, such as a fire or equipment failure, the plant manager orders an immediate evacuation without consulting the team to ensure safety.

Democratic Style

Businesses are looking more and more for participative leaders, meaning leaders who share decision-making with group members and encourage discussion of issues and alternatives. Participative leaders use a democratic, consensual, consultative style. The leader encourages team participation and values group input before making decisions. This leadership style works well In collaborative environments where creativity, buy-in, and team cohesion are critical. For example, a marketing team brainstorming ideas for a new product campaign. The leader facilitates discussions, gathers input from all team members, and makes the final decision based on consensus.

Participative leadership has three types: democratic, consensual, and consultative. Democratic leaders solicit input from all members of the group and then allow the group members to make the final decision through a voting process. This approach works well with highly trained professionals. The president of a physicians’ clinic might use the democratic approach. Consensual leaders encourage discussion about issues and then require that all parties involved agree to the final decision. This is the general style used by labour mediators. Consultative leaders confer with subordinates before making a decision but retain the final decision-making authority. This technique has been used to dramatically increase the productivity of assembly-line workers.

Transformational

Transformational leadership is a leadership style that can inspire positive changes in those who follow. Transformational leaders are generally energetic, enthusiastic, and passionate. Not only are these leaders concerned and involved in the process, but they are also focused on helping every member of the group succeed. Transformational leaders take control of situations by conveying a clear vision of the group’s goals. These leaders have a marked passion for the work and an ability to make the rest of the group feel recharged and energized. Transformational leaders focus on helping members of the group support one another and provide them with the support, guidance, and inspiration they need to work hard, perform well, and stay loyal to the group. The primary goals of transformational leadership are to inspire growth, promote loyalty, and instill confidence in group members.

In today’s organizations, in which team building and information sharing are important, and projects are often collaborative in nature, transformational leadership has proven to be more effective. Modern organizations look for managers who can develop positive relationships with subordinates and motivate employees to focus on the interests of the organization. Leaders who can be both transactional and transformational are rare, and those few who have both capacities are very much in demand. This leadership style works well In industries undergoing change or organizations aiming for significant innovation. For example, a tech startup founder inspires the team to develop a groundbreaking app by sharing a compelling vision, mentoring employees, and encouraging risk-taking to achieve ambitious milestones.

Free-Rein Style

The third leadership style, at the opposite end of the continuum from the autocratic style, is free-rein or laissez-faire(French for “leave it alone”) leadership. With this style, the leader provides minimal supervision, allowing employees to make decisions and work independently. Employees are assigned a task and then given free rein to figure out the best way to accomplish it. The manager doesn’t get involved unless asked. Under this approach, subordinates have unlimited freedom as long as they do not violate existing company policies. This approach is also sometimes used with highly trained professionals who are self motivated and require little oversight. For example, a software development team working on a project. The leader trusts the developers to self-manage their tasks and deliver results, stepping in only when issues arise. Similarly, free-rein may be an effective leadership style when managing an experienced team working in a research laboratory. Although one might at first assume that subordinates would prefer the free-rein style, this approach can have several drawbacks. If free-rein leadership is accompanied by unclear expectations and lack of feedback from the manager, the experience can be frustrating for an employee. Employees may perceive the manager as being uninvolved and indifferent to what is happening or as unwilling or unable to provide the necessary structure, information, and expertise.

Situational Leadership

No leadership style is effective all the time. Effective leaders recognize employee growth and use situational leadership, selecting a leadership style that matches the maturity and competency levels of those completing the tasks. Newly hired employees may respond well to authoritative leadership until they understand the job requirements and show the ability to handle routine decisions. Once established, however, those same employees may start to feel undervalued and perform better under a participative or free-rein leadership style. Using situational leadership empowers employees.

Employee Empowerment

Participative and free-rein leaders use a technique called empowerment to share decision-making authority with subordinates. Empowerment means giving employees increased autonomy and discretion to make their own decisions, as well as control over the resources needed to implement those decisions. When decision- making power is shared at all levels of the organization, employees feel a greater sense of ownership in, and responsibility for, organizational outcomes.

Power to Influence Others

To be effective leaders, managers must be able to influence others’ behaviours. This ability to influence others to behave in a particular way is called power.

Researchers have identified five primary sources, or bases, of power:

• Legitimate power, which comes from an individual’s position in an organization
• Reward power, which comes from an individual’s control over rewards
• Coercive power, which comes from an individual’s ability to threaten negative outcomes
• Expert power, which comes from an individual’s extensive knowledge in one or more areas
• Referent power, which comes from an individual’s personal charisma and the respect and/or admiration the individual inspires

Delegating Authority

Delegating is the process of entrusting work to subordinates, letting go, trusting – this is challenging for many managers to do; however, it is a necessary skill to learn.

Managers who know how to delegate effectively:

• Decrease their workload
• Increase their productivity
• Empower their employees
• Help their employees to develop new skills

The other aspect of delegating authority has to do with how decisions are made, they can either be centralized or decentralized.

• Centralized decision making is done at the top level of management which makes decision making consistent but can make lower-level managers feel under-utilized and impedes the development of decision-making skills in these managers.
• Decentralized decision making is spread throughout the organization. Since the responsibilities and decision-making are given to various people holding different positions in an organization, top management can work towards the growth and long-term vision of the company. Also, this system engages more people to work in different areas such as expansion of the company, employee hiring process, development, and raising capital. As a result, these processes speed up the growth of the company. With that said, decentralization could increase conflict, increase duplicate work, and increase the challenge of executing consistent strategies.

Motivating Employees

How do managers motivate employees to do quality work? This question is difficult to answer because people are motivated by different things at different stages in their life, their career, and their personal growth. Highly motivated employees focus their efforts on achieving specific goals. It’s the manager’s job, therefore, to motivate employees—to get them to try to do the best job they can. Motivated employees call in sick less frequently, are more productive, and are less likely to convey bad attitudes to customers and coworkers. They also tend to stay in their jobs longer, reducing turnover and the cost of hiring and training employees.

Personal Motivation

They may be intrinsically or extrinsically motivated, or by a combination of each.

Intrinsic motivation. This is when motivation comes from within; in other words, a person has it within themselves to be, stay, or become motivated. For example, a person may be intrinsically motivated by the enjoyment of doing a task, the satisfaction of a job well done, or the desire to achieve.

Extrinsic motivation. This is when motivation comes from external factors; in other words, a person needs an incentive to be, stay, or become motivated. For example, a person may be extrinsically motivated by the pay they receive, bonuses they receive, avoiding punishment, gaining recognition or prestige, or perks of the job.

Motivational Theories

Maslow’s Hierarchy of Needs

According to Maslow’s theory, the idea is that we need to satisfy lower-level needs before we move to the other levels; once we have satisfied said need(s), we move on to the next level as the previous one no longer satisfies us. Consider how this can play out in the workplace.

What implications does Maslow’s theory have for business managers? There are two key points: (1) Not all employees are driven by the same needs, and (2) the needs that motivate individuals can change over time. Managers should consider which needs different employees are trying to satisfy and should structure rewards and other forms of recognition accordingly. For example, when you got your first job repossessing cars, you were motivated by the need for money to buy food. If you’d been given a choice between a raise or a plaque recognizing your accomplishments, you’d undoubtedly have opted for the money. As a city councillor, by contrast, you may prefer public recognition of work well done (say, election to higher office) to a pay raise.

As shown in Figure 3.5, Maslow’s Hierarchy of Needs from the highest level (self-actualization) to the lowest level (physiological needs):

• Self-Actualization: Mortality, creativity, spontaneity, problem-
  solving, lack of prejudice, acceptance of facts
• Esteem: Self-esteem, confidence, achievement, respect of others,
  respect by others.
• Social: Love/belonging through friendship, family, sexual intimacy
• Safety: security of body, of employment, of resources, or mortality,
  of the family, of health, of property
• Physiological: breathing, food, water, sex, sleep, homeostasis,
  excretion

Two-Factor Theory

Another psychologist, Frederick Herzberg, set out to determine which work factors (such as wages, job security, or advancement) made people feel good about their jobs and which factors made them feel bad about their jobs. He surveyed workers, analyzed the results, and concluded that to understand employee satisfaction (or dissatisfaction), he had to divide work factors into two categories:

• Motivation factors. Those factors that are strong contributors to job satisfaction.
• Hygiene factors. Those factors that are not strong contributors to satisfaction but that must be present to meet a worker’s expectations and prevent job dissatisfaction.

Figure 3.6 illustrates Herzberg’s two-factor theory. Note that motivation factors (such as promotion opportunities) relate to the nature of the work itself and the way the employee performs it. Hygiene factors (such as physical working conditions) relate to the environment in which it’s performed.

 

Let’s start with hygiene factors. Are salaries reasonable? What about working conditions? Does each accountant have his or her own workspace, or are they crammed into tiny workrooms? Are they being properly supervised or are they left on their own to sink or swim? If hygiene factors like these don’t meet employees’ expectations, they may be dissatisfied with their jobs.

Fixing problems related to hygiene factors may alleviate job dissatisfaction, but it won’t necessarily improve anyone’s job satisfaction. To increase satisfaction (and motivate someone to perform better), you must address motivation factors. Is the work itself challenging and stimulating? Do employees receive recognition for jobs well done? Will the work that an accountant has been assigned help him or her to advance in the firm? According to Herzberg, motivation requires a twofold approach: eliminating “dissatisfiers” and enhancing satisfiers.

Expectancy Theory

If you were a manager, wouldn’t you like to know how your employees decide whether to work hard or goof off? Wouldn’t it be nice to know whether a planned rewards program will have the desired effect—namely, motivating them to perform better in their jobs? These are the issues considered by psychologist Victor Vroom in his expectancy theory, which proposes that employees will work hard to earn rewards that they value and that they consider “attainable”.

As you can see from Figure 3.7, Vroom’s Expectancy Theory argues that an employee will be motivated to exert a high level of effort to obtain a reward under three conditions – the employee:

1. believes that his or her efforts will result in acceptable performance.
2. believes that acceptable performance will lead to the desired reward.
3. values the reward.

To apply expectancy theory to a real-world situation, let’s analyze an automobile-insurance company with one hundred agents who work from a call centre. Assume that the firm pays a base salary of $2,000 a month, plus a $200 commission on each policy sold above ten policies a month. In terms of expectancy theory, under what conditions would an agent be motivated to sell more than ten policies a month?

The agent would have to believe that his or her efforts would result in policy sales (that, in other words, there’s a positive link between effort and performance). The agent would have to be confident that if he or she sold more than ten policies in a given month, there would indeed be a bonus (a positive link between performance and reward). The $200 bonus per policy would have to be of value to the agent.
Now let’s alter the scenario slightly. Say that the company raises prices, thus making it harder to sell the policies. How will agents’ motivation be affected? According to expectancy theory, motivation will suffer. Why? Because agents may be less confident that their efforts will lead to satisfactory performance. What if the company introduces a policy whereby agents get bonuses only if buyers don’t cancel policies within ninety days? Now agents may be less confident that they’ll get bonuses even if they do sell more than ten policies. Motivation will decrease because the link between performance and reward has been weakened. Finally, what will happen if bonuses are cut from $200 to $25? Obviously, the reward would be of less value to agents, and, again, motivation will suffer. The message of expectancy theory, then, is fairly clear: managers should offer rewards that employees value, set performance levels that they can reach, and ensure a strong link between performance and reward.

Equity Theory

What is the equity theory of motivation? The Equity Theory of motivation is the idea that what an individual receives for their work has a direct effect on their motivation. When applied to the workplace, it means an individual will generally aim to create a balance between what they give to the organization compared to what they get in return.

Equity theory was developed by John Stacey Adams, and you can read more information about Equity theory in this article.

Let’s review this example. What if you spent thirty hours working on a class report, did everything you were supposed to do, and handed in an excellent assignment (in your opinion). Your roommate, on the other hand, spent about five hours and put everything together at the last minute. You know, moreover, that he ignored half the requirements and never even ran his assignment through a spell-checker. A week later, your teacher returns the reports. You get a C grade and your roommate gets a B+. In all likelihood, you’ll feel that you’ve been treated unfairly relative to your roommate.

According to Figure 3.8, the Equity Theory, your reaction makes sense. The Equity Theory of motivation focuses on our perceptions of how fairly we’re treated relative to others. Applied to the work environment, this theory proposes that employees analyze their contributions or job inputs (hours worked, education, experience, work performance) and their rewards or job outcomes (salary, bonus, promotion, recognition). Then they create a contributions/rewards ratio and compare it to those of other people. The basis of comparison can be any one of the following:

• Someone in a similar position
• Someone holding a different position in the same organization
• Someone with a similar occupation
• Someone who shares certain characteristics (such as age, education, or level of experience)
• Oneself at another point in time

When individuals perceive that the ratio of their contributions to rewards is comparable to that of others, they perceive that they’re being treated fairly or equitably; when they perceive that the ratio is out of balance, they perceive inequity. Occasionally, people will perceive that they’re being treated better than others. More often, however, they conclude that others are being treated better (and that they themselves are being treated worse). This is what you concluded when you saw your grade in the previous example. You’ve calculated your ratio of contributions (hours worked, research and writing skills) to rewards (project grade), compared it to your roommate’s ratio, and concluded that the two ratios are out of balance.

What will an employee do if he or she perceives an inequity? The individual might try to bring the ratio into balance, either by decreasing inputs (working fewer hours, not taking on additional tasks) or by increasing outputs (asking for a raise). If this strategy fails, an employee might complain to a supervisor, transfer to another job, leave the organization, or rationalize the situation (e.g., deciding that the situation isn’t so bad after all). Equity theory advises managers to focus on treating workers fairly, especially in determining compensation, which is, naturally, a common basis of comparison.

Corporate Culture

Corporate culture refers to the shared values, beliefs, attitudes, and practices that shape the social and psychological environment of a business.  The leadership style of managers in an organization is usually indicative of the underlying philosophy, or values, of the organization. This set of attitudes, values, and standards of behavior that distinguishes one organization from another. A corporate culture evolves over time and is based on the accumulated history of the organization, including the vision of the founders. It influences how employees interact, make decisions, and work towards organizational goals. A strong corporate culture can drive employee engagement, enhance productivity, and align individual actions with the company’s mission.

Corporate culture key elements include:

• Core Values: Guiding principles that inform behaviors and decision-making.
• Leadership Style: The approach leaders take to inspire and manage teams.
• Communication: How information flows within the organization, including formal and informal channels.
• Work Environment: The physical and emotional atmosphere in which employees operate.
• Behavioral Norms: Expectations for conduct among employees and management.

The grapevine represents the informal communication network within an organization. It is a natural part of corporate culture, where employees share information unofficially through casual conversations, rumors, or personal interactions.

The nature of the grapevine is shaped by the corporate culture. For example:

• In open and transparent cultures, the grapevine is less likely to spread harmful rumors since employees trust formal communication.
• In hierarchical or secretive cultures, reliance on the grapevine may increase as employees seek information not readily available through official channels.

​​Culture may be intangible, but it has a tremendous impact on employee morale and a company’s success. Google approaches morale analytically. When Google discovered that mothers were leaving the company at higher rates than other employee groups, the company improved its parental-leave policies. The result was a 50 percent reduction in attrition for working moms. An analytical approach along with culture-building activities such as town halls led by Black employees and allies, support for transgender employees, and unconscious-bias workshops are why employees say Google is a safe and inclusive place to work. Clearly Google leaders recognize culture is critical to the company’s overall success.

Management Function 4 = Controlling

Controlling involves ensuring that performance does not deviate from standards. You can think of the control function as a five-step process (Refer to Figure 3.5):

1. Set the standards by which performance will be measured. Performance standards are often stated in monetary terms such as revenue, costs, or profits but may also be stated in other terms, such as units produced, number of defective products, or levels of quality or customer service.
2. Measure the performance.
3. Compare the actual performance against the standards and identify any deviations from the standards.
4. Determine the reasons for the deviations.
5. Take corrective action if needed.

The measurement of performance can be done in several ways, depending on the performance standards, including financial statements, sales reports, production results, customer satisfaction, and formal performance appraisals. Managers at all levels engage in the managerial function of controlling to some degree.

The managerial function of controlling should not be confused with control in the behavioral or manipulative sense. This function does not imply that managers should attempt to control or to manipulate the personalities, values, attitudes, or emotions of their subordinates. Instead, this function of management concerns the manager’s role in taking necessary actions to ensure that the work-related activities of subordinates are consistent with and contributing toward the accomplishment of organizational and departmental objectives.

Effective controlling requires the existence of plans, since planning provides the necessary performance standards or objectives. Controlling also requires a clear understanding of where responsibility for deviations from standards lies. Two traditional control techniques are budget and performance audits. An audit involves an examination and verification of records and supporting documents. A budget audit provides information about where the organization is with respect to what was planned or budgeted for, whereas a performance audit might try to determine whether the figures reported are a reflection of actual performance. Although controlling is often thought of in terms of financial criteria, managers must also control production and operations processes, procedures for delivery of services, compliance with company policies, and many other activities within the organization.

The Importance of Controls

Project controls provide information that allow managers to make informed and timely decisions that prevent project risks. A manager must keep things on track and within scope throughout the project. Without a project control process, it’s difficult to answer important questions about the project, which may impact or complicate project success.

Some reasons why projects might go off track without project controls include:

• People: Without project controls, questions may arise about who’s available to work on a project, who’s in charge of which roles and responsibilities, and who should take ownership of specific tasks during project development.
• Quality: The project control process ensures that expectations are met, items in every project phase are complete, and everything works along the way.
• Cost: When the project cost isn’t controlled, unforeseen fees may occur because of changes from stakeholders or miscalculations during project planning.
• Time: Monitoring project time prevents issues like schedule delays, shifting priorities, and clashes in resources, which can lead to unsatisfactory project results.

Through the control process, managers can catch when things don’t go as planned and quickly course correct to keep the project on track.

Benchmarking

Benchmarking could be considered as a specialized kind of control activity. Rather than controlling a particular aspect of performance (say, defects for a specific product), benchmarking aims to improve a firm’s overall performance. The process of benchmarking involves comparisons to other organizations’ practices and processes with the objective of learning and improvement in both efficiency and effectiveness.

Benchmarking exercises can be conducted in a number of ways:

• Organizations often monitor publicly available information to keep tabs on the competition. Annual reports, news articles, and other sources are monitored closely in order to stay aware of the latest developments. In academia, universities and colleges often use published rankings tables to see how their programs compare on the student satisfaction, salaries of graduates, and other important dimensions.
• Organizations may also work directly with companies in unrelated industries in order to compare those functions of the business which are similar. A manufacturer of aircraft would not likely have a great deal in common with a company making engineered plastics, yet both have common functions such as accounting, finance, information technology, and human resources. Companies can exchange ideas that help each other improve efficiency, and often at a very low cost to either.
• In order to compare more directly with competition without relying solely on publicly available data, companies may enter into benchmarking consortiums in which an outside consultant would collect key data from all participants, anonymize it, and then share the results with all participants. Companies can then gauge how they compare to others in the industry without revealing their own performance to others.

Attributions

The contents of this chapter is a compilation sourced from various OER resources, please refer to the Book Information for details.

References

(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks)

The Importance of Entrepreneurship

Entrepreneurship is important for economic growth.  New companies create employment, contribute to a nation’s GDP, and bring new and innovative products and services to consumers. Some small business founders like Henry Ford and Thomas Edison have even gained places in history. Others, including Bill Gates (Microsoft), Mike Lazaridis (Research in Motion), Steve Jobs (Apple Computer), and Larry Page and Sergey Brin (Google), have changed the way global business is done today.

Entrepreneurship plays a vital role in the growth and development of economies and societies. Here are five key points highlighting its importance:

1. Economic Growth and Job Creation. Entrepreneurs are critical drivers of economic development. By establishing new businesses, they contribute to GDP growth and generate employment opportunities. Startups often create jobs directly within their operations and indirectly by fostering demand for suppliers, service providers, and other industries. This dynamism boosts local economies and reduces unemployment. For example, small and medium-sized enterprises (SMEs) are significant contributors to job creation in both developed and developing economies.
2. Innovation and Technological Advancement. Entrepreneurs often introduce groundbreaking ideas, products, and services that improve lives and solve societal problems. By challenging traditional methods, they encourage innovation and technological progress. Many technological breakthroughs, such as smartphones and e-commerce, originated from entrepreneurial ventures. These innovations not only benefit consumers but also drives competition, compelling existing businesses to adapt and improve, further advancing technology and efficiency.
3. Improved Standard of Living. Entrepreneurship leads to the development of goods and services that address consumer needs more effectively. By making products more accessible, affordable, or efficient, entrepreneurs enhance the standard of living. For instance, affordable transportation services like Uber or low-cost consumer goods offered by startups improve daily life for millions. Moreover, as businesses grow and incomes rise, employees and communities benefit from better infrastructure, education, and healthcare.
4. Economic Diversification and Resilience. Entrepreneurship encourages diversification by fostering businesses in various industries, including emerging sectors like renewable energy, biotechnology, and digital technologies. A diversified economy is less reliant on a single industry, making it more resilient to economic shocks. For example, in resource-dependent countries, encouraging entrepreneurship in non-resource sectors helps reduce vulnerability to fluctuations in global commodity prices.
5. Empowerment and Social Change. Entrepreneurship empowers individuals, particularly marginalized groups, by providing opportunities to take control of their economic futures. Women-led businesses, for instance, are transforming communities by creating jobs and addressing gender inequalities. Additionally, social entrepreneurs tackle pressing societal issues like poverty, education, and climate change, driving positive change through sustainable and innovative solutions. Initiatives like microfinance have empowered countless individuals to start businesses and improve their lives.

Entrepreneurship is not just about starting businesses; it is a catalyst for economic prosperity, innovation, and societal transformation. By fostering creativity, empowering individuals, and addressing pressing global challenges, entrepreneurship builds a more sustainable and equitable future. Governments and institutions must encourage and support entrepreneurial endeavors to unlock their full potential.

“A society becomes greater if the employment base is large and diversified. It brings about changes in society and promotes facilities like higher expenditure on education, better sanitation, fewer slums, a higher level of homeownership.”

“Entrepreneurship increases income levels, therefore improving standards of living. Entrepreneurs identify challenges in the lives of customers and provide appropriate business solutions. Additionally, they hire new employees who receive remuneration and this income gets circulated in the economy. All of the spending and salaries generate incremental wealth, therefore improving standards of living.”

“Entrepreneurs play a key role in increasing the standard of living in a community. They do this not just by creating jobs, but also by developing and adopting innovations that lead to improvements in the quality of life of their employees, customers, and other stakeholders in the community. New and improved products, services or technology from entrepreneurs enable new markets to be developed and new wealth to be created. Additionally, increased employment and higher earnings contribute to better national income in the form of higher tax revenue and higher government spending.”

Reasons Small Businesses Succeed or Fail

The success or failure of small businesses is influenced by a variety of factors. Understanding these can help entrepreneurs make informed decisions and improve their chances of success.

Small Business Success

Success hinges on strategic planning, adaptability, customer focus, and sound financial management. Small businesses must remain proactive, monitor performance, and adapt to challenges to thrive in a competitive environment.

Here are some of the reasons small businesses are successful:

1. Clear Vision and Strong Planning. A well-defined business plan helps set realistic goals, understand market needs, and devise a growth strategy. Example: A bakery with a unique product line tailored to health-conscious consumers can attract a loyal customer base.
2. Financial Management. Successful businesses monitor expenses, optimize pricing, and secure adequate funding to manage operations and growth. Example: A café maintaining detailed cash flow records and controlling costs can reinvest profits into expansion.
3. Understanding the Market and Customers. Businesses that focus on customer needs, preferences, and feedback often outperform competitors. Example: An e-commerce store offering personalized shopping experiences can build customer loyalty.
4. Adaptability and Innovation. Thriving businesses adapt to changing trends and innovate to stay competitive. Example: A clothing retailer that shifts to online sales during a pandemic ensures continued revenue.
5. Effective Leadership and Teamwork. Skilled leaders who motivate teams, make informed decisions, and delegate effectively can drive success. Example: A software startup with a strong leadership team and skilled employees can quickly scale operations.

Small Businesses Failure

There are several factors that contribute to the failure of small businesses including insufficient cash flow, pricing issues, and lack of focus. However, the main reason is the lack of research and offering a product or a service there is no market for.

Failures often stem from internal factors like poor planning, financial mismanagement, or lack of experience, as well as external factors such as economic shifts or market saturation.

Here are some of the reasons small businesses fail:

1. Lack of Planning. Poor business planning, unclear goals, or a lack of market research often lead to failure. Without a solid business plan, owners struggle to define their target audience, competitive strategy, or financial projections. Example: A restaurant opening without researching local demand or competition may struggle to attract customers.
2. Inadequate Funding. Insufficient startup capital or poor financial management can cripple a business. Many small businesses underestimate costs or fail to secure necessary funding to sustain operations. Example: A retail store running out of cash before building a stable customer base will likely close.
3. Poor Marketing and Customer Understanding. Businesses that fail to connect with their target audience or market their products effectively often see limited growth. Example: A business using outdated marketing strategies may not reach modern, digital-savvy customers.
4. Ineffective Management. Inexperience, poor decision-making, or inability to delegate can lead to operational inefficiencies. Example: A business owner handling everything alone may burn out and neglect crucial aspects of the business.
5. Economic or Market Challenges. External factors like economic downturns, increased competition, or changing market trends can negatively impact businesses. Example: A travel agency may struggle during a recession or global health crisis, such as COVID-19.

Small Business Statistics

While there are different ways to define a small company in Canada, the most straightforward way is to look at the number of employees. Companies with less than a hundred members of staff are considered small businesses in Canada. As more consumers are shopping online, small companies often do not have the workforce or the know-how to create an online presence, nor pricing, that could compete with larger companies. As a result, many small Canadian companies are struggling and they do not expect their sales to increase. Yet, small businesses are the backbone of the Canadian economy, making a significant contribution towards the Canadian gross domestic product (GDP). They are also vital in keeping the employment numbers up in Canada.

Below are some Small Business Statistics in Canada:

• Each small businesses may only employ a few people, but combined, they are the biggest employers in Canada.
• According to data from Statistics Canada, in 2021, 98.1% of all employer businesses in Canada were small businesses.
• In 2021, they employed 63.8% of the Canadian workforce which represents 10.3 million people. Medium-sized local businesses employed 21.1% and large businesses 15.1%. These percentages represent 3.4 and 2.4 million people respectively.
• Data on new small businesses show that 21.5% of small businesses close before the end of their first year. About 50% of small businesses survive for five years and about 33% get to celebrate ten years in business.
• About 42% of small businesses fail because they have not researched the market and are selling a service or a product that customers are not interested in.
• About 29% of small companies have to close because they run out of money and 67% of small business owners are using personal funds to try to keep the business running, which is not a strategy that can be applied in the long term. Other reasons that contribute to small business failures include not having the right team (23%), being out-performed by their competition (19%), pricing issues (18%), ignoring the customers’ needs (14%), lack of focus (13%), and failure to make necessary changes (7%).
• About 73.9% of Canadian companies have less than ten employees. 55.3% employ less than five people and 18.6% have between five and nine members of staff.
• Baby boomers are the biggest business-owning age group, owning 42% of Canadian companies. The number of small businesses owned by millennials is growing with 24% of all small companies owned by a millennial in 2019.
• Small and medium-sized companies contribute over half of Canada’s GDP.
• About 58% of small business owners believe a work-life balance is crucial for long-term survival.
• According to Start Up Canada, there are currently about 3.5 million entrepreneurs and 901,794 small businesses in October 2021 in Canada.

Entrepreneurial Traits

An entrepreneur is someone who starts, owns and operates a business. It is difficult to generalize about the kind of people attracted to the idea of starting their own business because entrepreneurs are increasingly diverse. An interesting portrait of Canadian entrepreneurs emerged from a 2019 BDC survey of 1,025 Canadian business owners. Among the findings:

• Twenty-eight percent were women, up from 11% 40 years ago.
• Newcomers to Canada were twice as likely to start a business as their Canadian-born counterparts.
• The number of Canadians under 35 who started a business increased by 80% between 2014 and 2018.

Key Traits

While entrepreneurs do require many skills and abilities, they may not have all the skills they need to run a business successfully.  In these cases, an entrepreneur might hire a consultant, a contract employee, or a full-time employee to support the business tasks for which the entrepreneur is lacking skills or may not have the time to focus on. For example, as an entrepreneur, if accounting is your weakness you might hire an accountant, payroll service, or bookkeeper. If sales or marketing are not skills you have developed you might hire a salesperson or contract a marketing company to help you build marketing campaigns. While hiring consultants, services, or employees does cost money, you can rest assured it is being done accurately, and the investment should pay off.

Some of the key traits found in entrepreneurs include the following.

1. Passion. “Work ethic and passion go hand in hand. It takes work ethic to keep the business strong, and it takes passion to feel motivated enough to maintain a good worth ethic. That feeling of success is priceless, and it’s how entrepreneurs feel when they see great outcomes from the effort they put into their work.”
2. Risk Tolerance. “Taking risks helps businesses find new ways to differentiate themselves from the competition, which is especially helpful in saturated markets. In the event the risk doesn’t have the intended result, the entrepreneur can still apply the valuable lessons learned to future business decisions. Microsoft’s Bill Gates is credited with the quote, ‘To win big, you sometimes have to take big risks.’ Gates certainly took risks throughout the history of Microsoft, but perhaps his most notable risk was leaving Harvard during his sophomore year in 1975 to found the company. His vision was ‘a computer on every desk and in every home,’ which was something no one could have conceived of at the time. The risk he took to make that vision a reality paid off.”
3. Persistence. “While many successful entrepreneurs are comfortable with the possibility of failing, it doesn’t mean they give up easily. Rather, they see failure as an opportunity to learn and grow. Throughout the entrepreneurial process, many hypotheses turn out to be wrong, and some ventures fail altogether. Part of what makes an entrepreneur successful is their willingness to learn from mistakes, continue to ask questions, and persist until they reach their goal.”
4. Innovative. “Innovation is a characteristic some, but not all, entrepreneurs possess. Fortunately, it’s a type of strategic mindset that can be cultivated. Some of the most successful startups have taken existing products or services and drastically improved them to meet the changing needs of the market.” “Companies that thrive are often built from the wild creativity of their creators. With aggressive competition these days, entrepreneurs are forced to come up with original ideas that differentiate their companies from others. Creative entrepreneurs consider the possibility that the traditional solution isn’t good enough.”

There are three characteristics of entrepreneurial activity:

1. Innovation: Coming up with new ideas, pivoting and adapting when a consumer or economic environment changes.
2. Operating a Business: You will need to understand the functional areas of business, how to analyze the internal and external environments, make decisions, and more.
3. Risk-taking: Entrepreneurs need to be able to deal with risk. There are no guarantees that the business will be successful or remain successful. You will need to learn how to mitigate risks.

Motivational Factors

There are some common motivational factors identified in many entrepreneurs. For instance, entrepreneurs are often motivated by much more than money and most start their business to become their own boss. In BDC’s survey, when asked why they became an entrepreneur, the most popular answer—cited by 70%—was independence, autonomy, and flexibility. About one in two mentioned passion or self-fulfillment and one third cited financial reasons. Refer to Figure 9.1 below to view survey results for motivational factors that influence entrepreneurial success.

 

“The 2019 BDC survey of business owners sheds additional light on what makes Canadian entrepreneurs tick. Three in four said they had to deal with financial insecurity, significant stress, and a lack of benefits. Yet, 90% were professionally satisfied.”

Types of Entrepreneurs

There are many types of entrepreneurs and depending on which website you read, you may see a list of five to fifteen types of entrepreneurs. The type of entrepreneur you are depends on your goals and personal characteristics (e.g., skills, knowledge, creativity, interests, preferences, situation in life, drive, determination, etc.).

The Indeed Editorial Team (2023) provides the following list of nine different types of entrepreneurship.

1. Small business entrepreneurship. People interested in this category are probably interested in making a profit that supports their family and a modest lifestyle.  They often run the business and work in it.  They hire local employees and family members. Local grocery stores, hairdressers, small restaurants, small boutiques, consultants, plumbers, and accountants are a part of this category.
2. Large company entrepreneurship. People in this category are often in a team of executives who know how to sustain innovation. Small business entrepreneurship can turn into large company entrepreneurship when the company grows quickly or when a large company acquires a small business. Microsoft, Google, and Disney are examples of this category.
3. Scalable startup entrepreneurship. People in this category look for things that are missing in the market and create solutions for them. Many of these types of businesses start in Silicon Valley and are technology-focused. They seek rapid expansion and big profit returns. Examples include Facebook, Instagram, and Uber.
4. Social entrepreneurship. People in this category want to solve social problems with their products and services. Their main goal is to make the world a better place and so they are not concerned with making big profits.
5. Innovative entrepreneurship. People in this category aim to change the way people live for the better. Innovators tend to be very motivated and passionate people. They look for ways to make their products and services stand out from other things on the market. People like Steve Jobs and Bill Gates are examples of innovative entrepreneurs.
6. Hustler entrepreneurship. People who are willing to work hard and put in constant effort are considered hustler entrepreneurs.  Their aspirations are what motivates them and they are willing to do what it takes to achieve their goals. They have drive and determination and do not give up easily.
7. Imitator entrepreneurship. People in this category use other people’s business ideas but work to improve them. They seek to make certain products and services better and more profitable.  They have a lot of self-confidence and determination. They learn from other’s mistakes.
8. Researcher entrepreneurship. People in this category like to do as much research as possible before starting a business. They believe that with the right preparation and information, they have a higher chance of being successful. They tend to rely on facts, data, and logic rather than their intuition.
9. Buyer entrepreneurship. People in this category use their wealth to fuel their business ventures usually through purchasing well-established businesses that they think will be successful. Their goal is to grow the business they acquire and expand their profits.

Social Entrepreneur

Some people start businesses in order to help society, people, and communities. A social entrepreneur does not start a company with their main goal being to make a profit, instead, their goal is to make positive change in the world. Their goals often align with the United Nations Sustainable Development Goals (as shown in Figure 9.2 below) and their efforts may have a local, national, or global impact. “Whether it’s reducing poverty, ending homelessness, or fighting climate change—social entrepreneurs are, first and foremost, committed to a cause. While starting a business to support a worthy cause is admirable, the venture still requires focus and serious processes to be sustainable and reach the desired social or environmental impact.”

“These entrepreneurs might be for-profit or non-profit, and they operate under the umbrella of social enterprise or entrepreneurship. It recognizes societal issues, donates profits or uses grants or raises, and mobilizes resources for the greater good. Poverty reduction, child rights restoration, access to health care and financial services, women empowerment, and community development are the most common issues these entrepreneurs address. They often persuade societies, large organizations, and governments to encourage social transformation by addressing unmet needs and social issues.”

Play the YouTube video below, “What is Social Innovation?  How do you actually DO it (and change the world)?”, to learn more about the steps involved in creating a social innovation. Amber Melanie Smith provides a specific example of a social innovation related to food insecurity and applies the design thinking methodology to step through the stages of identifying the problem, empathizing, defining the problem, ideating, prototyping, and testing the solution. Transcript for “What is Social Innovation? How do you actually DO it (and change the world)?” Video [PDF–New Tab]. Closed captioning is available on YouTube.

Necessity Entrepreneur

A necessity entrepreneur is someone who starts a business based on a need for income, out of necessity, because they cannot find employment, have lost their job, need to supplement their income, or require flexibility to attend to other demands in their lives. Some necessity entrepreneurs find business ideas to pursue after retirement or after being downsized. “A typical necessity entrepreneur is over 50 years of age, has been unemployed for over a year, and sees the possibility of finding full-time employment dwindling.”

“A business started out of necessity is usually initiated through some sort of bad luck, i.e. a job loss, redundancy, or even ill health. These entrepreneurs are hesitant because, in all honesty, they would rather be working for a large corporation with the guarantee of a monthly income, however for whatever reason, that is not an option. As with all entrepreneurs, be they averse to starting a business or not, they have a particular knowledge or know a specific product that they think is of value to others. To be able to share this knowledge/product with the world is all they know so, if the only way to be able to use these specialities is to create their own business that’s what they do.” An example of this might include a parent with an autistic child who finds it difficult to work a full-time job and still provide the care and attention required to support their child.  This parent decides to stay home to take care of their child because they feel they are the best person to do so. The parent then starts to receive many questions from friends and family about autism, and they realize that there may be a need for this type of service. They decide to obtain formal credentials and they complete an online program in the field of autism and behavioural science. Once formally qualified, they start a business providing advice to families about autism as a fee-based service. This works well for the necessity entrepreneur because they can now earn an income by providing a needed service and still take care of their child.

Opportunity Entrepreneur

An opportunity entrepreneur is someone who sees an opportunity to make money, gets involved at the right time, and aims for business growth and economic development. For example, “Matt Horan started Rollasole after his girlfriend always complained of walking home in High Heels. With his first entrepreneurial venture he created the first vended shoe, launching Rollasole in his local nightclub. From his hometown, word spread and he built up his business selling his shoes online, in stores and in vending machines. Soon the bright lights of Vegas came calling and after a chance meeting with Ashley Ross an unlikely partnership was formed to bring Rollasole into the States.” Sometimes one great idea acts as a catalyst for other great ideas and today we can find vending machines dispensing sneakers, dress shoes, “emergency” shoes, and “flip flops” for beach wear or when you need a pair of shoes to enter a restaurant.  So many great ideas!

Another example of an opportunity entrepreneur is Tim Horton, who was a Canadian hockey player, and In 1964 he founded the first Tim Horton doughnut shop in Hamilton, Ontario, which later grew into a chain of franchises across Canada and eventually the United States. Burger King purchased Tim Hortons in 2014 and the two brands became subsidiaries of Restaurant Brands International Inc. (RBI).  As of August 2022, RBI is one of the world’s largest quick-service restaurant companies with over $35 billion in annual system-wide sales and over 29,000 restaurants in more than 100 countries.

Sometimes a potential entrepreneur identifies an opportunity to make a new product or start a new business which may be a combination of a profit-making business idea that also supports a socially sustainable goal or a business created out of necessity that not only makes a profit but also supports a socially sustainable goal.

A good example of a social and profit-making business is 31 Bits.  During a trip to Uganda, marketing and international development college student, Kallie Dovel, realized that many of the uneducated single mothers she had met during her trip had exceptional skills and resourcefulness in making jewelry out of old posters. Kallie identified an opportunity to sell this jewelry so she partnered with a few of her college peers and formed the company 31 Bits. The company employs artisans, women from Uganda, with these exceptional skills and ensures they are paid a fair wage.  The company also promotes ethical sourcing by allowing for family time, providing dignified careers, and preserving culture. The mission statement for the company is “We use fashion and design to drive positive change in the world by providing artisans with dignified opportunities and inspiring customers to live meaningful lives.” Nearly a decade later, 31 Bits can be found in hundreds of stores and has been endorsed by celebrities like Sophia Bush, Candace Cameron Bure, and Jessica Alba, and has been written about by Forbes, Harper’s Bazaar, and Elle. Most importantly, hundreds of artisans’ lives have been changed forever.

Steps to Creating a New Business

The Business Development Bank of Canada (BDC) provides an ultimate guide to starting a business in Canada.  This step-by-step guide provides resources and answers to many questions an entrepreneur may need when considering starting a new business.

1. Identify a Business Opportunity. You may find an opportunity for a new product or business by identifying a need for something that is currently missing or identifying a problem that is occurring and contemplating a way to fix it. Before you start spending money on an idea, it’s essential to ensure your business idea has the potential to be successful. Conduct research into what other companies are doing that may be similar to your business concept. Ask yourself these questions. How will your company stand out from the crowd? Who are your target customers? Will they want your service or product? How much money will you need and where will you get it?
2. Choose a Business Structure. In Canada, there are three common types of business structures, sole proprietorship, partnership, or corporation. Be sure to review the pros and cons and specifics of each structure at the BDC, “How to Start a Business in Canada” Ultimate Guide. Sole proprietorship—A sole proprietorship is quite informal and easily created, which is why it’s the most common structure chosen by new entrepreneurs. In this structure, the business and the operator are the same in the eyes of law and tax authorities. The downside is that the owner is personally liable for all functions and debts of the business. Partnership— A partnership is similar to a sole proprietorship, but instead of one proprietor there are two or more. As with a sole proprietorship, there is no legal structure, as such, for a partnership. However, partners usually have some type of contractual agreement among themselves that governs the sharing of revenues, expenses and tasks. Corporation—When a business is incorporated ownership shares are created, which produce a taxation and legal distance between the company and its shareholders. This has tax advantages for the owners; provides some liability protection from the corporation’s debts; and offers some measure of protection for a company’s name. The downside is that setting up a corporation involves initial and ongoing costs for legal and accounting fees.
3. Choose a Business Name. “Selecting a name for your business is not a task to be taken lightly. In fact, it may prove more difficult than you expect. Your name must be accurate, catchy and, most importantly, available. Your name will often create your company’s first impression on customers, so choose it with care. Ask yourself the following questions. Does the name reflect my business and what I sell? Can it be easily remembered? Is it unique and distinctive?”
4. Create a Business Plan.  Often a business plan is used to help secure funding, validate a business idea, grow an existing business, buy a business, sell a business, or advise clients. It legitimizes a business idea, shows the results of research, provides product and customer information, and includes operational and strategic goals. “A business plan is a document that explains how your business operates. It summarizes your business structure, objectives, milestones, and financial performance. It’s a guide that helps you, and anyone else, better understand how your business will succeed.” Additional information on business plans is below.
5. Obtain Business Financing.  There are many ways to finance a new venture, and depending on the size of your startup you might use personal funds or apply for a bank loan (debt financing). Other options include government grants and subsidies, asking family and friends, crowdfunding, developing partnerships, business incubators or accelerators, and inviting venture capitalists or angel investors who may be willing to invest in your business for partial ownership or participation in business decision-making (equity financing).
6. Choose a Commercial Space. Your choices here will vary. You may not need a physical location if you are selling online and working from your home, although if selling products, you will need to consider suppliers and shipping.  If you operate a mobile hotdog cart you will want to set up in locations where your customers are. Some mobile food trucks/carts/stands obtain permission to set up outside specific retail stores.  Some food truck owners obtain contracts with various organizations, and they move from company to company during lunch hours selling lunch products to employees. If you are going to sell products or services in a brick-and-mortar store, then you want to consider buying or leasing a space, the costs of each, and finding a location either near your target market (make more sales near potential customers) or near your supplier (reduce costs).  There may also be licenses required, for example, if you sell liquor or food products. You may also require insurance.
7. Hire Employees.  Whether or not you hire employees will depend on the size of your business.  For example, if you are opening a hot dog stand, then you may be the only employee you have.  If you are opening a small bakery you might start out hiring friends and family, although that can be a sticky situation if you have disagreements. Although, some entrepreneurs open restaurants or retail businesses specifically to start a family-owned business and create jobs and income for their family members. As your business grows you may need to hire employees. Take time to do a thorough job search so you can find the right-fit employees; otherwise, you may end up with a lot of headaches and wasted time by hiring the wrong people. To save time, and depending on the number and type of employees you need, you might use a recruiting firm to vet potential candidates for you. While there is usually a cost for this service, it saves you time (and money) in not having to recruit and select employees yourself.
8. Grow Your Business. “Getting your business up and running is only the start of your business journey. Your first year will be one of your most challenging. It’s when many businesses fail. You will have to keep your eye not only on your day-to-day operations but also planning for your company’s future growth. The difference between the two is often described as working in the business versus working on the business. Visit the Business Development Canada (BDC) manage your growth hub for more tips on how best to move your business forward in the early months.”

Choosing a Business Structure

The legal framework of a business, business structure or form of business ownership, determines how the business is organized, who owns it, and how it is taxed. When starting your business, choose the business structure that best suits your needs. There are four types of business structures in Canada: sole-proprietorship, partnerships, corporations and cooperatives.

Sole-proprietorship

A sole-proprietorship is a simple, unincorporated business owned and operated by one person. The owner has complete control, receives all profits, and is fully liable for the business’s financial and legal situation. A sole-proprietorship is the easiest and most common way to start a business, but it does come with drawbacks, and all of the responsibility for the business’s success rests with you as the owner. Examples of sole proprietorship businesses include independent photographers, small landscaping companies, freelance writers, and personal trainers.

Partnership

A partnership is a non-incorporated business owned by two or more people who share profits and responsibilities and risks.

A major problem with partnerships, as with sole proprietorships, is unlimited liability: in this case, each partner is personally liable not only for his or her own actions but also for the actions of all the partners. If your partner in an architectural firm makes a mistake that causes a structure to collapse, the loss your business incurs impacts you just as much as it would your partner. And here is the really bad news: if the business does not have the cash or other assets to cover losses, you can be personally sued for the amount owed. In other words, the party who suffered a loss because of the error can sue you and/or your partner for your personal assets. Many people are understandably reluctant to enter into partnerships because of unlimited liability. Certain forms of businesses allow owners to limit their liability. These include limited partnerships and corporations.

Partners are considered self-employed for tax purposes and have unlimited liability unless an LLP (limited liability partnership) is created. LLP allows partners to pool resources while limiting their liability for other partners’ professional negligence. Limited partnerships have at least one general partner show assumes unlimited liability, and at least one limited partner whose liability is limited to their investment in the business. Each Canadian province has its own partnership legislation, but all provinces recognize general partnerships and limited partnerships. Partners may have disagreements; therefore, a partnership agreement usually stipulates how decisions will be made, how responsibilities will be divided, and how profits will be split.

Partnership Agreement

The impact of disputes can be lessened if the partners have executed a well-planned partnership agreement that specifies everyone’s rights and responsibilities. The agreement might provide such details as the following:

• amount of cash and other contributions to be made by each partner
• division of partnership income (or loss)
• partner responsibilities — who does what
• conditions under which a partner can sell an interest in the company
• conditions for dissolving the partnership
• conditions for settling disputes

Corporation

A corporation is a separate legal entity from its shareholders and can be incorporated at the federal or provincial level. Corporations offer flexible structure and the ability to divide ownership with shares. A corporation is a legal entity that separates the business from its owner/operator. Therefore, its shareholders have limited liability. Corporations can choose to incorporate federally or provincially.

Incorporation makes it possible for businesses to raise funds by selling stock. This is a big advantage as a company grows and needs more funds to operate and compete. Depending on its size and financial strength, the corporation also has an advantage over other forms of business in getting bank loans. An established corporation can borrow its own funds, but when a small business needs a loan, the bank usually requires that it be guaranteed by its owners.

Corporations are owned by shareholders who invest money in the business by buying shares of stock. Therefore, there is no ownership control by one person as in a proprietorship. The portion of the corporation the shareholders own depends on the percentage of stock they hold. For example, if a corporation has issued 100 shares of stock, and you own 30 shares, you own 30 percent of the company. The shareholders elect a board of directors, a group of people (primarily from outside the corporation) who are legally responsible for governing the corporation. The board oversees the major policies and decisions made by the corporation, sets goals and holds management accountable for achieving them, and hires and evaluates the top executive, generally called the CEO (chief executive officer). The board also approves the distribution of income to shareholders in the form of cash payments called dividends. Ownership can be transferred by selling shares and therefore is not dependent upon the life of the owner, board of directors or a specific shareholder.

Like sole proprietorships and partnerships, corporations have both positive and negative aspects. In sole proprietorships and partnerships, for instance, the individuals who own and manage a business are the same people. Corporate managers, however, don’t necessarily own stock, and shareholders don’t necessarily work for the company. This situation can be troublesome if the goals of the two groups differ significantly.

Managers, for example, are often more interested in career advancement than the overall profitability of the company. Stockholders might care more about profits without regard for the well-being of employees. This situation is known as the agency problem, a conflict of interest inherent in a relationship in which one party is supposed to act in the best interest of the other. It is often quite difficult to prevent self-interest from entering into these situations.

Another drawback to incorporation — one that often discourages small businesses from incorporating — is the fact that corporations are more costly to set up. When you combine filing and licensing fees with accounting and attorney fees, incorporating a business could set you back by $1,000 to $6,000 or more depending on the size and scope of your business. Additionally, corporations are subject to levels of regulation and governmental oversight that can place a burden on small businesses. Finally, corporations are subject to what’s generally called “double taxation.” Corporations are taxed by the federal and provincial governments on their earnings. When these earnings are distributed as dividends, the shareholders pay taxes on these dividends. Corporate profits are thus taxed twice—the corporation pays the taxes the first time and the shareholders pay the taxes the second time.

Co-operative (for profit and not-for-profit)

A co-operative is controlled by its members and can operate for profit or as a not-for-profit. Co-ops are structured to meet the common needs of their members rather than maximize profits for shareholders. Just like a corporation, it can be registered provincially or federally, and each option comes with its own advantages and disadvantages. Some of the largest co-operatives in Canada include:

• Desjardins. The largest co-operative financial group in Canada.
• Sollio Co-operative Group. The largest agri-food co-operative in Canada.
• Federated Co-operatives. One of the largest companies in Canada.
• South Country Co-op. One of Canada’s largest co-ops.
• Vancity Co-op. Canada’s largest community credit-union.

The co-operative is democratically controlled (one member, one vote). Ensures all members have input but may result in slower decision-making.  All members need to participate for a co-op to be successful. Member benefits in receiving special discounts, deals, education, training, services, and sometimes dividends. Surplus revenue is distributed back to the members, proportional to their use of the cooperative’s services. Members share in profits and losses so they may be less willing to take risks or to invest in long-term projects.

Members contribute financially to the co-op by purchasing membership shares and using the co-op’s services. Members participate in the co-op’s governance by attending meetings, voting on major decisions, and electing the board of directors. Members follow the co-op’s bylaws and policies. Members offer suggestions on how to improve the co-op. Members volunteer some of their time and often serve on a committee. Therefore, all members need to participate for a co-op to be successful.

Business Structure Comparison

Refer to Table 4.1 for a comparison of the forms of business ownership.

Table 4.1: Comparison of Forms of Business Ownership

Characteristic	Sole-proprietorship	Partnership	Corporation	Co-operative
Ease of formation	High	High	Medium	Medium
Continuity	Low	Low	High	High
Protection against liability	Low	Low	High	High
Tax advantages	High	High	Low	High
Ease of raising money	Low	Medium	High	High
Government regulation	Low	Low	High	Medium

Other Types of Business Ownership

When starting a new business an entrepreneur must decide which choice is best for them when it comes to starting a business from scratch, buying a used business from another owner, or buying a franchise business. Each has its own benefits and drawbacks. Starting a business from scratch is ideal for innovators with a strong vision, risk tolerance, and creativity. Buying an existing business is best for those who want immediate operations and are comfortable managing an established system. Franchising is great for individuals seeking lower risk and structured support while operating under a recognized brand.

Franchising

A franchise business is a business where the owner grants licenses to licensees to operate the business (sell its products, provide services, and more) at a business location. Think of Baskin-Robbins, CrossFit or another business that you’ve seen in multiple cities. Each location is a franchisee with its own management that pays a fee to the franchisor (the owner) to “rent” the brand name.

Below are the main financial elements of starting a franchise.

• Franchise purchase fee: This can cost anywhere from $20,000 to $50,000, depending on the license.
• Minimum liquid capital: A generally good idea is to have $50,000 to $60,000 for a service-based business, and $75,000 to $100,000 of liquid capital for a facilities-based business.
• Franchise royalties: This is a fee you’ll have to continue to pay to operate your business–the royalty fee can be 4% to 12% of your franchise location’s profits.
• Additional expenses: Franchise businesses also have expenses such as sourcing a commercial space (if applicable), staffing, and more.

Buying or Merging with an Existing Business

Given the stakes, it’s important to thoroughly weigh your business goals, risk tolerance and market opportunities before making an acquisition. To learn more about the pros and cons of buying an existing business review this BDC article.

Acquisitions

A business acquisition is a financial transaction where one company buys the majority or all of another company’s shares or assets, giving the acquiring company control over the target company. Acquisitions are often amicable, with both companies agreeing to the terms of the deal. However, the term “acquisition” can also be used to describe a hostile takeover, where one company buys a majority stake against the wishes of the target company’s management or board of directors. A firm effectively gains control of that company if it buys more than 50% of a target company’s shares. Acquisitions are often carried out with the help of an investment bank because they’re complex arrangements with legal and tax ramifications.

An example of a business acquisition is Microsoft’s acquisition of Activision Blizzard for $68.7 billion in 2023. This deal brought popular gaming franchises like Call of Duty, World of Warcraft, and Candy Crush under Microsoft’s umbrella, significantly boosting its presence in the gaming industry. It also positioned Microsoft to compete more aggressively in the gaming market against rivals like Sony and expanded its potential in the growing metaverse and cloud gaming sectors.

Below are a few reasons for a company to acquire another company:

1. Gain vertical integration. A business may want to buy its supplier or other business that is part of its supply chain to reduce costs and expand capabilities. Helps boost profits and make companies less dependent on their suppliers or distributors.
2. Gain horizontal integration. A business strategy where one company takes over another that operates at the same level in an industry. Helps companies expand in size, diversify their product offerings, reduce competition, and expand into new markets.
3. Enter a foreign market. Buying an existing company in another country could be the easiest way to enter a foreign market. The purchased business will already have its own personnel, a brand name, and other intangible assets. This could help to ensure that the acquiring company will start off in a new market with a solid base.
4. Cost of expansion. Perhaps a company met with physical or logistical constraints or depleted its resources. It may be more cost-effective to acquire another firm rather than to expand its own operations. Such a company might look for promising young companies to acquire and incorporate into its revenue stream as a new way to profit.
5. Eliminate competition. Companies may start making acquisitions to reduce excess capacity, eliminate the competition, and focus on the most productive providers when there’s too much competition or supply. Federal watchdogs often keep an eye on deals that may affect the market. Acquisitions between two similar companies may harm consumers, including higher prices and lower-quality goods and services.
6. Gain new technology. Sometimes it can be more cost-efficient for a company to purchase another company that has already implemented a new technology successfully than to spend the time and money to develop the new technology itself.
7. Gain intellectual property. A company sometimes purchases another company to gain the other company’s intellectual property (i.e., trademarks, patents, copyrights, trade secrets).

Mergers

A company merger is when two or more companies join together to form a new company with a single stock. During a merger, the two companies negotiate terms such as the valuation of assets and the exchange ratio. While mergers are often thought of as an equal split, one company may end up with a larger percentage of ownership in the new company. Mergers are similar to acquisitions or takeovers, and the two actions are often grouped together as mergers and acquisitions (M&A).

Companies may merge for a number of reasons, including:

1. Increase market share. Merging with another company may allow a company to gain a larger market share.
2. Access new technologies. A company may seek a merger to gain access to new technologies, expertise, patents, or intellectual property.
3. Gain economies of scale. By consolidating operations, a company can reduce redundancies and streamline processes, which can lead to improved profit margins.
4. Diversify. A company can enter new markets or offer new products or services.
5. Blend cultural values. A successful merger can lead to a more diverse and inclusive workforce.
6. Enhance competitive position. A merger can strengthen a company’s portfolio or services and better equip it to meet the needs of consumers.

Strategic Alliances and Joint Ventures

Strategic Alliance

A strategic alliance and a joint venture are both collaborative business arrangements between companies, but they differ in structure, commitment, and goals.

A strategic alliance is a partnership between two or more businesses to work together on a common goal, while each company remains independent. The goal is to share resources and capabilities to create mutual value, such as by entering new markets, developing new products, or increasing innovation.

The other types of strategic alliances are equity strategic alliances and non-equity strategic alliances:

• Equity strategic alliance: One company buys equity in another company. This is also known as a partial acquisition.
• Non-equity strategic alliance: Two companies come together without exchanging equity. Each company brings its resources to the alliance. An example of a non-equity strategic alliance is the partnership between Starbucks and Barnes & Noble.

Joint Venture

A joint venture (JV) is a business collaboration in which two or more companies create a new, independent legal entity to achieve a specific business objective or undertake a particular project. In this arrangement, the companies share ownership, profits, risks, and governance of the newly formed entity. JVs often require substantial capital investment and a long-term commitment, typically concluding once the objective is met unless the parties agree to extend the venture.

Alternatively, a JV can also refer to a business agreement where two or more parties combine resources to pursue a common goal. These ventures leverage the strengths of each participant, often yielding mutual benefits. For example, a hairstylist and a nail salon might collaborate in a JV to attract more customers and increase profits. While JVs can adopt various legal structures, they are generally characterized by shared ownership, financial returns, risks, and decision-making authority. The terms of the JV are usually outlined in a private and confidential contract. A prevalent form of JV is the project-based joint venture, which dissolves upon the completion of the specified project.

There are two main ways of setting up a joint venture in Canada. The first is for the partners to agree on a contract that will set out the terms of the venture; the second is to form a separate corporate entity.

Below are a few advantages and disadvantages of joint ventures:

Advantages of a joint venture:

• Increased growth, productivity and profits
• Reduced costs and risks
• Growth opportunity that does not require having to borrow funds or look for outside investors
• Quick access to expertise

Disadvantages of a joint venture:

• Higher likelihood of conflicts arising
• Decreased control and flexibility through joint decision-making
• More widely shared knowledge, which can lead to sensitive information being communicated to other parties

Generally, the main difference between a joint venture and other types of strategic alliances is that a joint venture creates a separate legal entity, while a strategic alliance does not. For example, in 2022, these companies announced a joint venture to build a battery plant in Columbus, Ohio to produce lithium-ion EV batteries for Honda’s electric vehicles.

An example of a joint venture is the one between Sony and Honda to create an electric vehicle. The joint venture, called “Afeela”, is a collaboration between the electronics company Sony and the automobile company Honda. The goal is to combine Sony’s expertise in imaging, networks, and entertainment with Honda’s skills in mobility development, technology, and sales. The company plans to take pre-orders in 2025 and deliver the vehicle in the U.S. in 2026.

Refer to Table 4.2 for key differences between strategic alliances and joint ventures.

Table 4.2: Key Differences Between Strategic Alliance and Joint Venture

Aspect	Strategic Alliance	Joint Venture
Legal Structure	No new entity formed	New independent entity created
Commitment	Flexible and less binding	Long-term and formal commitment
Risk and Control	Risks and control are individual	Shared risks, profits, and governance
Duration	Typically short to medium term	Often long-term
Examples	Co-branding agreements, research collaborations	Infrastructure projects, product development partnerships

Business Plan

A business plan may change as your business grows or pivots in a new direction, so you will find the business plan is not fixed but flexible and needs to be revised from time to time. Any new or existing business can and should make use of a business plan. “In its simplest form, a business plan is a guide that outlines goals for your business and how you plan to reach them. It contains an overview of your business strategy, milestones to track tasks and responsibilities, and the basic financial projections you need to forecast your sales, expenses, and cash flow.” “The primary purpose of a business plan is to help you understand the direction of your business and the steps it will take to get there. Having a solid business plan can help you grow up to 30% faster and according to our own 2021 Small Business research working on a business plan increases confidence regarding business health—even in the midst of a crisis.” There is no one right way to write a business plan, your approach depends on your industry, and who is reading your plan. Ensure you include all the important information any lender or investor will want to see before they go into business with you.

Below is a brief description of the sections of a traditional business plan.

1. Executive Summary. “This is an essential part of a successful business plan that often takes the most time to complete. It’s also one that you may consider completing last, even though it’s usually the first thing that the reader sees. An executive summary is the definitive recap of all of the information that you include in the business plan. Most commonly, this section doesn’t exceed two full pages. This is because the executive summary aims to present the essence of the business and its goals. It serves as an elevator pitch that may help you convince someone to invest in the business.”
2. Company Description. “A List of the goods and services the company will provide, the market it will serve, short- and long-term goals for growth and a brief history of the company’s formation and past performance.”
3. Market Analysis. “The market analysis section details the target market for the company’s product offerings. This section confirms that the company understands the market and that it has already analyzed the existing market to determine that there is adequate demand to support its proposed business model. Market analysis includes information about the target market’s demographics, geographical location, consumer behavior, and market needs. The company can present numbers and sources to give an overview of the target market size.”
4. Competitive Analysis. “A competitive analysis is a strategy that involves researching major competitors to gain insight into their products, sales, and marketing tactics. Implementing stronger business strategies, warding off competitors, and capturing market share are just a few benefits of conducting a competitive market analysis.
5. Management Plan. “The management plan provides an outline of the company’s legal structure, its management team, and internal and external human resource requirements. It should list the number of employees that will be needed and the remuneration to be paid to each of the employees. Any external professionals, such as lawyers, valuers, architects, and consultants, that the company will need should also be included. If the company intends to use the business plan to source funding from investors, it should list the members of the executive team, as well as the members of the advisory board.”
6. Operating Plan. “The operating plan provides an overview of the company’s physical requirements, such as office space, machinery, labor, supplies, and inventory. For a business that requires custom warehouses and specialized equipment, the operating plan will be more detailed, as compared to, say, a home-based consulting business. If the business plan is for a manufacturing company, it will include information on raw material requirements and the supply chain.”
7. Sales and Marketing Plan. “This section of the plan defines what you plan to do to promote and sell the company’s products or services. Consider including your pricing plans here and mention the organization’s unique selling proposal. You may also list important communication channels for the business. For example, if you’re about to launch a retail company, you may explain which social media channels you’d use to promote the products through paid and organic advertisements. Other elements to include here are your email, influencer and content marketing strategies.”
8. Financial Plan and Projections. “This section should include a company’s financial planning and projections. Every company needs to have a budget in place. This section should include costs related to staffing, development, manufacturing, marketing, and any other expenses related to the business. Financial statements, balance sheets, and other financial information may be included for established businesses. New businesses will include targets and estimates for the first few years plus a description of potential investors.”
9. Appendix. “The final section of a business plan usually includes any additional information or appendices that support the claims and ideas you present in previous sections. You may consider adding attachments that exhibit the viability of your business plan, for example, financial statements or external market reports that you used to analyze competition or target audience.”

Play the YouTube video below, “What is a Business Plan? – BPlans Explains Everything”, to learn about what a business plan is and why and how you should use one. Transcript for “What is a Business Plan?” Video [PDF–New Tab]. Closed captioning is available on YouTube.

Business Model Canvas

The business model canvas is a strategic planning tool used by managers to illustrate and develop their business model. The business model canvas template clearly identifies the key elements that make up a business. Additionally, it simplifies a business plan into a condensed form. In this way, the business model canvas template acts as an executive summary for the business plan.

The business model canvas is a great tool to help you understand a business model in a straightforward, structured way. Using this canvas will lead to insights about the customers you serve, what value propositions are offered through what channels, and how your company makes money. You can also use the business model canvas to understand your own business model or that of a competitor! The Business Model Canvas was created by Alexander Osterwalder, of Strategyzer.

The typical use for this tool is to outline the fundamental building blocks of a business, but it can be used effectively for individual products as well. It can be used to identify potential opportunities for growth and expansion, or areas that need improvement. The components may vary but typically the business model canvas includes the following nine building blocks and each is represented by a rectangle in the model diagram.

1. Customer segments
2. Value proposition
3. Channels
4. Customer relationships
5. Key activities
6. Revenue streams
7. Key resources
8. Key partnerships
9. Cost structure

Play the YouTube video below, “Introduction to the Business Model Canvas”, to learn about what a business model canvas is and why and how you should use one.  Transcript for “Introduction to the Business Model Canvas” Video [PDF–New Tab]. Closed captioning is available on YouTube.

Support and Education for Entrepreneurs

The University of Toronto Open Learning Series

The University of Toronto, The Bridge, Scarborough Campus, offers a free entrepreneurship course within its open learning series. “We welcome students, staff, faculty, alumni, and local and international community of emerging entrepreneurs to enhance your learning of entrepreneurship through the award-winning Entrepreneurship Open Learning Series. Start your entrepreneurship journey by completing training modules that teach you core management principles to help perfect your business plans and pitches.”

After you complete the entrepreneurship course within the open learning series you will be able to do the following:

• Explain value proposition and utility to help focus on specific motivations for a specific product.
• Define the target market and describe value specific for a target market to help demonstrate the value built into a product.
• Evaluate the utility and value of a product within an industry using market research.
• Design a usage scenario for a product.
• Discuss software design principles to help the development of a product.

Other Open Courses

There are many free online courses in entrepreneurship and many other subjects.  These courses are offered by various education providers, often in addition to their fee-based courses, and include Massachusetts Institute of Technology (MIT), INSEAD, University of Toronto, McMaster University, University of Michigan, Stanford Online, Open Yale Courses, Harvard University, LinkedIn Learning, FutureLearn, Coursera, Edx, Udacity, edX, Khan Academy, YouTube, and more. Some courses are referred to as MOOCs, Open Courses, and Free Trials or Demos.

OER (Free) Books, Video Tutorials, Case Studies, and More

“The Recommendation on Open Educational Resources (OER), adopted by UNESCO’s General Conference at its 40th session on 25 November 2019, is the first international normative instrument to embrace the field of openly licensed educational materials and technologies in education. OER are defined in this Recommendation as learning, teaching and research materials in any format and medium that reside in the public domain or are under copyright that have been released under an open license, which permit no-cost access, re-use, re-purpose, adaptation and redistribution by others.”

There are many free ebooks, case studies, video tutorials, and lessons on many subjects, including entrepreneurship, available from eCampus Ontario, BCCampus, OpenStax, OER Commons, Saylor Academy, Khan Academy, MERLOT, Directory of Open Access Journals (DOAJ), Open Textbook Library, OASIS, and more.

Government Support

The Government of Canada provides support for entrepreneurs and provides specific initiatives to aid entrepreneurs from various demographic and geographical groups. For example, the Strategic Partnerships Initiative (SPI) helps Indigenous communities participate in complex economic opportunities. An additional $300 million is available until 2027 for clean energy projects in Indigenous, rural and remote communities across Canada. The Aboriginal entrepreneurship program (AEP) provides access to capital and access to business opportunities to Indigenous entrepreneurs and business owners in Canada.

The Government website provides a search tool for entrepreneurs seeking financial or other types of support to start or expand their businesses. An entrepreneur can use the business benefits finder to search for support in several categories including Canadians, Indigenous Peoples, Black Canadians, Other Racialized Persons, Women, Language Minorities, 2SLGBTQI+, Newcomers to Canada, Persons with Disabilities, Youth (<40), and Rural or Northern Residents. Give it a try by visiting the Business Benefits Finder and answering a few short questions about a business you might like to start and discover if there are any Government supports for you, as an entrepreneur.

The Government of Canada and many chambers of commerce have mentoring programs designed to facilitate contact between business leaders and budding entrepreneurs. Local economic development centers and some business leaders’ associations offer similar programs. The Government of Canada, Starting a Business website, also provides information for registering a business, getting business support and financing, choosing a business name,  applying for business permits and licenses, and tax help. The Canadian Government’s Business Grants and Financing website provides information on Government financing programs, loans and capital investments, wage subsidies, grants, tax credits, and managing your business finances. Some grant and loan programs in Canada include Business Start Program (BSP) in Manitoba, Youth Entrepreneurship Partnership Program in Ontario,  Jeunes Promoteurs in Quebec, and Canada Small Business Financing Program.

Governments in countries other than Canada may also offer incentives for new business start-ups.  Some government programs specifically offer support to young entrepreneurs, entrepreneurs starting businesses within specific industries in which the government may be trying to grow the economy, and entrepreneurs who are part of specific minority groups. For example, The U.S. Small Business Administration (SBA) is a federal agency that provides assistance to current and prospective small business owners.. There are also several federal entrepreneur programs for immigrants, such as the Microenterprise Development Program and the Minority Business Development Agency Business Centers.

Business Development Bank of Canada (BDC)

The Business Development Bank of Canada (BDC) offers many tools and resources, as well as advice, to entrepreneurs and business owners. “We support small and medium-sized businesses in all industries and at every stage of growth with money and advice. We are the Business Development Bank of Canada.”

Crowd Funding

“Crowdfunding is a kind of crowdsourcing and alternative financing by which people, via the Internet, can contribute money to a person, cause, event, or business venture. This method has been used to fund startup businesses, help communities suffering from a natural disaster, and aid families and individuals in financial need due to a medical emergency or a death. Crowdfunding is now a common method for connecting entrepreneurs and investors—offering an alternative to bank loans or venture capitalists—and it is now a popular way of supporting cultural institutions, such as art organizations and charities. Billions of dollars are raised annually via this fundraising method. A high-profile example of crowdfunding is Oculus VR, now part of Meta (the parent company of Facebook). It produces virtual reality headsets and other hardware and software. The firm’s founder, Palmer Luckey, used Kickstarter to raise $2.4 million (U.S.) in 2012, vastly exceeding its crowdfunding goal of $250,000. Facebook purchased the company for $2 billion in cash and stock in 2014.”

Incubators and Accelerators

“A business incubator is a specialized program designed as a space for new businesses to learn and grow. The programs provide services for entrepreneurs and startups while offering reduced rates for supplies and workspace. Typically, young businesses must apply for a position and commit to a certain amount of time in the program. While in a business incubator, companies can more thoroughly plan their business, learn from other individuals and save money.”

“A business accelerator is a program designed to help established startups scale quickly, and often provide funding in exchange for equity in the business. Accelerators often require startups to already have a minimum viable product or a fixed team before they can apply. Once admitted, startups go through an intense period of growth and development, often over the course of three to six months.”

Here are a few examples of business incubators and accelerators. Be sure to check with your college or university to see if there is an incubator or accelerator available on campus.

Seneca College

Seneca College has HELIX. “HELIX’s Innovation and Entrepreneurship Incubator has a process that provides future entrepreneurs with resources and support to help develop their innovation mindset and grow their new ventures from ideation to launch and scaling. The process involves two stages or ‘strands’ – the INNOVATION Strand and the ACCELERATION Strand. Those who want to enter the ACCELERATION Strand of HELIX must complete all six workshops of the INNOVATION Strand and deliver a pitch of their proposed venture idea.”

MIT

The MIT delta v accelerator is the capstone entrepreneurial experience for students at MIT. MIT REAP is a dynamic global initiative with two programs – Global and Focus – that engages with communities around the world to strengthen innovation-driven entrepreneurial ecosystems and transform economies.

MaRS

MaRS Discovery District innovation hub works with business startups to scale-ups. MaRS offers a range of services and a Start-up toolkit that help tech founders grow their companies and create meaningful innovation: solving real problems for real people. MaRS works with hundreds of companies across the country, turning breakthrough ideas into products and services with global impact.

District 3

“At District 3 we work with founders and their startup teams to help them validate their business and get to scaling it, faster and better. As a founder, you’ll be receiving tons of information and opinions about what you need to do to run your startup successfully and you’ll have to learn to select what to follow. This takes time and experience, and while there is no real way to teach it, there are tools and organizations out there that can make it easier for you—like this library!

Futurepreneur

“Futurpreneur has been fueling the entrepreneurial passions of Canada’s young enterprise for over two decades. We are the only national, non-profit organization that provides financing, mentoring and support tools to aspiring business owners aged 18-39. Our internationally recognized mentoring program hand matches young entrepreneurs with a business expert from a network of more than 2,600 volunteer mentors.”

 

 

 

 Attributions

The contents of this chapter is a compilation sourced from various OER resources, please refer to the Book Information for details.

References

(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks)

How Business and Economics Work

To appreciate how a business functions, we need to know something about the economic environment in which it operates. We begin with a definition of economics and a discussion of the resources used to produce goods and services.

A business’s success depends in part on the economic systems of the countries where it is located and where it sells its products. A nation’s economic system is the combination of policies, laws, and choices made by its government to establish the systems that determine what goods and services are produced and how they are allocated. Economics is the study of how individuals, businesses, governments and nations allocate their limited resources to satisfy their unlimited wants and needs. It is how a society uses scarce resources to produce and distribute goods and services. The resources of a person, a firm, or a nation are limited, and in economics this limitation is known as  scarcity. An example of scarcity would be if food was limited throughout a geographic region due to a drought or a harsh winter. Scarcity is one of the key concepts of economics. It means that the demand for a good or service is greater than the availability of the good or service. Hence, economics is the study of choices—what people, firms, or nations choose from among the available resources. Every economy is concerned with what types and amounts of goods and services should be produced, how they should be produced, and for whom. These decisions are made by the marketplace, the government, or both.

Microeconomics is the study of individuals and business decisions. Macroeconomics looks at the decisions of countries and governments. These two branches of economics appear to be different but, in reality, they’re interdependent and complement each other. You probably know more about economics than you realize. Every day, many news stories deal with economic matters: a union wins wage increases at General Motors, the Bank of Canada lowers interest rates, Wall Street has a record day, the prime minister proposes a cut in income taxes, consumer spending rises as the economy grows, or retail prices are on the rise, to mention just a few examples. In Canada, the government and the free-market system guide the economy together.

Resources: Inputs and Outputs 

The allocation of resources is concerned with the production, distribution and consumption of goods and services. Resources are the inputs used to produce outputs.

Resources may include any or all of the following and their connections with one another:

• land and other natural resources;
• labour (physical and mental);
• capital, including buildings and equipment;
• entrepreneurship; and
• knowledge.

Resources are combined to produce goods and services. Land and natural resources provide the needed raw materials. Labour transforms raw materials into goods and services. Capital (equipment, buildings, vehicles, cash, and so forth) is needed for the production process. Entrepreneurship provides the skill, drive and creativity needed to bring the other resources together to produce a good or service to be sold in the marketplace.

Because a business uses resources to produce things, we also call these resources factors of production. For example, the factors of production used to produce a shirt would include the following:

• the land that the shirt factory sits on, the electricity used to run the plant, and the raw cotton from which the shirts are made;
• the labourers who make the shirts;
• the factory and equipment used in the manufacturing process, as well as the money needed to operate the factory; and
• the entrepreneurship skills and production knowledge used to coordinate the other resources to make the shirts and distribute them to the marketplace.

Input and Output Markets

The circular flow model is simply a way of depicting how money circulates through the economy from individuals to firms in the form of labor and buying goods and services. Then, from firms to individuals in the form of wages and providing goods/services. Many of the factors of production are provided to businesses by households. For example, households provide businesses with labour (as workers), land and buildings (as landlords), and capital (as investors). In turn, businesses pay households for these resources by providing them with income, such as wages, rent, and interest. The resources obtained from households are then used by businesses to produce goods and services, which are sold to provide businesses with revenue. The revenue obtained by businesses is then used to buy additional resources, and the cycle continues. This is described in Figure 5.1 below, “The Circular Flow of Inputs and Outputs”, which illustrates the dual roles of households and businesses:

• Households not only provide factors of production (or resources) but also consume goods and services.
• Businesses not only buy resources but also produce and sell both goods and services.

The Circular Flow of Inputs and Outputs illustrates the dual roles of households and businesses. Households not only provide factors of production (or resources) but also consume goods and services. Businesses not only buy resources but also produce and sell both goods and services. Outputs include goods and services (or products). Inputs include labor, capital, land, and entrepreneurship.

This version of the circular flow model is stripped down to the essentials, but it has enough features to explain how the product and labour markets work in the economy. We could easily add details to this basic model if we wanted to introduce more real-world elements, like financial markets, governments, and interactions with the rest of the globe (imports and exports).

Productivity

Productivity refers to how efficiently goods and services are being produced. Theoretically, higher levels of labor productivity equal higher economic output and lower inflation. Productivity increases when more output is produced with the same amount of inputs or when the same amount of output is produced with less inputs. Productivity in economics is usually measured as the ratio of what is produced (an aggregate output) to what is used in producing it (an aggregate input).

Labor productivity is the most common productivity measure—it’s defined as economic output (gross domestic product, or GDP) per hour worked. Labor productivity is typically the biggest determinant of economic and wage growth in the long term. And over time, labor productivity and real wages are closely—though not exactly—linked. Labour productivity tends to rise with increases in technology. On a country scale, labor productivity is frequently calculated as a ratio of GDP per total hours worked. So, if a country’s GDP were $1 trillion and its people worked 20 billion hours to create that value, the country’s labor productivity would be $50 per hour.

Economists measure other types of productivity, too. Capital productivity is a measure of how well physical capital—such as real estate, equipment, and inventory—is used to generate output such as goods and services. (Capital productivity and labor productivity are frequently considered together as an indicator of a country’s overall standard of living.) Total factor productivity is the portion of growth in output not explained by growth in labor or capital. This type of productivity is sometimes called “innovation-led growth.”

Economic Systems

Economists study the interactions between households and businesses and look at the ways in which the factors of production are combined to produce the goods and services that people need. Basically, economists try to answer three sets of questions:

1. What goods and services should be produced to meet consumers’ needs? In what quantity? When?
2. How should goods and services be produced? Who should produce them, and what resources, including technology, should be combined to produce them?
3. Who should receive the goods and services produced? How should they be allocated among consumers? The answers to these questions depend on a country’s economic system — the means by which a society (households, businesses, and government) makes decisions about allocating resources to produce products and about distributing those products. The degree to which individuals and business owners, as opposed to the government, enjoy freedom in making these decisions varies according to the type of economic system.

Economic Systems Defined:

• A free market economy is an economic system in which the production and distribution of goods and services are primarily determined by supply and demand with minimal government intervention. In this system, private individuals and businesses own the means of production, and transactions are conducted in a competitive market environment. People decide how to use factors of production, such as land, labor, capital, and physical resources. In a market economy, producers decide what to produce, how much to charge, and what to sell.
• A mixed economy is an economic system where some resources are planned for by the government, while citizens control others. The world’s dominant economic organization is a mixed economy.
• A planned economy is a system where the state determines production levels and regulates prices. In a centrally planned economy, the state uses advanced planning mechanisms to determine production levels, rather than supply and demand.
• Capitalism is an economic system that promotes the creation and ownership of capital and wealth. A free market system is a capitalist system that focuses on the unfettered exchange of goods and services, with little or no interference by the government.
• Socialism is an economic and political system where the means of production are owned by the public or the state, rather than private individuals. It’s based on the idea that shared ownership of resources leads to a more equal society. Socialism is generally considered a planned economy, where the government controls the production of goods and services, rather than a market economy.
• Communism is a political and economic system that aims to eliminate class struggles by having the public own the means of production, such as factories and mines. In a communist society, there is no private property or currency, and wealth is shared equally or based on need. Communism is not the same as a planned economy, but communism is often associated with centrally planned economies.

Generally speaking, economic systems can be divided into two systems: planned systems and free market systems (Refer to Figure 5.3).

 

Planned Systems

In a planned system, the government exerts control over the allocation and distribution of all or some goods and services. The system with the highest level of government control is communism. In theory, a communist economy is one in which the government owns all or most enterprises. Central planning by the government dictates which goods or services are produced, how they are produced, and who will receive them. In practice, pure communism is practically nonexistent today, and only a few countries (notably North Korea and Cuba) operate under rigid, centrally planned economic systems.

Under socialism, industries that provide essential services, such as utilities, banking, and health care, may be government owned. Some businesses may also be owned privately. Central planning allocates the goods and services produced by government-run industries and tries to ensure that the resulting wealth is distributed equally. In contrast, privately owned companies are operated for the purpose of making a profit for their owners. In general, workers in socialist economies work fewer hours, have longer vacations, and receive more health care, education, and child-care benefits than do workers in capitalist economies. To offset the high cost of public services, taxes are generally steep. Examples of countries that lean towards a socialistic approach include Venezuela, Sweden, and France.

Free Market System

The free market system is an economic system in which most businesses are owned and operated by individuals, also known as capitalism. In a free market economy, competition dictates how goods and services will be allocated. Business is conducted with more limited government involvement concentrated on regulations that dictate how businesses are permitted to operate. A key aspect of a free market system is the concept of private property rights, which means that business owners can expect to own their land, buildings, machines, etc., and keep the majority of their profits, except for taxes. The profit incentive is a key driver of any free market system. The economies of the United States and other countries, such as Japan, are based on capitalism. However, a purely capitalistic economy is as rare as one that is purely communist. Imagine if a service such as police protection, one provided by government in the United States, were instead allocated based on market forces. The ability to pay would then become a key determinant in who received these services, an outcome that few in American society would consider to be acceptable.

Mixed Market Economies

Though it is possible to have a pure communist system, or a pure capitalist (free market) system, in reality many economic systems are mixed market economies. A mixed market economy relies on both markets and the government to allocate resources. In practice, most economies are mixed, with a leaning towards either free market or socialistic principles, rather than being purely one or the other. Some previously communist economies, such as those of Eastern Europe and China, are becoming more mixed as they adopt more capitalistic characteristics and convert businesses previously owned by the government to private ownership through a process called privatization. By contrast, Venezuela is a country that has moved increasingly towards socialism, taking control of industries such as oil and media through a process called nationalization.

The Canadian Economic System

Like most countries, Canada features a mixed market system much like its neighbor to the south; though the Canadian and U.S. economic systems are primarily free market systems, the federal government controls some basic services, such as the postal service and air traffic control. The Canadian economy also has some characteristics of a socialist system, such as providing social security retirement benefits to retired workers or free health care to its population.

The free market system was espoused by Adam Smith in his book The Wealth of Nations, published in 1776. According to Smith, competition alone would ensure that consumers received the best products at the best prices. In the kind of competition he assumed, a seller who tries to charge more for his product than other sellers would not be able to find any buyers. A job-seeker who asks more than the going wage won’t be hired. Because the “invisible hand” of competition will make the market work effectively, there won’t be a need to regulate prices or wages. Almost immediately, however, a tension developed among free market theorists between the principle of laissez-faire—leaving things alone — and government intervention. Today, it is common for the Canadian government to intervene in the operation of the economic system. For example, government exerts influence on the food and pharmaceutical industries through Canada’s Food and Drug Act and Regulations, which protect consumers by preventing unsafe or mislabeled products from reaching the market.

To appreciate how businesses operate, we must first get an idea of how prices are set in competitive markets. The next section, “Perfect Competition and Supply and Demand,” begins by describing how markets establish prices in an environment of perfect competition.

 

Degrees of Competition

In economic theory and the broader discussion of competition, the “types” or “degrees” of competition refer to how firms compete in the market. These classifications focus on the market environment, not direct “business competition” (strategies businesses use to compete).

The Canadian economy is founded on the principles of private enterprise: private property rights, freedom of choice, profits and competition. Under a mixed economy, such as we have in Canada, businesses make decisions about which goods to produce or services to offer and how they are priced. Because there are many businesses making goods or providing services, customers can choose from a wide array of products. The competition for sales among businesses is a vital part of our economic system. Competition varies within industries and has a big influence on how companies operate. Porter’s Five Forces model can be used to identify and analyze an industry’s competitive forces. The five forces are: threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and rivalry among existing competitors.

As shown in Table 5.1 below, economists have identified four types of competition — perfect competition, monopolistic competition, oligopoly, and monopoly.

Table 5.1: Four Types of Competition

Characteristic	Perfect Competition	Monopolistic Competition	Oligopoly	Pure Monopoly
Number of Firms	Very Many	Many	A Few	One
Types of Products	Homogeneous	Differentiated	Homogeneous or Differentiated	Homogeneous
Barriers to Entry or Exit from Industry	No Substantial Barriers	Minor Barriers	Considerable Barriers	Extremely Great Barriers
Examples	Agriculture	Retail Trade	Banking	Public Utilities

Perfect Competition

Perfect competition is a market structure characterized by many buyers and sellers, homogeneous products, and no single participant having market power. Perfect competition exists when there are many consumers buying a standardized product from numerous small businesses. Because no seller is big enough or influential enough to affect price, sellers and buyers accept the going price. For example, when a commercial fisher brings his fish to the local market, he has little control over the price he gets and must accept the going market price.

Supply and demand are central to the concept of perfect competition. In perfect competition, the price of goods and services is determined entirely by the interaction of supply and demand. High competition ensures that the supply curve (producers) and demand curve (consumers) interact freely without interference, such as monopolistic pricing or government controls. Producers can only compete on efficiency since prices cannot be manipulated, aligning the supply with the true demand.

Monopolistic Competition

In monopolistic competition, we still have many sellers (as we had under perfect competition). Now, however, they do not sell identical products. Instead, they sell differentiated products—products that differ somewhat, or are perceived to differ, even though they serve a similar purpose. Products can be differentiated in a number of ways, including quality, style, convenience, location, and brand name. Some people prefer Coke over Pepsi, even though the two products are quite similar. But what if there was a substantial price difference between the two? In that case, buyers could be persuaded to switch from one to the other. Thus, if Coke has a big promotional sale at a supermarket chain, some Pepsi drinkers might switch (at least temporarily).

How is product differentiation accomplished? Sometimes, it’s simply geographical; you probably buy gasoline at the station closest to your home regardless of the brand. At other times, perceived differences between products are promoted by advertising designed to convince consumers that one product is different from and better than another. Regardless of customer loyalty to a product, however, if its price goes too high, the seller will lose business to a competitor. Under monopolistic competition, therefore, companies have only limited control over price.

Oligopoly

Oligopoly means few sellers. In an oligopolistic market, each seller supplies a large portion of all the products sold in the marketplace. In addition, because the cost of starting a business in an oligopolistic industry is usually high, the number of firms entering it is low. Companies in oligopolistic industries include such large-scale enterprises as automobile companies and airlines. As large firms that supply a sizable portion of a market, these companies have some control over the prices they charge. But there’s a catch: because products are fairly similar, when one company lowers prices, others are often forced to follow suit to remain competitive. You see this practice all the time in the airline industry: When American Airlines announces a fare decrease, Continental, United Airlines, and others do likewise. When one automaker offers a special deal, its competitors usually come up with similar promotions.

Monopoly

In terms of the number of sellers and degree of competition, a monopoly lies at the opposite end of the spectrum from perfect competition. In perfect competition, there are many small companies, none of which can control prices; they simply accept the market price determined by supply and demand. In a monopoly, however, there’s only one seller in the market. The market could be a geographical area, such as a city or a regional area, and doesn’t necessarily have to be an entire country.

There are few monopolies in Canada because the government limits them. Most fall into one of two categories: natural and legal. Natural monopolies include public utilities, such as electricity and gas suppliers. Such enterprises require huge investments, and it would be inefficient to duplicate the products that they provide. They inhibit competition, but they’re legal because they’re important to society. In exchange for the right to conduct business without competition, they’re regulated. For instance, they can’t charge whatever prices they want; they must adhere to government-controlled prices. As a rule, they’re required to serve all customers, even if doing so isn’t cost efficient.

A legal monopoly arises when a company receives a patent giving it exclusive use of an invented product or process. Patents are issued for a limited time, generally twenty years. During this period, other companies can’t use the invented product or process without permission from the patent holder. Patents allow companies a certain period to recover the heavy costs of researching and developing products and technologies. A classic example of a company that enjoyed a patent-based legal monopoly is Polaroid, which for years held exclusive ownership of instant film technology. Polaroid priced the product high enough to recoup, over time, the high cost of bringing it to market. Without competition, it enjoyed a monopolistic position in regard to pricing.

The Basics of Supply and Demand

To appreciate how perfect competition works, we need to understand how buyers and sellers interact in a market to set prices. In a market characterized by perfect competition, price is determined through the mechanisms of supply and demand. Prices are influenced both by the supply of products from sellers and by the demand for products by buyers. The law of supply and demand is an economic theory that explains how the relationship between supply and demand determines prices. When supply is greater than demand, prices fall, and when demand is greater than supply, prices rise.

To illustrate this concept, let us create a supply and demand schedule for one particular good sold at one point in time. Then we’ll define demand and create a demand curve and define supply and create a supply curve. Finally, we’ll see how supply and demand interact to create an equilibrium price — the price at which buyers are willing to purchase the amount that sellers are willing to sell.

Demand and the Demand Curve

Demand is the quantity of a product that buyers are willing to purchase at various prices. The quantity of a product that people are willing to buy depends on its price. Consumers are typically willing to buy less of a product when prices rise and more of a product when prices fall. Generally speaking, we find products more attractive at lower prices, and we buy more at lower prices because our income goes further.

Using this logic, we can construct a demand curve that shows the quantity of a product that will be demanded at different prices. Let’s assume that Figure 5.4, “The Demand Curve” represents the daily price and quantity of apples sold by farmers at a local market. Note that as the price of apples goes down, buyers’ demand goes up. Thus, if a pound of apples sells for $0.80, buyers will be willing to purchase only fifteen hundred pounds per day. But if apples cost only $0.60 a pound, buyers will be willing to purchase two thousand pounds. At $0.40 a pound, buyers will be willing to purchase twenty-five hundred pounds.

Factors that can affect demand include changes in income levels, population changes, consumer preferences, complementary goods, and substitute goods.

 

Supply and the Supply Curve

Supply is the quantity of a product that sellers are willing to sell at various prices. The quantity of a product that a business is willing to sell depends on its price. Businesses are more willing to sell a product when the price rises and less willing to sell it when prices fall. Again, this fact makes sense: businesses are set up to make profits, and there are larger profits to be made when prices are high.

Now we can construct a supply curve that shows the quantity of apples that farmers would be willing to sell at different prices, regardless of demand. As shown in Figure 5.5, “The Supply Curve”, the supply curve goes in the opposite direction from the demand curve: as prices rise, the quantity of apples that farmers are willing to sell also goes up. The supply curve shows that farmers are willing to sell only a thousand pounds of apples when the price is $0.40 a pound, two thousand pounds when the price is $0.60, and three thousand pounds when the price is $0.80.

Factors that affect supply include technological changes, changes in resource prices, price expectations, number of suppliers, the price of substitute goods.

 

Equilibrium Price

We can now see how the market mechanism works under perfect competition. We do this by plotting both the supply curve and the demand curve on one graph, as we have done in Figure 5.6. The Equilibrium Price” is the state in which market supply and demand balance each other; the point at which the two curves intersect.

“The Equilibrium Price”, where the supply and demand curves intersect, is at the price of $0.60 and quantity of two thousand pounds. Thus, $0.60 is the equilibrium price. At this price, the quantity of apples demanded by buyers equals the quantity of apples that farmers are willing to supply. If a single farmer tries to charge more than $0.60 for a pound of apples, they won’t sell very many because other suppliers are making apples available for less. As a result, their profits will go down. If, on the other hand, a farmer tries to charge less than the equilibrium price of $0.60 a pound, they will sell more apples but their profit per pound will be less than at the equilibrium price. With profit being the motive, there is no incentive to drop the price.

What have you learned in this discussion? Without outside influences, markets in an environment of perfect competition will arrive at an equilibrium point at which both buyers and sellers are satisfied. But you must be aware that this is a very simplistic example. Things are much more complex in the real world. For one thing, markets rarely operate without outside influences. Sometimes, sellers supply more of a product than buyers are willing to purchase; in that case, there’s a surplus. Sometimes, they don’t produce enough of a product to satisfy demand; then we have a shortage.

Circumstances also have a habit of changing. What would happen, for example, if incomes rose and buyers were willing to pay more for apples? The demand curve would change, resulting in an increase in equilibrium price. This outcome makes intuitive sense: as demand increases, prices will go up. What would happen if apple crops were larger than expected because of favorable weather conditions? Farmers might be willing to sell apples at lower prices rather than letting part of the crop spoil. If so, the supply curve would shift, resulting in another change in equilibrium price: the increase in supply would bring down prices.

Measuring the Health of the Economy

Every day we are bombarded with economic news (at least if you watch the business news stations). We are told about things like unemployment, home prices, and consumer confidence trends. As a student learning about business, and later as a business manager, you need to understand the nature of the Canadian economy and the terminology that we use to describe it. You need to have some idea of where the economy is heading, and you need to know something about the government’s role in influencing its direction.

Economic Goals

The world’s economies share three main goals:

• Growth
• High employment
• Price Stability

Let us take a closer look at each of these goals, both to find out what they mean and to show how we determine whether or not they’re being met.

Economic Growth

One purpose of an economy is to provide people with goods and services such as cars, computers, video games, houses, rock concerts, fast food, and amusement parks. One way in which economists measure the performance of an economy is by looking at a widely used measure of total output called the gross domestic product (GDP). The GDP is defined as the market value of all goods and services produced by the economy in a given year. The GDP includes only those goods and services produced domestically; goods produced outside the country are excluded. The GDP also includes only those goods and services that are produced for the final user; intermediate products are excluded. For example, the silicon chip that goes into a computer (an intermediate product) would not count directly because it is included when the finished computer is counted. By itself, the GDP doesn’t necessarily tell us much about the direction of the economy. But change in the GDP does. If the GDP (after adjusting for inflation) goes up, the economy is growing. If it goes down, the economy is contracting. There is some debate amongst economists that GDP provides the most accurate measure of an economy’s performance. Many economists believe that GDP per capita, which is the measure of total production of goods and services divided by the number of households, is a better indicator of an economy’s performance. For example, according to The World Bank, as of 2017, India’s GDP ranked 7th in the world at $2.439 trillion (USD) while Canada’s GDP ranked 10th at $1.640 trillion (USD). However, as of 2017, Canada’s GDP per capita ranks 18th at $44,773 per household, compared to India’s GDP per capita which ranked 142nd in the world at $1,852 per household.

Gross national product (GNP) is another metric used for measuring a nation’s economic output. Gross national product (GNP) is the value of all products and services produced by the citizens of a country both domestically and internationally minus income earned by foreign residents. For instance, if Canada has production facilities in the USA, its GNP will account for both the production output in Canada and in the USA.

 

As shown in Figure 5.7, the economic ups and downs resulting from expansion and contraction constitute the business cycle (also referred to as the industry life cycle). Similar to a product lifecycle, as a business cycle introduces new products, those products grow, mature and decline; when all business cycles in an economy are combined an economy’s business cycle is created. A typical cycle runs from three to five years but could last much longer. Though typically irregular, a cycle can be divided into four general phases of prosperity, recession, depression (which the cycle generally skips), and recovery:

• During prosperity, the economy expands, unemployment is low, incomes rise, and consumers buy more products. Businesses respond by increasing production and offering new and better products.
• Eventually, however, things slow down. GDP decreases, unemployment rises, and because people have less money to spend, business revenues decline. This slowdown in economic activity is called a recession. Economists often say that we are entering a recession when GDP goes down for two consecutive quarters.
• Generally, a recession is followed by a recovery or expansion in which the economy starts growing again.
• If, however, a recession lasts a long time (perhaps a decade or so), while unemployment remains very high and production is severely curtailed, the economy could sink into a depression. While economists have defined recession, they have not agreed on a uniform standard for what constitutes a depression, though they are generally characterized by their duration. Though not impossible, it is unlikely that Canada will experience another severe depression like that of the 1930s. The federal government has a number of economic tools (some of which we’ll discuss shortly) with which to fight any threat of a depression.

If you want or need more interactive examples of the business cycle, this 10 minute Khan Academy video provides more details: The Business Cycle: Aggregate demand and aggregate supply.

High Employment

To keep the economy going strong, people must spend money on goods and services. A reduction in personal expenditures for things like food, clothing, appliances, automobiles, housing, and medical care could severely reduce GDP and weaken the economy. Because most people earn their spending money by working, an important goal of all economies is making jobs available to everyone who wants one. In principle, full employment occurs when everyone who wants to work has a job. In practice, we say that we have full employment when about 95 percent of those wanting to work are employed.

Refer to Figure 5.8, Statistics Canada Employment Rates. What might have caused employment rates to fall during the year 2020?

 

Unemployment

Statistics Canada tracks unemployment and reports the unemployment rate: the percentage of the labour force who are at least 15 years old that is unemployed and actively seeking work. The unemployment rate is an important measure of economic health. It goes up during recessionary periods because companies are reluctant to hire workers when demand for goods and services is low. Conversely, it goes down when the economy is expanding and there is high demand for products and workers to supply them. There are several different measures of unemployment because there are different reasons people may be unemployed, including:

• Frictional unemployment. Workers move between jobs and locations.
• Structural unemployment. Jobs are terminated.
• Cyclical unemployment. Impacted by the business cycle when businesses may not have enough demand for labour.
• Seasonal unemployment. Jobs that occur during part of the year (e.g., snow plowing, beach-related industries).

Figure 5.9 shows the Statistics Canada map of the unemployment rate by province and territory as of September 2024. Which province or territory has the highest unemployment rate? Why might that be?

Price Stability

A third major goal of all economies is maintaining price stability. Price stability occurs when the average price for goods and services either does not change or changes very little. Rapidly rising prices are troublesome for both individuals and businesses. For individuals, rising prices mean people have to pay more for the things they need. For businesses, rising prices mean higher costs, and, at least in the short run, businesses might have trouble passing on higher costs to consumers.

Inflation

When the overall price level goes up, we have inflation. More jobs and higher wages increase household incomes and lead to a rise in consumer spending, further increasing aggregate demand and the scope for firms to increase the prices of their goods and services. When this happens to a large number of businesses and sectors, this leads to an increase in inflation. Long-lasting episodes of high inflation are often the result of lax monetary policy. If the money supply grows too big relative to the size of an economy, the unit value of the currency diminishes; in other words, its purchasing power falls and prices rise.

Figure 5.10 show inflationary trends in the Canadian economy since 1915. The inflation rate in Canada averaged 3.15 percent from 1915 until 2018, reaching an all-time high of 21.60 percent in June of 1920 and a record low of -17.80 percent in June of 1921.%

 

Deflation

When the price level goes down (which rarely happens), we have deflation. A deflationary situation can also be damaging to an economy. When purchasers believe they can expect lower prices in the future, they may defer making purchases, which has the effect of slowing economic growth. Japan experienced a long period of deflation which contributed to economic stagnation in that country from which it is only now beginning to recover.

The Consumer Price Index (CPI)

The most widely publicized measure of inflation is the consumer price index (CPI), which is reported monthly by Statistics Canada. The consumer price index (CPI) measures the rate of inflation by determining price changes of a hypothetical basket of goods, such as food, housing, clothing, medical care, appliances, automobiles, and so forth, bought by a typical household.

The Bank of Canada currently measures prices against the base year of 2002, and the basket for that year is given the value of 100. In 2012 the CPI averaged $121, which means that what you could buy for $100 in 2002 cost $121.70 in 2012. The difference registers the effect of inflation. In fact, that’s what an inflation rate is—the percentage change in a price index.

The Bank of Canada created an Inflation Calculator to compare the costs of consumer goods then and now. For example, ask a parent or an older neighbour what they paid for their first car, first house, or first formal wear. Observe Figure 5.11 showing the consumer price index for the years 2000 to 2024.  Why do you think there is a huge increase in the CPI during 2022?  What happened in the world to cause this?

The CPI measures change in prices of consumer goods and does not measure change in prices of goods used to create consumer goods, such as capital and resource expenditures. The producer price index (PPI) tracks the average change in prices at the wholesale level (e.g., raw materials, product components that require further processing, and finished goods sold to retailers).

 

Economic Forecasting

In the previous section, we introduced several measures that economists use to assess the performance of the economy at a given time. By looking at changes in the GDP, for instance, we can see whether the economy is growing. The CPI allows us to gauge inflation. These measures help us understand where the economy stands today. But what if we want to get a sense of where it’s headed in the future? To a certain extent, we can forecast future economic trends by analyzing several leading economic indicators.

Leading, Coincident and Lagging Economic Indicators

In economics, leading, lagging, and coincident indicators are tools used to analyze and predict economic performance. These indicators help economists, policymakers, and businesses make informed decisions about the state of the economy and potential future trends. An economic indicator is a statistic that provides valuable information about the economy. There’s no shortage of economic indicators and trying to follow them all would be an overwhelming task. So, in this chapter, we will only discuss the general concept and a few of the key indicators.

Canadian economic indicators can be expressed in three main indicators — leading indicators, coincident indicators and lagging indicators.

Leading Indicators

These indicators signal future economic activity and are used to predict changes in the economy before they occur. For example, stock prices often reflect investor sentiments about future economic conditions. An increase in building permits suggests future growth in construction and housing markets. On the consumer confidence index, higher confidence indicates likely increases in spending, boosting economic activity. An increase in new orders for manufacturing indicates increased production and economic growth.  Businesses and policymakers monitor these changes to anticipate expansions or contractions in the economy.

New unemployment claims often reflect employers’ expectations about future economic conditions. If businesses anticipate a slowdown, they may lay off workers, leading to an increase in claims. This data provides an early signal of weakening economic activity or labor market challenges. Economists and policymakers monitor changes in unemployment claims to predict potential recessions or recoveries. For example, a sustained rise in claims could indicate an impending economic downturn, prompting proactive policy adjustments such as monetary easing or fiscal stimulus.

Lagging Indicators

These indicators reflect changes that have already occurred in the economy. They confirm trends but do not predict them. For example, changes in unemployment often lag behind economic trends as businesses adjust to economic shifts. Rising consumer debt levels confirm past high spending levels during an economic boom. The inflation rate typically reacts to earlier changes in supply, demand and monetary policy. These indicators are useful for validating the accuracy of leading indicators and understanding the economy’s historical performance.

The length of unemployment is also a lagging indicator. If unemployed workers have remained out of work for a long time, we may infer that the economy has been slow. Indicators that predict the status of the economy three to twelve months into the future are called leading economic indicators. If such an indicator rises, the economy is more likely to expand in the coming year. If it falls, the economy is more likely to contract.

Coincident Indicators

These indicators move in real-time with the economy, reflecting its current state. Gross Domestic Product (GDP) directly shows the economic output at a given time. Employment levels indicate current labour market conditions. Retail sales reflect ongoing consumer spending trends. Industrial production measures real-time manufacturing activity. These indicators provide a snapshot of the present economic situation and are helpful for short-term planning.

Since employment is such a key goal in any economy, the Canadian Industry Statistics in collaboration with Statistics Canada tracks total non-farm payroll employment from which the number of net new jobs created can be determined. The number of new jobs created is considered a coincident indicator in economics. New job creation reflects current economic activity and labor market conditions. It shows how businesses are responding to the existing economic climate by expanding their workforce, which aligns with the economy’s present state rather than predicting future trends. A rise in new jobs typically coincides with economic growth, indicating healthy consumer demand and business investment. Conversely, a decline in new jobs suggests slower economic activity or contraction.

Understanding the differences between these indicators is crucial:

• Businesses might use leading indicators to forecast demand and adjust production.
• Governments use lagging indicators to assess the effectiveness of policies.
• Both rely on coincident indicators for immediate economic health assessments.

Government’s Role in Managing the Economy

The Canadian government, including federal, provincial and municipal governments, plays many roles within the Canadian economic system, and therefore influences business activities. Government plays many roles and influences business activities in many ways. The roles government plays are as follows:

• Government as customer
• Government as a competitor
• Government as a regulator – promoting competition, protecting consumers, achieving social goals and protecting the environment
• Government as a taxation agent
• Government as a provider of incentives
• Government as a protector of consumers or customers
• Government as a provider of essential services.

Businesses may also influence government through lobbying, joining trade associations, making political donations and trying to convince voters to support or oppose certain regulations and policies.

In managing the economy three main policies may be used by the government: Monetary policy, Fiscal policy and National Debt management.

Monetary Policy

Monetary policy is exercised by The Bank of Canada, which is empowered to take various actions that decrease or increase the money supply and raise or lower short-term interest rates, making it harder or easier to borrow money. As shown in Figure 5.12, when The Bank of Canada believes that inflation is a problem, it will use contractionary policy to decrease the money supply and raise interest rates. When rates are higher, borrowers have to pay more for the money they borrow, and banks are more selective in making loans. Because money is “tighter” — more expensive to borrow — demand for goods and services will go down, and so will prices. In any case, that’s the theory.

The Bank of Canada will typically tighten or decrease the money supply during inflationary periods, making it harder to borrow money.

To counter a recession, The Bank of Canada uses expansionary policy to increase the money supply and reduce interest rates. With lower interest rates, it’s cheaper to borrow money, and banks are more willing to lend it. We then say that money is “easy.” Attractive interest rates encourage businesses to borrow money to expand production and encourage consumers to buy more goods and services. In theory, both sets of actions will help the economy escape or come out of a recession.

 

Fiscal Policy

Fiscal policy relies on the government’s powers of spending and taxation. Both taxation and government spending can be used to reduce or increase the total supply of money in the economy — the total amount, in other words, that businesses and consumers have to spend.

Below are a few key points:

• Taxation as a tool. The federal government adjusts taxes (e.g., income tax, corporate tax, GST) to influence economic activity. For instance, tax cuts may be implemented to stimulate consumer spending and investment during economic downturns. When the country is in a recession, government policy is typically to increase spending, reduce taxes, or both. Such expansionary actions will put more money in the hands of businesses and consumers, encouraging businesses to expand and consumers to buy more goods and services. Expansionary fiscal policy is used to increase government expenditures and/or decrease taxes, which causes the government’s budget deficit to increase or its budget surplus to decrease. When the economy is experiencing inflation, the opposite policy is adopted: the government will decrease spending or increase taxes, or both. Because such contractionary measures reduce spending by businesses and consumers, prices come down and inflation eases. Contractionary fiscal policy is used to decrease government expenditures and/or increase taxes, which causes the government’s budget deficit to decrease or its budget surplus to increase.
• Government spending. Public expenditures on infrastructure, healthcare, education, and social programs are critical components of fiscal policy. Increased spending during economic slowdowns can boost demand and promote growth, while spending reductions may help curb inflation.
• Budget management. Canada’s fiscal policy balances between deficits and surpluses. During recessions, deficits may increase due to stimulus measures, whereas in economic booms, surpluses help reduce national debt.
• Targeted economic support. Programs like the Canada Child Benefit (CCB) or pandemic relief measures (e.g., CERB) reflect the use of fiscal policy to address specific societal or economic challenges and support vulnerable populations.

The National Debt

The national debt is also referred to as Canada’s public debt. According to the Department of Finance Canada, Government Debt in Canada increased to 1134.49 CAD Billion in 2022 from 1048.75 CAD Billion in 2021. The expected rise was due to the massive new borrowing to cover COVID-19 pandemic responses. You can check the current debt at Canadian National Debt Clock.

If, in any given year, the government takes in more money (through taxes) than it spends on goods and services (for things such as defense, transportation, and social services), the result is a budget surplus. If, on the other hand, the government spends more than it takes in, we have a budget deficit (which the government pays off by borrowing through the issuance of Treasury bonds). Historically, deficits have occurred much more often than surpluses; typically, the government spends more than it takes in.

Below are a few key facts:

• Federal debt levels. As of the 2023-2024 fiscal year, Canada’s federal net debt has risen to approximately $1.33 trillion, reflecting a significant increase from pre-pandemic levels. This surge includes the impacts of COVID-19 relief measures and ongoing fiscal policies.
• Combined federal-provincial debt. When combining federal and provincial levels, the total net debt reached approximately $2.18 trillion in 2023/24. The debt-to-GDP ratio for federal and provincial governments collectively has risen from 65.7% in 2019/20 to 76.2% in 2023/24.
• Debt per capita. On average, each Canadian is responsible for approximately $33,682 in federal debt. Provincial variations exist, with Newfoundland and Labrador having the highest per capita debt at $32,561, followed by Ontario at $27,091.
• Projected growth. Federal debt is expected to increase further, with projections reaching $1.49 trillion by 2028/29. Efforts are being made to manage debt servicing costs, which currently remain stable at 1.8% of GDP, despite rising interest rates.

The Functions of Money

Money Characteristics

If you happen to have one on you, take a look at a $5 bill. Though this piece of paper — indeed, money itself — has no intrinsic value, it is certainly in demand. Why? Because money serves three basic functions:

• a medium of exchange;
• a measure of value; and
• a store of value.

To get a better idea of the role of money in a modern economy, let us imagine a system in which there is no money. In this system, goods and services are bartered — traded directly for one another. Now, if you are living and trading under such a system, for each barter exchange that you make, you will have to have something that another trader wants. For example, say you are a farmer who needs help clearing his fields. Because you have plenty of food, you might enter into a barter transaction with a laborer who has time to clear fields but not enough food: he’ll clear your fields in return for three square meals a day. This system will work as long as two people have exchangeable assets, but needless to say, it can be inefficient. If we identify the functions of money, we will see how it improves the exchange for all the parties in our hypothetical set of transactions.

Money is anything that is acceptable as payment for goods and services. It affects our lives in many ways. We earn it, spend it, save it, invest it — and often wish we had more of it. Businesses and government use money in similar ways. Both require money to finance their operations. By controlling the amount of money in circulation, the federal government can promote economic growth and stability. For this reason, money has been called the lubricant of the machinery that drives our economic system. Our banking system was developed to ease the handling of money.

Medium of Exchange

Money serves as a medium of exchange because people will accept it in exchange for goods and services. Because people can use money to buy the goods and services that they want, everyone’s willing to trade something for money. The laborer will take money for clearing your fields because he can use it to buy food. You’ll take money as payment for his food because you can use it not only to pay him but also to buy something else you need (perhaps seeds for planting crops).

For money to be used in this way, it must possess a few crucial properties:

• It must be divisible — easily divided into usable quantities or fractions. A $5 bill, for example, is equal to five $1 bills. If something costs $3, you don’t have to rip up a $5 bill; you can pay with three $1 bills.
• It must be portable — easy to carry; it can’t be too heavy or bulky.
• It must be durable — strong enough to resist tearing and the print can’t wash off if it winds up in the washing machine.
• It must be difficult to counterfeit — it won’t have much value if people can make their own.

Measure of Value

Money simplifies exchanges because it serves as a measure of value. We state the price of a good or service in monetary units so that potential exchange partners know exactly how much value we want in return for it. This practice is a lot better than bartering because it’s much more precise than an ad hoc agreement that a day’s work in the field has the same value as three meals.

Store of Value

Money serves as a store of value. Because people are confident that money keeps its value over time, they’re willing to save it for future exchanges. Under a bartering arrangement, the laborer earned three meals a day in exchange for his work. But what if, on a given day, he skipped a meal? Could he “save” that meal for another day? Maybe, but if he were paid in money, he could decide whether to spend it on food each day or save some of it for the future. If he wanted to collect his unpaid meal two or three days later, the farmer might not be able to pay it; unlike money, food could go bad.

The Money Supply

Now that we know what money does, let us tackle another question: how much money is there? How would you go about “counting” all the money held by individuals, businesses, and government agencies in this country? You could start by counting the money that’s held to pay for things on a daily basis. This category includes cash (paper bills and coins) and funds held in demand deposits — chequing accounts, which pay given sums to “payees” when they demand them.

Then, you might count the money that is being “saved” for future use. This category includes interest-bearing accounts, time deposits (such as certificates of deposit, which pay interest after a designated period of time), and money market mutual funds, which pay interest to investors who pool funds to make short-term loans to businesses and the government.

M-1, M-2 and M3

Counting all this money would be a daunting task (in fact, it would be impossible). Fortunately, there’s an easier way — namely, by examining two measures that the government compiles for the purpose of tracking the money supply: M-1 and M-2.

• M-1 is the narrowest measure, and it includes the most liquid forms of money — the forms, such as cash and chequing account funds, which are spent immediately.
• M-2 includes everything in M-1 plus near-cash items invested for the short term — savings accounts, time deposits and money market mutual funds.
• Canada Money Supply M3 includes M2 plus long-term time deposits in banks.

M-3 money in Canada refers to a broad measure of the money supply that includes M-2 (which itself comprises M-1, demand deposits, and savings accounts) and adds components like large time deposits, institutional money market funds, short-term repurchase agreements, and other liquid financial instruments. This measure provides insights into the overall liquidity in the economy, encompassing funds that are less readily accessible but still significant for economic activities. M-3 is particularly useful for analyzing broader economic trends, such as inflation, as it includes assets closer to “near-money” and reflects overall financial stability and potential consumer spending capabilities. This category is sometimes referred to as “broad money.”

How much money is out there? Statistics Canada reports that as of April 2018, M-1, totalled $877 billion in Canada and M-2 totalled $1596 in Canada. Also, Money Supply M2 in Canada increased to 2289771 CAD Million in October from 2286467 CAD Million in September of 2021.

What Exactly, Is “Plastic Money”?

Are credit cards a form of money? If not, why do we call it plastic money? Actually, when you buy something with a credit card, you are not spending money. The principle of the credit card is buy-now-pay-later. In other words, when you use plastic, you are taking out a loan that you intend to pay off when you get your bill. And the loan itself is not money. Why not? Basically, because the credit card company cannot use the asset to buy anything. The loan is merely a promise of repayment. The asset does not become money until the bill is paid (with interest). That is why credit cards are not included in the calculation of M-1 and M-2.

The Role of Bank of Canada

The Bank of Canada is the nation’s central bank. Its principal role is “to promote the economic and financial welfare of Canada,” as defined in the Bank of Canada Act. The Bank of Canada is a special type of Crown corporation that is owned by the federal government but has considerable independence to carry out its responsibilities and therefore operates separately from the political process.

The Bank’s four main areas of responsibility are:

• Monetary policy: The Bank influences the supply of money circulating in the economy, using its monetary policy framework to keep inflation low and stable.
• Financial systems: The Bank promotes safe, sound and efficient financial systems, within Canada and internationally, and conducts transactions in financial markets in support of these objectives.
• Currency: The Bank designs, issues and distributes Canada’s bank notes.
• Funds management: The Bank is the fiscal agent for the Government of Canada, managing its public debt programs and foreign exchange reserves.

The Bank of Canada is led by the Governing Council, the policy-making body of the Bank, which is responsible for:

• conducting monetary policy; and
• promoting a safe and efficient financial system.

The Governing Council is made up of the Governor, the Senior Deputy Governor and the Deputy Governors. The Governing Council’s main tool for conducting monetary policy is the target for the overnight rate (also known as the key policy rate). This rate is normally set on eight fixed announcement dates per year. The Council reaches its decisions about the rate by consensus, rather than by individual votes, as is the case at some other central banks.

The Bank of Canada plays a vital role in managing the money supply in Canada. If the Bank of Canada wants to increase the money supply, it can buy government securities. The individuals and investors who sell these bonds then deposit the proceeds in their banks. These deposits increase banks’ reserves and their willingness to make loans. The Bank of Canada can also lower the bank rate; this action will cause increased demand for loans from businesses and households because these customers borrow more money when interest rates drop.

If the Bank of Canada wants to decrease the money supply, it can sell government securities. Individuals and investors spend money to buy bonds, and these withdrawals bring down banks’ reserves and reduce their willingness to make loans. The Bank of Canada can also raise the bank rate; this action will decrease the demand for loans from businesses and households because these customers borrow less money when interest rates rise.

International Banking Structure

Policymaking and regulatory powers are different in every nation; local standards and laws also vary greatly, which means that banking systems vary greatly. These two United Nation agencies — The World Bank and International Monetary Fund — assist in financing international trade.

The World Bank

The World Bank is an important source of economic assistance for poor and developing countries. With backing from wealthy donor countries (such as Canada, the United States, Japan, Germany, and the United Kingdom), the World Bank provides loans, grants, and guarantees to some of the world’s poorest nations. Loans are made to help countries improve the lives of the poor through community support programs designed to provide health, nutrition, education, infrastructure, and other social services.

The International Monetary Fund

The International Monetary Fund (IMF) is governed by and accountable to its 191 member countries and has three critical missions: furthering international monetary cooperation, encouraging the expansion of trade and economic growth, and discouraging policies that would harm prosperity.

These countries combine their resources to:

• encourage the development of a system for international payments;
• promote the stability of exchange rates;
• provide temporary, short term loans to member countries; and
• encourage members to cooperate on international monetary issues.

The IMF loans money to countries with troubled economies, such as Mexico in the 1980s and mid-1990s, and Russia and Argentina in the late 1990s. There are, however, strings attached to IMF loans; in exchange for relief in times of financial crisis, borrower countries must institute sometimes painful financial and economic reforms. In the 1980s, for example, Mexico received financial relief from the IMF on the condition that it privatize and deregulate certain industries and liberalize trade policies. The government was also required to cut back expenditures for such services as education, health care, and workers’ benefits.

Some nations have declined IMF funds rather than accept the economic changes that the IMF demands. In 2021, according to the IMF website, the IMF had about $1 trillion available for loans. Despite the fact that the U.S. has been instrumental in promoting global free trade for decades in 2018, it was rumoured that under Trump’s administration the U.S. would withdraw from the World Trade Organization (WTO). This did not happen, but the instability caused by such news was damaging to the WTO.

Canadian Banks In The International Marketplace

The financial marketplace spans the globe, with money routinely flowing across international borders. Canadian banks play an important role in global business by providing loans to foreign governments and businesses. Multinational corporations need many special banking services, such as foreign currency exchange and funding for overseas investments. Canadian banks also offer trade-related services, such as global cash management, which help firms manage their cash flow, improve their payment efficiency, and reduce their exposure to operational risks. Sometimes consumers in other nations have a need for banking services that banks in their own countries do not provide. Therefore, large banks often look beyond their national borders for profitable banking opportunities.

Foreign funding has been crucial to Canada’s economic development, with the Canadian capital market being an integral part of the international capital market. Canadian provinces often secure financing in foreign markets like London and New York, and projections suggest that foreign capital will remain essential to meeting Canada’s future financial needs.

Some Canadian banks have established a presence in overseas markets, opening offices in Europe, Latin America, and Asia. These banks often offer superior customer service compared to local institutions and have access to diverse funding sources. However, international expansion poses challenges. Canadian banks face competition from foreign institutions that operate under less stringent regulations, enabling them to offer more competitive pricing. Some governments also protect domestic banks by restricting foreign competition. For instance, in China, foreign banks face high fees, deposit limits, and interest rate controls, which favor government-owned Chinese banks. Despite these obstacles, certain Canadian banks continue to do business in China.

International banks operating in Canada significantly contribute to the economy by creating jobs, paying taxes, and making operational and capital investments. Most employees in these institutions are Canadian citizens, further supporting the domestic workforce.

Nonetheless, international banking carries risks, including political and economic instability. The financial crisis of 2007–2009 highlighted these vulnerabilities, with countries such as Greece, Portugal, Spain, and Ireland experiencing severe economic disruptions. Recovery in these nations has been slow, but financial assistance from the European Union and the International Monetary Fund has played a critical role in stabilizing both regional and global economies.

Currency Values and Exchange Rates

Currencies are traded in the foreign exchange market. Like any other market, when something is exchanged there is a price. In the foreign exchange market, a currency is being bought and sold, and the price of that currency is given in some other currency. That price is expressed as an exchange rate.

When an exchange rate changes, the value of one currency will go up while the value of the other currency will go down. When the value of a currency increases, it is said to have appreciated. On the other hand, when the value of a currency decreases, it is said to have depreciated.

The Canadian dollar fluctuates against the American dollar between 65-70 per cent range. On November 2007, the CAD dollar was stronger than the US dollar, at US $1.09. After a few years of parity, the Canadian dollar retreated to approximately US $0.76 in June 2018. These fluctuations have an impact on businesses.

International Payment Process

International financial settlements between buyers and sellers are different in many countries. Canadian banks provide services to buyers and sellers to support their clients during global financial transactions. Country-to-country transactions rely on an international payment process that moves money between buyers and sellers in different countries. For example, payment from a Canadian buyer start at a local bank that converts funds from dollars into the seller’s currency, say British pounds sterling, to be sent to a seller in England. At the same time, payments and currency conversions from separate transactions are also flowing between British businesses and Canadian sellers in the other direction. A balanced trade between the two countries implies that money inflows and outflows are equal for both countries. If inflows and outflows are not in balance at the Canadian bank or the British bank, then a flow of money — either to England or Canada — is made to cover the difference.

Digital Currencies

Digital currencies are currencies that are only accessible with computers or mobile phones because they only exist in electronic form. Digital money is not physically tangible like a dollar bill or a coin. It is accounted for and transferred using online systems. The difference between digital currencies and cryptocurrencies is that digital currencies are centralized, meaning that transaction within the network is regulated in a centralized location, like a bank. Cryptocurrencies are mostly decentralized, and the regulations inside the network are governed by the majority of the community.

The Bank of Canada revealed in 2016 that it was developing the CAD-coin as a digital version of the Canadian dollar, a move in response to the rise in popularity of bitcoin and other blockchain-based digital currencies. The initiative will involve issuing, transferring and settling the central bank’s monetary assets by way of a computerized ledger rather than by way of printed dollars. Research and experiments have been ongoing since 2016. Some major banks in Canada are participating in this new initiative, including Royal Bank of Canada, CIBC and TD Bank Group, and institutional partners such as Payments Canada and TMX Group.

Despite their claim of being the money of the future, current private digital currencies, like bitcoin, do not work well for making payments or saving for the future. Because of their fluctuating values and slow clearing times, very few merchants accept them. It is possible that in the future digital currencies could at least partially solve these problems, leading to greater adoption. But widespread adoption of private digital currencies would carry important risks to both the economy and the financial system. The issuer could go out of business or fall victim to cybertheft; either situation could cause a loss of confidence in the payment system.

Exploring the idea of a central bank digital currency makes sense. In theory, it could provide the safety of cash, with the convenience of modern electronic payments. It could take many forms, but two broad approaches are:

• value-based — people transfer money from their bank account to a card or a phone app; or
• account-based — people or businesses open accounts at the central bank.

Either way, payments made using a central bank digital currency could allow payments to remain private to the parties involved, just like cash but traceable to law enforcement, just like bank accounts.

Central bank digital currencies could give consumers more choice while maintaining competition among financial service providers like banks, the way cash does now. Depending on their design, they could even act as a backup if other payment methods become temporarily unavailable.

Basically, central bank digital cash would act like current electronic payment methods, the only difference being that it would not be tied to a commercial bank the way bank accounts, and debit cards are.

 

 Attributions

The contents of this chapter is a compilation sourced from various OER resources, please refer to the Book Information for details.

References

(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks)

Corporate Social Responsibility (CSR)

Corporate social responsibility is a business model by which companies make a concerted effort to operate in ways that enhance rather than degrade society and the environment. CSR can help improve society and promote a positive brand image for companies. It refers to the approach that an organization takes in balancing its responsibilities toward different stakeholders when making legal, economical, ethical, and social decisions. CSR includes four categories: environmental impacts, ethical responsibility, philanthropic endeavors, and financial responsibilities.

What motivates companies to be “socially responsible”? We hope it’s because they want to do the right thing, and for many companies , “doing the right thing” is a key motivator. The fact is, it’s often hard to figure out what the “right thing” is: what’s “right” for one group of stakeholders isn’t necessarily “right” for another. One thing, however, is certain: companies today are held to higher standards than ever before. Consumers and other groups consider not only the quality and price of a company’s products but also its character. If too many groups see a company as a poor corporate citizen, it will have a harder time attracting qualified employees, finding investors, and selling its products. Good corporate citizens, by contrast, are more successful in all these areas.

Sustainable Development Goals

The United Nations' Sustainable Development Goals (SDGs) are a set of 17 goals that aim to achieve peace and prosperity for people and the planet. In September 2015, all of the United Nations Member States adopted a “shared blueprint for peace and prosperity for people and the planet, now and into the future”. The 17 Sustainable Development Goals (SDGs) shown in Figure 6.1 are “an urgent call for action by all countries” — developed and developing — in a global partnership. They recognize that ending poverty must go hand-in-hand with strategies that build economic growth, and address a range of social needs, including education, health, equality and job opportunities, while tackling climate change and working to preserve our ocean and forests.

 

The SDGs are as follows:

1. No poverty.
2. Zero hunger.
3. Good health and well-being.
4. Quality education.
5. Gender equality.
6. Clean water and sanitation.
7. Affordable and clean energy.
8. Decent work and economic growth.
9. Industry, innovation, and infrastructure.
10. Reduced inequalities.
11. Sustainable cities and communities.
12. Responsible consumption and production.
13. Climate action.
14. Life below water.
15. Life on land.
16. Peace, justice, and strong institutions.
17. Partnerships for the goals.

The 17 SDGs contain targets for building a better world for people and planet by 2030. Businesses, non-profits, NGOs, and educational institutions have developed their own frameworks to address the SDGs and meet individual targets. Sustainable development can be part of a company’s corporate social responsibility program.

On January 16, 2019, The Washington Post reported that Microsoft has pledged $500 million to address homelessness and build affordable housing units in the Seattle and Puget Sound area, a region that has grown prosperous as the technology industry has swelled but is increasingly plagued by an affordable housing crisis. This is an example of how a business such as Microsoft enacted progress on these SDG goals, serving to benefit society and, at the same time, acting in its own economic interest.

CSR and Various Stakeholders

Let’s look at some of the ways in which companies can be “socially responsible” in considering the claims of various stakeholders: Owners and Investors, Managers, Employees, Customers and Communities.

Owners and Investors

Owners invest money in companies. In return, the people who run a company have a responsibility to increase the value of owners’ investments through profitable operations. Managers also have a responsibility to provide owners (as well as other stakeholders having financial interests, such as creditors, suppliers, and government) with accurate, reliable information about the performance of the business. Some of the most notorious accounting fraud scandals in business include: WorldCom inflated revenue and assets, Lehman Brothers repurchasing agreements, Bernie Madoff’s Ponzi scheme, Saytam falsifying records, and Enron hiding debts.

Managers

Managers have what is known as a fiduciary responsibility to owners: they’re responsible for safeguarding the company’s assets and handling its funds in a trustworthy manner. Yet managers experience what is called the agency problem; a situation in which their best interests do not align with those of the owners who employ them. To enforce managers’ fiduciary responsibilities for a firm’s financial statements and accounting records, Ontario’s Keeping the Promise for a Strong Economy Act (Budget Measures) 2002, also known as Bill 198, (Canadian equivalent to Sarbanes-Oxley Act of 2002 in the United States) requires CEOs and CFOs to attest to their accuracy. The law also imposes penalties on corporate officers, auditors, board members, and any others who commit fraud. You’ll learn more about this law in your accounting and business law courses.

Employees

Companies are responsible for providing employees with safe, healthy places to work—as well as environments that are free from sexual harassment and all types of discrimination. They should also offer appropriate wages and benefits. In the following sections, we’ll take a closer look at these areas of corporate responsibility.

Wages and Benefits

At the very least, employers must obey laws governing minimum wage and overtime pay. A minimum wage is set by the provincial government. As of January 1, 2018, the Ontario rate is $14.00 with another increase to $15.00 set for January 1, 2019. By law, employers must also provide certain benefits—Canadian Pension Plan (CPP -retirement funds), unemployment insurance (protects against loss of income in case of job loss), and depending on the industry, workers’ compensation (covers lost wages and medical costs in case of on-the-job injury). Most large companies pay most of their workers more than minimum wage and offer broader benefits, including medical, dental, and vision care, as well as savings programs, in order to compete for talent.

Safety and Health

In Canada, workplace health and safety are governed by several key pieces of legislation designed to protect workers and ensure safe working environments: Canada Labour Code, provincial and territorial health and safety legislation, occupational health and safety regulations, and worker. There are fourteen jurisdictions in Canada – one federal, ten provincial and three territorial each having its own occupational health and safety legislation. For most people in Canada, the agency that you would contact is the provincial or territorial agency in the area where you work. There one exception – Federal legislation covers employees of the federal government including Crown agencies and corporations across Canada, regardless of location.

Federal Government of Canada reported a noticeable increase in work-related injuries in 2022, with 18,131 disabling injuries reported (an increase of 10%) from 2021 with 16,342 injuries reported.

In the United States, workplace health and safety are primarily regulated by the Occupational Safety and Health Act (OSHA) of 1970, along with additional state-specific laws and regulations. Here’s a breakdown of the key legislation: Occupational Safety and Health Act, state-specific health and safety legislation, workers’ compensation legislation, and other relevant laws.

Together, these laws aim to safeguard workers from injury and illness in the workplace, ensuring compliance through inspections, reporting systems, and penalties for non-compliance.

Customers

The purpose of any business is to satisfy customers, who reward businesses by buying their products. Sellers are also responsible—both ethically and legally—for treating customers fairly. This means customers have rights:

• The right to safe products. A company should sell no product that it suspects of being unsafe for buyers. Thus, producers have an obligation to safety-test products before releasing them for public consumption. The automobile industry, for example, conducts extensive safety testing before introducing new models (though recalls remain common).
• The right to be informed about a product. Sellers should furnish consumers with the product information that they need to make an informed purchase decision. That’s why pillows have labels identifying the materials used to make them, for instance.
• The right to choose what to buy. Consumers have a right to decide which products to purchase, and sellers should let them know what their options are. Pharmacists, for example, should tell patients when a prescription can be filled with a cheaper brand-name or generic drug. Telephone companies should explain alternative calling plans.
• The right to be heard. Companies must tell customers how to contact them with complaints or concerns. They should also listen and respond.
  Companies share the responsibility for the legal and ethical treatment of consumers with several government agencies.

Consumer Protection Legislation in Canada

In Canada, consumer complaints are regulated by different levels of government, as well as non-government organizations. Finding the right place to direct your complaint is not always easy, but understanding your rights as a consumer is an important part of the complaint filing process.

Provincial and territorial consumer protection legislation

Many consumer complaints fall under provincial and territorial jurisdiction, including issues related to:

• buying goods and services;
• contracts;
• the purchase, maintenance or repair of motor vehicles;
• credit reporting agencies and the practices of collection agencies.

Federal consumer protection legislation

The Government of Canada has an important role in consumer awareness and protection.

Federal agencies and departments are responsible for enforcing legislation related to various issues, including:

• consumer product safety;
• food safety;
• consumer product packaging and labelling;
• anti-competitive practices, such as price fixing and misleading advertising;
• privacy complaints.

Additional resources to remember:

For more relevant areas where federal agencies and departments regulate consumer issues consult the Government of Canada website: Federal consumer protection legislation in Canada. In Ontario, customers have the added protection of the Consumer Protection Act.

Did you know protections for Ontario consumers includes a cooling off period for signed contracts? Which specific areas does the cooling off period cover?

• to buy a product or service from a door-to-door salesperson (also called a direct agreement)
• to pay in advance to join a fitness club or gym (also called a personal development contracts)
• to buy a newly-built condo (under the Condominium Act)
• to get a payday loan (under the Payday Loans Act)
• to purchase a time share

Communities

For obvious reasons, most communities see getting a new business as an asset and view losing one—especially a large employer—as a detriment. After all, the economic impact of business activities on local communities is substantial: they provide jobs, pay taxes, and support local education, health, and recreation programs. Both big and small businesses donate funds to community projects, encourage employees to volunteer their time, and donate equipment and products for a variety of activities. Larger companies can make greater financial contributions.

Many large corporations support various charities, an activity called philanthropy. Some donate a percentage of sales or profits to worthwhile causes. Retailer Target, for example, donates over $7 million each year to local communities where the company does business.

Loblaws, one of Canada’s largest grocery retailers, is involved in numerous community initiatives, especially focused on food security and environmental sustainability. Through its Loblaw’s Good Food Program, the company works to reduce food waste and help Canadians in need. They provide food donations to local charities and help fund nutrition programs. Additionally, Loblaws has worked to help communities during times of crisis, such as through their support for food banks and disaster relief efforts.

Telus is a prominent Canadian telecommunications company known for its commitment to social responsibility. Through its Telus Friendly Future Foundation, the company supports initiatives focused on education, healthcare, and community wellness. The foundation has invested in improving access to technology, especially for underserved communities, and has donated millions of dollars to support mental health programs, healthcare initiatives, and environmental sustainability.

These companies not only contribute financially but also engage in programs that benefit the broader community through direct action, volunteerism, and supporting local organizations.

Carroll’s Corporate Social Responsibility Pyramid

Carroll’s Pyramid is a well-respected resource for situating corporate social responsibility. In this model, the focus is on managers—not owners—as the principals involved in the company’s relationships with its stakeholders. Owners are the stakeholders who invest risk capital in the firm in expectation of a financial return. Other stakeholders include employees, suppliers, and the communities in which the firm does business. Proponents of this model hold that customers, who provide the firm with revenue, have a special claim on managers’ attention.

The pyramid shown in Figure 6.2 provides Carroll’s definition of CSR. The pyramid also helps businesses to understand their philanthropic – community outreach initiatives, donations to charities, or participation in social justice causes ethical responsibilities, legal responsibilities, and economic responsibilities.

 

 

 

 

Economic responsibilities

Economic corporate responsibility refers to the practice of making financial decisions based on a commitment to doing good. To uphold economic responsibility, business leaders are challenged to think past operational cost savings and instead put their obligation to corporate citizenship at the heart of all financial decisions.

As a fundamental condition or requirement of existence, businesses have an economic responsibility to the society that permitted them to be created and sustained. At first, it may seem unusual to think about an economic expectation as a social responsibility, but society expects business organizations to be able to sustain themselves and the only way this is possible is by being profitable and able to incentivize owners or shareholders to invest and have enough resources to continue in operation. In its origins, society views business organizations as institutions that will produce and sell the goods and services society needs and desires. As an inducement, society allows businesses to take profits. Businesses create profits when they add value, and in doing this they benefit all the stakeholders of the business.

Profits are necessary both to reward investors/owners and also for business growth when profits are reinvested back into the business. CEOs, managers, and entrepreneurs will attest to the vital foundational importance of profitability and return on investment as motivators for business success. Virtually all economic systems of the world recognize the vital importance to the societies of businesses making profits. While thinking about its’ economic responsibilities, businesses employ many business concepts that are directed towards financial effectiveness – attention to revenues, cost-effectiveness, investments, marketing, strategies, operations, and a host of professional concepts focused on augmenting the long-term financial success of the organization.

In today’s hypercompetitive global business environment, economic performance and sustainability have become urgent topics. Those firms that are not successful in their economic or financial sphere go out of business and any other responsibilities that may be incumbent upon them become moot considerations. Therefore, economic responsibility is a baseline requirement that must be met in a competitive business world and so economic responsibility is a critical part of corporate social responsibility.

Corporate citizenship is the extent to which a business meets its legal, ethical, and economic responsibilities. Investors are increasingly looking for companies with socially responsible orientations, which can lead to positive stock returns and increased confidence by investors.

Legal responsibilities

Businesses have legal responsibilities to comply with laws and regulations at the local, national, and international levels. Society has not only sanctioned businesses as economic entities, but it has also established the minimal ground rules under which businesses are expected to operate and function. These ground rules include laws and regulations and in effect reflect society’s view of “codified ethics”. They articulate fundamental notions of fair business practices as established by lawmakers at federal, provincial/state and local levels. Businesses are expected and required to comply with these laws and regulations as a condition of operating. It is not an accident that compliance officers now occupy an important and high-level position in company organization charts.

While meeting these legal responsibilities, managers must do the following:

• Perform in a manner consistent with expectations of government and law
• Comply with various federal, provincial/state, and local regulations
• Conduct themselves as law-abiding corporate citizens
• Fulfill all their legal obligations to societal stakeholders
• Provide goods and services that at least meet minimal legal requirements

Operating a business in Canada involves adhering to various laws, regulations, and acts at the federal, provincial/territorial, and municipal levels.  Business law refers to rules, statutes, codes, and regulations established to provide a legal framework within which business may be conducted. Businesses are subject to many laws; some pertain to operations while others pertain to human resources and sustainable practices. Legal compliance refers to conducting a business within the boundaries of all the legal regulations of that industry. Legislation governing business practice includes (but is not limited to) the following:

• Income Tax Act, Excise Tax Act
• Bankruptcy and Insolvency Act
• Companies’ Creditors Arrangement Act
• Consumer Protection Act
• Consumer Packaging and Labelling Act
• Food and Drug Act
• Weights and Measures Act
• Contract law
• Textile Labelling Act
•  Hazardous Product Act
• Consumer Product Safety Act
• Motor Vehicle Safety Act
• Aeronautics Act
• Employment Standards Act
• Workplace Health and Safety Act
• Canada Labour Code
• Sales of Goods Act
• Intellectual property law (i.e., patents, copyrights, trade secrets, and trademarks)
• Personal Information Protection and Electronic Documents Act (PIPEDA)
• Competition Act
• Canadian Code of Advertising Standards
• Canadian Business Corporations Act (i.e., incorporation)

Employment-related legislation covers the following subjects: employment standards, human rights, federal and provincial privacy, occupational health and safety, workers’ compensation, and labour regulations legislation.

The Employment Equity Act states that no person shall be denied employment opportunities or benefits for reasons unrelated to ability. It seeks to improve the employment conditions experienced by women, Indigenous peoples, persons with disabilities, and visible minorities.

The Canadian Charter of Rights and Freedoms is a binding legal document that protects the basic human rights of all Canadians, such as fundamental freedoms, democratic rights, mobility rights, legal rights, equality rights, and language rights. The Charter is often cited in legal cases pertaining to human rights issues. While the Charter allows all Canadians to express their thoughts and opinions freely it also protects everyone’s right to be treated fairly, without discrimination.

The Canadian Human Rights Act extends the law to ensure equal opportunity to individuals who may be victims of discriminatory practices based on a set of prohibited grounds: race, colour, religion, national or ethnic origin, age, sex, sexual orientation, marital status, family status, disability, or conviction for an offence for which a pardon has been granted. It applies to all federally regulated activities, but each province and territory has its own anti-discrimination laws that apply to non-federally regulated activities.

Federally regulated organizations must comply with the Canada Labour Code, while other organizations are subject to the Employment Standards and Labour Codes of the individual provinces and territories. For example, in Ontario, under the Employment Standards Act (ESA), you can learn about your employee rights and obligations in this Employment Standards Act guide which describes the rules about minimum wage, hours of work limits, termination of employment, public holidays, pregnancy and parental leave, severance pay, vacation and more.

In the United States there are similar laws pertaining to those listed above. One example is the U.S. Department of Labor website for Wages and the Fair Labor Standards Act, or visit the USA government website for a list of labor laws and worker protection.

Ethical responsibilities

The normative expectations of most societies hold that laws are essential but not sufficient. In addition to what is required by laws and regulations, society expects businesses to operate and conduct their affairs in an ethical fashion. Businesses have ethical responsibilities to ensure fair practices and treat customers, employees, and stakeholders with respect.

Taking on ethical responsibilities implies that organizations will embrace those activities, norms, standards and practices that even though they are not codified into law, are expected, nonetheless. Part of the ethical expectation is that businesses will be responsive to the “spirit” of the law, not just the letter of the law. Another aspect of the ethical expectation is that businesses will conduct their affairs in a fair and objective fashion even in those cases when laws do not provide guidance or dictate courses of action. Thus, ethical responsibilities embrace those activities, standards, policies, and practices that are expected or prohibited by society even though they are not codified into law. The goal of these expectations is that businesses will be responsible for and responsive to the full range of norms, standards, values, principles, and expectations that reflect and honor what consumers, employees, owners and the community regard as consistent with respect to the protection of stakeholders’ moral rights. The distinction between legal and ethical expectations can often be tricky. Legal expectations certainly are based on ethical premises. But ethical expectations carry these further. In essence, then, both contain a strong ethical dimension or character and the difference hinges upon the mandate society has given business through legal codification.

While meeting these ethical responsibilities, managers must do the following:

• Performing in a manner consistent with expectations of societal mores and ethical norms
• Recognizing and respecting new or evolving ethical/moral norms adopted by society
• Preventing ethical norms from being compromised in order to achieve business goals
• Being good corporate citizens by doing what is expected morally or ethically
• Recognizing that business integrity and ethical behaviour go beyond mere compliance with laws and regulations

As an overlay to all that has been said about ethical responsibilities, it also should be clearly stated that in addition to society’s expectations regarding ethical performance, there are also the great, universal principles of moral philosophy such as rights, justice, and utilitarianism that also should inform and guide company decisions and practices.

Philanthropic responsibilities

Corporate philanthropy includes all forms of business giving. Corporate philanthropy embraces business’s voluntary or discretionary activities. Philanthropic responsibility is a business’s commitment to improving society through charitable activities, community support, and social initiatives. It’s a key aspect of corporate social responsibility (CSR), and it emphasizes that businesses should not only focus on profit-making.

Philanthropy or business giving may not be a responsibility in a literal sense, but it is normally expected by businesses today and is a part of the everyday expectations of the public. Certainly, the quantity and nature of these activities are voluntary or discretionary. They are guided by business’s desire to participate in social activities that are not mandated, not required by law, and not generally expected of business in an ethical sense. Having said that, some businesses do give charitable partly based on ethical motivation. That is, they want to do what is right for society. The public does have a sense that businesses will “give back,” and this constitutes the “expectation” aspect of the responsibility. When one examines the social contract between business and society today, it typically is found that the citizenry expects businesses to be good corporate citizens just as individuals are. To fulfill its perceived philanthropic responsibilities, companies engage in a variety of giving forms – gifts of monetary resources, product and service donations, volunteerism by employees and management, community development and any other discretionary contribution to the community or stakeholder groups that make up the community.

Although there is sometimes an altruistic motivation for business giving, most companies engage in philanthropy as a practical way to demonstrate their good citizenship. This is done to enhance or augment the company’s reputation and not necessarily for noble or self-sacrificing reasons. The primary difference between the ethical and philanthropic categories in the four-part model is that business giving is not necessarily expected in a moral or ethical sense. Society expects such gifts, but it does not label companies as “unethical” based on their giving patterns or whether the companies are giving at the desired level. As a consequence, the philanthropic responsibility is more discretionary or voluntary on business’s part. Hence, this category is often thought of as good “corporate citizenship.” Having said all this, philanthropy historically has been one of the most important elements of CSR definitions and this continues today.

In summary, the four-part CSR definition forms a conceptual framework that includes the economic, legal, ethical, and philanthropic or discretionary expectations that society places on businesses at a given point in time. And, in terms of understanding each type of responsibility, it could be said that the economic responsibility is “required” of business by society; the legal responsibility also is “required” of business by society; the ethical responsibility is “expected” of business by society; and the philanthropic responsibility is “expected/desired” of business by society. As time passes what exactly each of these four categories means may change or evolve as well.

The pyramid should not be interpreted to mean that business is expected to fulfill its social responsibilities in some sequential, hierarchical fashion, starting at the base. Rather, business is expected to fulfill all responsibilities simultaneously. The positioning or ordering of the four categories of responsibility strives to portray the fundamental or basic nature of these four categories to business’s existence in society. As said before, economic and legal responsibilities are required; ethical and philanthropic responsibilities are expected and desired. The representation being portrayed, therefore, is that the total social responsibility of business entails the concurrent fulfillment of the firm’s economic, legal, ethical, and philanthropic responsibilities. Stated in the form of an equation, it would read as follows: Economic Responsibilities + Legal responsibilities + Ethical Responsibilities + Philanthropic Responsibilities = Total Corporate Social Responsibility. Stated in more practical and managerial terms, the CSR driven firm should strive to make a profit, obey the law, engage in ethical practices and be a good corporate citizen. When seen in this way, the pyramid is viewed as a unified or integrated whole.

Measuring CSR

CSR reporting has evolved from relatively simple environmental statements to comprehensive triple-bottom-line (people, planet, profit) reporting which is used as a framework for measuring and reporting corporate performance against economic, social, and environmental parameters. Corporate Social Responsibility (CSR) is typically measured through a combination of quantitative and qualitative metrics that assess how well a company is meeting its social, environmental, and ethical obligations. Different organizations use various frameworks, tools, and reporting standards to evaluate CSR performance. Some of the most common methods include the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Key Performance Indicators (KPI), Dow Jones sustainability index (DJSI), stakeholder feedback, and benchmarking.

ESG stands for Environmental, Social, and Governance. It refers to a set of standards used by businesses to evaluate and address their impact on the world, beyond just financial performance. The FTSE4Good Index Series is designed to measure the performance of companies demonstrating specific Environmental, Social and Governance (ESG) practices. Transparent management and clearly defined ESG criteria make FTSE4Good indices suitable tools to be used by a wide variety of market participants when creating or assessing sustainable investment products.

There has been an increasing focus on corporate sustainability and reporting and a question often asked is what is the difference between CSR and ESG? CSR and ESG are different frameworks that companies use to assess sustainability. In short, CSR may be used as an internal framework, while ESG provides a measure of assessment for investors. It could be argued that ESG is currently overtaking CSR as a measure of sustainability in the corporate world.

The Boston College Center for Corporate Citizenship helps companies advance and elevate their corporate citizenship to deliver both business and social value, no matter where they are in their corporate citizenship journey. As the leading corporate citizenship membership community, The Boston College Center for Corporate Citizenship uses research-based knowledge, best-in-class learning opportunities, and dynamic peer network to help ALL companies know more about the global landscape of corporate citizenship; do more to optimize performance and value through the environmental, social, and governance (ESG) dimensions of firm performance—and thus achieve more as effective corporate citizens.

Morningstar Sustainalytics provides high-quality, analytical environmental, social and governance (ESG) research, ratings and data to institutional investors and companies. For more than 30 years, this firm has focused on delivering innovative solutions that have enabled the world’s leading institutional investors to identify, understand, and manage ESG-driven risks and opportunities.

Greenwashing

Greenwashing refers to the practice of misleading consumers or stakeholders into believing that a company, product, or initiative is more environmentally friendly or sustainable than it actually is. Companies engage in greenwashing by exaggerating, omitting, or fabricating claims about their environmental practices to enhance their reputation or market appeal.

An example of a Canadian company accused of greenwashing is Shell Canada. The company launched its “Drive Carbon Neutral” program in 2020, claiming that the carbon emissions from fuel sold at its gas stations would be offset through investments in forest conservation projects. However, Greenpeace Canada raised concerns about the reliability of these claims, stating that the offsets were overstated or ineffective. They argued the program distracted from the need for Shell to reduce fossil fuel usage directly. Following these criticisms, Shell Canada discontinued the program in 2023​.

In the United States, Suncor Energy has faced allegations of greenwashing due to its CEO’s statements about decarbonization efforts. Critics, including Members of Parliament, questioned the company’s commitment to climate change initiatives, suggesting that its strategies and public communications did not align with substantive action on emissions reduction​.

These cases highlight the importance of transparency and verifiable claims in corporate environmental initiatives.

Personal and Business Ethics

Ethics is the philosophical discipline concerned with what is morally good and bad, and morally right and wrong. Ethics, morals, and values – these are complex principles. Depending on the person, culture, time, situation, age, gender, business, or context these concepts can change. People’s morals or ethics are shaped when they are relatively young and are influenced not only by our parents but by society, our culture, and in some cases by our religion as well. Ethics can present challenges, dilemmas, and lapses of judgment. These challenges occur because these influences complicate how people make ethical decisions or think about ethics personally or professionally.

Ideally, prison terms, heavy fines, and civil suits would discourage corporate misconduct, but, unfortunately, many experts suspect that this assumption is a bit optimistic. Whatever the condition of the ethical environment in the near future, one thing seems clear: the next generation entering business—which includes most of you—will find a world much different than the one that waited for the previous generation. Recent history tells us in no uncertain terms that today’s business students, many of whom are tomorrow’s business leaders, need a much sharper understanding of the difference between what is and isn’t ethically acceptable. As a business student, one of your key tasks is learning how to recognize and deal with the ethical challenges that will confront you. Asked what he looked for in a new hire, Warren Buffet, the world’s most successful investor, replied: “I look for three things. The first is personal integrity, the second is intelligence, and the third is a high energy level.” He paused and then added: “But if you don’t have the first, the second two don’t matter”.

As business students, it is important to begin to understand how ethics affects you – what are your ethics like? If you had a compass, where would you fall? Studying ethics will help you understand this.

From a business perspective, ethics is even more complex. How do organizations know how to do the right thing? How do they know how to be socially responsible or how to practice effective corporate social responsibility? Part of this knowledge has to do with the leaders and culture of the organization. Part of the challenge is that things like conflicts occur, such as conflicts of interest, when individuals must choose between taking actions that promote their personal interest over the interests of others or conflicts of loyalty, when individuals have a responsibility to be loyal to a friend, family member, or employer and that conflicts with their ability to act ethically. These types of conflicts present real ethical dilemmas that make it very challenging to figure out how to do what’s right.

It’s in the best interest of a company to operate ethically. Trustworthy companies are better at attracting and keeping customers, talented employees, and capital. Those tainted by questionable ethics suffer from dwindling customer bases, employee turnover, and investor mistrust. Acting ethically in business means more than simply obeying applicable laws and regulations. It also means being honest, doing no harm to others, competing fairly, and declining to put your own interests above those of your company, its owners, and its workers. If you’re in business, you obviously need a strong sense of what’s right and wrong. You need personal conviction to do what’s right, even if it means doing something that’s difficult or personally disadvantageous.

Identifying Ethical Issues, Lapses, and Dilemmas

Ethical issues are the difficult social questions that involve some level of controversy over what is the right thing to do. Environmental protection is an example of a commonly discussed ethical issue, because there can be tradeoffs between environmental and economic factors.

An ethical lapse is a mistake or error in judgment that produces a harmful outcome. It is a failure to follow proper ethical principles. An ethical lapse can be viewed in two ways, as either a clearly unethical decision or a mistake that resulted in an unethical outcome. It is not considered a complete lack of integrity, just an oversight or an ethical blind spot. Ethical lapses often reflect a failure of leadership, culture, or systems that prioritize accountability and integrity. Maintaining robust ethics training and a strong corporate governance framework can help prevent such lapses.

Ethical dilemmas are situations in which it is difficult for an individual to make decisions either because the right course of action is unclear or carries some potential negative consequences for the person or people involved.

Make no mistake about it: when you enter the business world, you’ll find yourself in situations in which you’ll have to choose the appropriate behavior. How, for example, would you answer questions like the following?

• Is it OK to accept a pair of sports tickets from a supplier?
• Can I buy office supplies from my brother-in-law?
• Is it appropriate to donate company funds to a local charity?
• If I find out that a friend is about to be fired, can I warn her?

Obviously, the types of situations are numerous and varied. Fortunately, we can break them down into a few basic categories: issues of honesty and integrity, conflicts of interest and loyalty, bribes versus gifts, and whistle-blowing. Let’s look a little more closely at each of these categories.

Issues of Honesty and Integrity

An ethical lapse in honesty and integrity occurs when an individual, organization, or company fails to uphold fundamental ethical principles, such as truthfulness, transparency, and adherence to moral standards. It typically involves actions or decisions that prioritize self-interest, convenience, or profit over fairness, accountability, and ethical responsibility.

A recent example of an ethical lapse involving honesty and integrity in a Canadian company is the case of PwC Canada. The accounting firm was found to have systemic answer-sharing among employees during mandatory internal training assessments between 2016 and 2020. These assessments were designed to evaluate professional competencies, but many employees, including senior associates and managers, participated in or facilitated widespread sharing of answers. This practice reflected a failure in fostering a culture of ethical integrity and ensuring independent completion of assessments. PwC Canada self-reported the issue, leading to fines totaling $1.45 million imposed by the Chartered Professional Accountants of Ontario. The incident undermined public trust in the firm and raised questions about its internal quality controls and ethical standards.

A recent example of a U.S. company facing an ethical lapse related to honesty and integrity involves the biotech company Illumina. In July 2023, the European Commission fined Illumina €432 million (approximately $476 million USD) for merging with the cancer detection company Grail without obtaining the necessary regulatory approval. The Commission called this action an “unprecedented and very serious infringement” of EU merger control rules. This lapse reflects ethical concerns over compliance with international regulations and transparency in business operations, as the company knowingly bypassed established legal procedures to expedite the merger.

If you work for a company that settles for its employees merely obeying the law and following a few internal regulations, you might think about moving on. If you’re being asked to deceive customers about the quality or value of your product, you’re in an ethically unhealthy environment.

Conflicts of Interest

Conflicts of interest occur when individuals must choose between taking actions that promote their personal interests over the interests of others or taking actions that don’t. A conflict can exist, for example, when an employee’s own interests interfere with, or have the potential to interfere with, the best interests of the company’s stakeholders (management, customers, and owners). Let’s say that you work for a company with a contract to cater events at your college and that your uncle owns a local bakery. Obviously, this situation could create a conflict of interest (or at least give the appearance of one—which is a problem in itself). When you’re called on to furnish desserts for a luncheon, you might be tempted to send some business your uncle’s way even if it’s not in the best interest of your employer. What should you do? You should disclose the connection to your boss, who can then arrange things so that your personal interests don’t conflict with the company’s.

The same principle holds that an employee shouldn’t use private information about an employer for personal financial benefit. Say that you learn from a coworker at your pharmaceutical company that one of its most profitable drugs will be pulled off the market because of dangerous side effects. The recall will severely hurt the company’s financial performance and cause its stock price to plummet. Before the news becomes public, you sell all the stock you own in the company. What you’ve done is called insider trading—acting on information that is not available to the general public, either by trading on it or providing it to others who trade on it. Insider trading is illegal, and you could go to jail for it.

Conflicts of Loyalty

You may one day find yourself in a bind between being loyal either to your employer or to a friend or family member. Perhaps you just learned that a coworker, a friend of yours, is about to be downsized out of his job. You also happen to know that he and his wife are getting ready to make a deposit on a house near the company headquarters. From a work standpoint, you know that you shouldn’t divulge the information. From a friendship standpoint, though, you feel it’s your duty to tell your friend. Wouldn’t he tell you if the situation were reversed? So, what do you do? As tempting as it is to be loyal to your friend, you shouldn’t tell. As an employee, your primary responsibility is to your employer. You might be able to soften your dilemma by convincing a manager with the appropriate authority to tell your friend the bad news before he puts down his deposit.

A notable example of a conflict of loyalty in Canadian business arose in the legal dispute involving Groupe Excellence, a Quebec-based insurance company. This case centered on two directors and presidents of the company, who failed to inform the majority shareholders about a potential acquisition interest from Industrial Alliance Insurance. Instead, the presidents secretly negotiated the deal, bought out the shareholders’ stakes, and sold them to Industrial Alliance at a significantly higher profit, depriving the shareholders of substantial financial benefits. The Supreme Court of Canada examined whether the directors breached their duties of loyalty, good faith, and disclosure to the shareholders. It concluded that while they did not owe a fiduciary duty directly to shareholders, they breached an implied obligation of good faith due to a separate compensation agreement that required them to act in the shareholders’ best interests. This lapse resulted in legal actions against the directors, highlighting the delicate balance of duties and conflicts in corporate governance​. This case illustrates how conflicts of loyalty can arise when individuals in leadership positions prioritize personal gains over their professional obligations, leading to ethical and legal repercussions.

Bribes Versus Gifts

It is not uncommon in business to give and receive small gifts of appreciation, but when is a gift unacceptable? When is it really a bribe?

There is often a fine line between a gift and a bribe. The following information may help to draw that line, because it raises key issues in determining how a gesture should be interpreted: the cost of the item, the timing of the gift, the type of gift, and the connection between the giver and the receiver. If you are on the receiving end, it is a good idea to refuse any item that is overly generous or given for the purpose of influencing a decision. Because accepting even small gifts may violate company rules, always check on company policy.

In both Canada and the U.S., companies have struggled to define clear distinctions between gifts and bribes. A gift intended to maintain goodwill or celebrate a partnership might be ethical if it’s modest and transparent. However, lavish or undisclosed gifts designed to influence decision-making cross the line into bribery. Policies like those of the FCPA emphasize transparency, proper recording, and adherence to anti-corruption laws to avoid such lapses.

An example of an ethical lapse involving bribes versus gifts in a Canadian company includes the high-profile case of SNC-Lavalin. The Montreal-based engineering firm faced allegations of bribery related to securing business in Libya. The accusations included millions of dollars in payments classified as bribes, disguised as legitimate business expenses, which raised ethical concerns about distinguishing acceptable corporate gifts from outright corruption. This led to legal actions under Canada’s Corruption of Foreign Public Officials Act and significant reputational damage​.

In the U.S., Walmart faced scrutiny for alleged bribery practices in Mexico, where executives were accused of paying off officials to expedite permits and construction approvals. The investigation revealed systemic issues in distinguishing ethical gifts or facilitation payments from bribes, ultimately resulting in a $282 million settlement under the U.S. Foreign Corrupt Practices Act (FCPA)​.

Both cases highlight the importance of robust compliance programs to ensure clear policies about what constitutes acceptable business conduct, emphasizing the need for transparency and adherence to anti-bribery laws.

Whistle-Blowing

A whistleblower is someone who reports waste, fraud, abuse, corruption, or dangers to public health and safety to someone who is in the position to rectify the wrongdoing. A whistleblower typically works inside of the organization where the wrongdoing is taking place; however, being an agency or company “insider” is not essential to serving as a whistleblower. What matters is that the individual discloses information about wrongdoing that otherwise would not be known.

An example of whistleblowing in a Canadian company involves Coinsquare, a cryptocurrency trading platform. From 2018 to 2019, Coinsquare engaged in “wash trading,” where an algorithm created fake buy-and-sell orders to inflate trading volumes artificially. A whistleblower within the company, who discovered and reported this practice to senior management, faced significant retaliation, including threats to their employment and eventual termination after taking stress leave due to the issue. The Ontario Securities Commission (OSC) investigated and determined that Coinsquare’s actions violated securities laws and whistleblower protections. As part of a settlement, the company admitted to the reprisal and agreed to strengthen its whistleblower policies, while the former CEO faced fines and a ban on serving as an officer or director.

In the past few years, a notable whistleblower case in the USA involved BofI Federal Bank (now called Axos Bank), where an internal auditor, Erhart, reported concerns about the bank’s risky business practices. He had raised alarms about high deposit concentrations and risky loans to potentially fraudulent entities. After Erhart reported these issues internally, he was fired, and the case progressed to a legal battle under the Sarbanes-Oxley Act (SOX) for whistleblower protection. In 2023, the jury sided with Erhart, awarding him significant compensation, and the court denied the bank’s attempt to overturn the decision. The case highlighted concerns over shareholder fraud and internal controls violations​.

Another example of a whistleblower case in the USA occurred at Donovan Salvage Works, a Delaware salvage yard. An employee, a smelter operator, reported a safety hazard involving a propane leak at the yard. After the employee refused to continue working under unsafe conditions, he was terminated by the company in retaliation for reporting the issue. Following an investigation by the Occupational Safety and Health Administration (OSHA), the company was found guilty of wrongful termination and was ordered to pay $40,000 in back wages and damages​.

Despite significant financial investment in its whistleblower protection framework, Canada has failed to adequately protect individuals reporting misconduct. Over 500 whistleblowers faced reprisals without sufficient remedies. This was highlighted in international assessments, which rated Canada’s legal framework for whistleblower protections as among the worst globally. The case underscores the challenges whistleblowers face in bringing attention to unethical practices without fearing retaliation​.

In the United States, a significant 2023 case involved a whistleblower under the False Claims Act. The individual, a doctor, accused a healthcare company of enabling Medicare fraud. The case reached the U.S. Supreme Court, which ruled the Department of Justice could dismiss such lawsuits even if initially allowed to proceed. This ruling reflects the complex interplay between whistleblower rights and government oversight in ensuring actionable claims move forward without undue burden​.

These examples highlight how whistleblowing plays a critical role in exposing corporate and institutional malpractice, but also the legal and systemic barriers faced in both Canada and the U.S.

Encouraging Ethics in the Workplace

When organizations are ethical and practice CSR consumer and employee rights will be highly considered and handled with integrity and ethics. For employee’s health and safety, privacy, wages, and benefits, along with the right to not be harassed or discriminated against are all-important ethical considerations. Consumers have rights too; consumers expect that the products they buy will be safe, in terms of production, consumption, and/or use. Consumers also have the right to be made aware of how the product is made or what the service involves. The choice is their right too – they can buy whatever products or services that they want; and it’s the responsibility of businesses to let consumers know about alternatives or information that they need to be aware of regarding the product or service they are buying.

A recent survey found that 38% of employees consider “ethical standards” to be the first or second-most important workplace attribute (Refer to Figure 6.3). People spend much of their lives at work. An ethical workplace is key because it allows employees to feel a sense of purpose and integrity on the job.

 

Create an Ethical Work Environment

For a business to be considered an ethical organization, it must demonstrate integrity, transparency, and accountability in all aspects of its operations. Creating an ethical business environment involves adherence to laws and regulations, strong corporate governance, and proactive efforts to ensure the well-being of employees, customers, and the community. For example, a few of the companies that do this well include those listed on the 2024 “100 Best Corporate Citizens” list which, to name a few, included HP Inc., Johnson & Johnson, PepsiCo Inc., Ford Motor Company, and The Hershey Company. 

Key factors in creating an ethical business environment include:

1. Strong leadership and ethical governance. Create a clear code of ethics that outlines acceptable behaviour and decision-making practices. This should cover areas like anti-corruption, diversity, privacy, and fairness. Have a board of directors that ensures accountability and guides ethical strategy. Be transparent. Disclose financial, operational, and social responsibility data regularly, fostering trust with stakeholders. Many Canadian companies, such as TELUS and RBC, publish Corporate Social Responsibility (CSR) or Environmental, Social, and Governance (ESG) reports that highlight their ethical initiatives.
2. Compliance with laws and standards. Follow relevant laws, in Canada these might include the Competition Act, Corruption of Foreign Public Officials Act (CFPOA), Canadian Human Rights Act, and Occupational Health and Safety Regulations. For businesses operating internationally, compliance with international standards like ISO 26000 (Social Responsibility) or the UN Global Compact can enhance ethical standing. For example, Companies like Bombardier have frameworks for compliance with Canadian anti-corruption and labor laws.
3. Ethical workplace practices. Protect employee rights and create a diverse and inclusive workplace. Provide a safe working environment. Encourage reporting of unethical behaviour without fear of retaliation. For example, Shopify promotes inclusivity and diversity through initiatives like “Diversity and Belonging”.
4. Commitment to social responsibility. Invest in community development through volunteering, donations, and partnerships. Reduce carbon footprints, manage waste responsibility, and invest in sustainable practices. Loblaw’s efforts to combat food waste and reduce plastic use reflect a strong commitment to sustainability.
5. Proactive risk management. Regularly train employees in ethical decision-making and compliance requirements. Conduct internal audits to ensure adherence to policies. Actively engage with stakeholders to understand and address their concerns.

By focusing on these elements, businesses can build a reputation as ethical organizations while ensuring long-term success and trust from stakeholders.

Sexual Harassment

Sexual harassment occurs when an employee makes “unwelcome sexual advances, requests for sexual favours, and other verbal or physical conduct of a sexual nature” to another employee. It’s also considered sexual harassment when “submission to or rejection of this conduct explicitly or implicitly affects an individual’s employment, unreasonably interferes with an individual’s work performance or creates an intimidating, hostile or offensive work environment.” In Canada, the legal framework for addressing sexual harassment includes protections under the Canadian Human Rights Act (CHRA), provincial human rights codes, and the Canada Labour Code for federally regulated workplaces.[/footnote]

Sexual harassment rocketed to the top of news reports and social media when on October 5, 2017, The New York Times broke the story of Harvey Weinstein’s decades of harassment in Hollywood. In March of 2018, CBC News collated the allegations of sexual harassment against prominent Canadians. The list, including only those allegations reported by CBC, highlight the prevalence of this issue.

Government of Canada reported that in 2020 one in four women and one in six men reported having experienced inappropriate sexualized behaviours at work in the previous year. Indigenous women and members of the LGBTQ+ community are disproportionately affected, with much higher likelihoods of experiencing sexual violence. Federally regulated sectors such as transportation, banking, and communication account for a significant proportion of harassment incidents. In 2022, 31% of reported sexual harassment occurrences were from the road transportation sector, 17% from air transportation, and 15% from banking.

To prevent sexual harassment—or at least minimize its likelihood—a company should adopt a formal anti-harassment policy describing prohibited conduct, asserting its objections to the behaviour, and detailing penalties for violating the policy. Employers also have an obligation to investigate harassment complaints. Failure to enforce anti-harassment policies can be very costly.

Workforce Diversity | Inclusive Workplaces

In addition to complying with equal employment opportunity laws, many companies make special efforts to create an inclusive workforce by recruiting employees who are underrepresented in the workforce according to sex, race, or some other characteristic. In helping to build more inclusive workforces, such initiatives contribute to competitive advantage for two reasons:

1. People from diverse backgrounds bring new talents and fresh perspectives to an organization, typically enhancing creativity in the development of new products.
2. By more accurately reflecting the demographics of the marketplace, a diverse workforce improves a company’s ability to serve an ethnically diverse population.

The Individual Approach to Ethics

How can you make sure that you do the right thing in the business world? How should you respond to the kinds of challenges that you’ll be facing? Because your actions in the business world will be strongly influenced by your moral character, let’s begin by assessing your current moral condition. Which of the following best applies to you (select one)?

1. I’m always ethical.
2. I’m mostly ethical.
3. I’m somewhat ethical.
4. I’m seldom ethical.
5. I’m never ethical.

Now that you’ve placed yourself in one of these categories, here are some general observations. Few people put themselves below the second category. Most of us are ethical most of the time, and most people assign themselves to category number two— “I’m mostly ethical.” Why don’t more people claim that they’re always ethical?

Apparently, most people realize that being ethical all the time takes a great deal of moral energy. If you placed yourself in category number two, ask yourself this question: How can I change my behaviour so that I can move up a notch? The answer to this question may be simple. Just ask yourself an easier question: How would I like to be treated in a given situation?

Unfortunately, practicing this philosophy might be easier in your personal life than in the business world. Ethical challenges arise in business because companies, especially large ones, have multiple stakeholders who sometimes make competing demands. Making decisions that affect multiple stakeholders isn’t easy even for seasoned managers; and for new entrants to the business world, the task can be extremely daunting. You can, however, get a head start in learning how to make ethical decisions by looking at two types of challenges that you’ll encounter in the business world: ethical dilemmas and ethical decisions.

Make Ethical Decisions

Ask yourself the following five questions as a test to help you improve your chances of making ethical decisions. If you answer, yes, to any of them, then you probably should not do it.

1. Is the action illegal?
2. Is it unfair to some stakeholders? (Also, if it were happening to you, then would it be unfair?)
3. If I do it, will I feel bad about it?
4. Will I be ashamed to tell my family friends, coworkers, or boss?
5. Will I be embarrassed if my action is written up in the newspaper?

Some ethical problems are fairly straightforward. Others, unfortunately, are more complicated, but it will help to think of our five-question test as a set of signals that will warn you that you’re facing a particularly tough decision— that you should think carefully about it and perhaps consult someone else. The situation is like approaching a traffic light. Red and green lights are easy; you know what they mean and exactly what to do. Yellow lights are trickier. Before you decide which pedal to hit, try posing the five questions. If you get a single yes, you’ll almost surely be better off hitting the brake.

Refuse to Rationalize

Despite all the good arguments in favour of doing the right thing, why do many reasonable people act unethically (at least at times)? Why do good people make bad choices? According to one study, there are four common rationalizations (excuses) for justifying misconduct:

1. My behaviour isn’t really illegal or immoral. Rationalizers try to convince themselves that an action is OK if it isn’t downright illegal or blatantly immoral. They tend to operate in a gray area where there’s no clear evidence that the action is wrong.
2. My action is in everyone’s best interests. Some rationalizers tell themselves: “I know I lied to make the deal, but it’ll bring in a lot of business and pay a lot of bills.” They convince themselves that they’re expected to act in a certain way.[46]
3. No one will find out what I’ve done. Here, the self-questioning comes down to “If I didn’t get caught, did I really do it?” The answer is yes. There’s a simple way to avoid succumbing to this rationalization: always act as if you’re being watched.
4. The company will condone my action and protect me. This justification rests on a fallacy.

If you find yourself having to rationalize a decision, it’s probably a bad one.

 

 Attributions

The contents of this chapter is a compilation sourced from various OER resources, please refer to the Book Information for details.

References

(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks)

The Globalization of Business

Globalization is the process of increasing economic and social integration between countries, and the increased flow of goods, services, and people across borders.

Do you wear Nike shoes or Timberland boots? Listen to Beyoncé, Pitbull, Twenty One Pilots, or The Neighborhood on Spotify? If you answered yes to either of these questions, you’re a global business customer. Both Nike and Timberland manufacture most of their products overseas. Spotify is a Swedish enterprise.

Take an imaginary walk down Orchard Road, the most fashionable shopping area in Singapore. You’ll pass department stores such as Tokyo-based Takashimaya and London’s very British Marks & Spencer, both filled with such well-known international labels as Ralph Lauren Polo, Burberry, and Chanel. If you need a break, you can also stop for a latte at Seattle-based Starbucks.

When you’re in the Chinese capital of Beijing, don’t miss Tiananmen Square. Parked in front of the Great Hall of the People, the seat of Chinese government, are fleets of black Buicks, cars made by General Motors in Flint, Michigan. If you’re adventurous enough to find yourself in Faisalabad, a medium-size city in Pakistan, you’ll see Hamdard University, located in a refurbished hotel. Step inside its computer labs, and the sensation of being in a faraway place will likely disappear when you recognize the familiar Microsoft flag on the computer screen—the same one emblazoned on screens in Microsoft’s hometown of Seattle and just about everywhere else on the planet.

The globalization of business is bound to affect you. Not only will you buy products manufactured overseas, but it’s likely that you’ll meet and work with individuals from various countries and cultures as customers, suppliers, colleagues, employees, or employers. The bottom line is that the globalization of world commerce has an impact on all of us ~ evidenced in Figure 7.1 below, The Expanded Circular Flow Model. Therefore, it makes sense to learn more about how globalization works.

 

Never has business spanned the globe the way it does today and will continue to do in the future. But why is international business important? Why do companies and nations engage in international trade? What strategies do they employ in the global marketplace? How do governments and international agencies promote and regulate international trade? These questions and others will be addressed in this chapter. Let’s start by looking at the more specific reasons why companies and nations engage in international trade.

Why Do Nations Trade?

Nations trade to capitalize on their unique advantages and to foster economic growth, enhance living standards, and build relationships with other countries. Trade allows countries to access products and services they cannot produce efficiently or lack altogether, enhancing consumer choice and quality of life. Tropical fruits are imported by colder countries like Canada because they cannot be grown domestically. By producing for export, businesses can achieve economies of scale, lowering production costs and making goods more affordable domestically and abroad. Automotive manufacturers in Germany produce vehicles on a large scale, selling them globally. Trade fosters innovation and the spread of new technologies, ideas, and practices, driving development and competitive advantage. Collaboration in international technology markets has accelerated advancements in renewable energy. Trade builds interdependence, reducing the likelihood of conflicts and fostering diplomatic relations. For example, the European Union promotes trade among its member states to strengthen regional stability and cooperation. Exporting goods and services generates income, creating jobs and boosting national Gross Domestic Product (GDP). The export of oil and gas has been a significant contributor to Canada’s economic growth.

Why does Canada import automobiles, steel, digital phones, and apparel from other countries? Why don’t we just make them ourselves? Why do other countries buy wheat, chemicals, machinery, and lumber products from us? Because no national economy produces all the goods and services that its people need. Countries are importers when they buy goods and services from other countries; when they sell products to other nations, they’re exporters. In 2023, the total value of world trade in merchandise and commercial services was $30.5 trillion, a 2% decrease from the previous year. This was due to a 5% decline in the value of goods trade, while the value of services trade increased by 9%. The World Trade Organization (WTO) projects that the volume of world merchandise trade will grow by 0.8% in 2023 and 3.3% in 2024.

Factors that have impacted trade in recent years include:

• The war in Ukraine
• High inflation
• Tightening monetary policy in major economies
• High energy prices
• Rising interest rates
• Geopolitical tensions
• Food and energy insecurity
• Increased risk of financial instability
• High levels of external debt

Absolute and Comparative Advantage

To understand why certain countries import or export specific products, you need to realize that every country (or region) cannot produce the same products. The cost of labour, the availability of natural resources, and the level of know-how vary greatly around the world. Most economists use the concepts of absolute advantage and comparative advantage to explain why countries import some products and export others.

Absolute Advantage

A nation has an absolute advantage if, (1) it’s the only source of a particular product, or (2) it can make more of a product using fewer resources than other countries. Because of climate and soil conditions, for example, France had an absolute advantage in wine making until its dominance of worldwide wine production was challenged by the growing wine industries in Italy, Spain, the United States, and more recently Canada. Unless an absolute advantage is based on some limited natural resource, it seldom lasts. That’s why there are few, if any, examples of absolute advantage in the world today.

Comparative Advantage

When a country decides to specialize in a particular product, it must sacrifice the production of another product (opportunity costs). Countries benefit from specialization—focusing on what they do best, and trading the output to other countries for what those countries do best. Canada’s top export destinations are the United States, China, and the United Kingdom. In 2023, the United States was the destination for 76% of Canada’s exports.

Canada’s energy exports make up 22% of its total exports. In 2023, the top exports in this category were mineral fuels, oils, and distillation products. Cars and parts are one of Canada’s biggest exports, making up 19% of its total exports. In 2023, the top exports in this category were vehicles other than railway and tramway. Consumer goods make up 12% of Canada’s total exports. Canada exports a variety of minerals, including potash, metallurgical coal, and diamonds. In 2022, Canada was the world’s biggest exporter of potash. Canada also exports machinery, nuclear reactors, boilers, pearls, precious stones, metals, and coins.

The United States, for instance, is increasingly an exporter of knowledge-based products, such as software, movies, music, and professional services (management consulting, financial services, and so forth). America’s colleges and universities, therefore, are a source of comparative advantage, and students from all over the world come to the United States for the world’s best higher-education system. France and Italy are centers for fashion and luxury goods and are leading exporters of wine, perfume, and designer clothing. Japan’s engineering expertise has given it an edge in such fields as automobiles and consumer electronics. And with large numbers of highly skilled graduates in technology, India has become the world’s leader in low-cost, computer-software engineering.

How can we predict, for any given country, which products will be made and sold at home, which will be imported, and which will be exported? This question can be answered by looking at the concept of comparative advantage, which exists when a country can produce a product at a lower opportunity cost compared to another nation. But what’s an opportunity cost?

Opportunity costs

Since resources are limited, every time you make a choice about how to use them, you are also choosing to forego other options. Economists use the term opportunity cost to indicate what must be given up to obtain something that is desired. A fundamental principle of economics is that every choice has an opportunity cost.

• If you sleep through your economics class (not recommended, by the way), the opportunity cost is the learning you miss.
• If you spend your income on video games, you cannot spend it on movies.
• If you choose to marry one person, you give up the opportunity to marry anyone else.

In short, opportunity cost is all around us. The idea behind opportunity cost is that the cost of one item is the lost opportunity to do or consume something else; in short, opportunity cost is the value of the next best alternative. Since people and businesses must choose, they inevitably face trade-offs in which they must give up things they desire to get other things they desire more.

Opportunity Cost and Individual Decisions

In some cases, recognizing the opportunity cost can alter personal behaviour. Imagine, for example, that you spend $10 on lunch every day at work. You may know perfectly well that bringing a lunch from home would cost only $3 a day, so the opportunity cost of buying lunch at the restaurant is $7 each day (that is, the $10 that buying lunch costs minus the $3 your lunch from home would cost). Ten dollars each day does not seem to be that much. However, if you project what that adds up to in a year—250 workdays a year × $10 per day equals $2 500—it is the cost, perhaps, of a decent vacation. If the opportunity cost were described as “a nice vacation” instead of “$10 a day” you might make different choices.

Opportunity Cost and Societal Decisions

Opportunity cost also comes into play with societal decisions. Universal health care in the U.S. would be nice, but the opportunity cost of such a decision would be less housing, environmental protection, or national defense. These trade-offs also arise with government policies. For example, after the terrorist plane hijackings on September 11, 2001, many proposals, such as the following, were made to improve air travel safety:

• The federal government could provide armed “sky marshals” who would travel inconspicuously with the rest of the passengers. The cost of having a sky marshal on every flight would be roughly $3 billion per year.
• Retrofitting all U.S. planes with reinforced cockpit doors to make it harder for terrorists to take over the plane would have a price tag of $450 million.
• Buying more sophisticated security equipment for airports, like three-dimensional baggage scanners and cameras linked to face-recognition software, would cost another $2 billion.

Lost time can be a significant component of opportunity cost.

However, the single biggest cost of greater airline security does not involve money. It is the opportunity cost of additional waiting time at the airport. According to the United States Department of Transportation, more than 800 million passengers took plane trips in the United States in 2012. Since the 9/11 hijackings, security screening has become more intensive, and consequently, the procedure takes longer than in the past. Say that, on average, each air passenger spends an extra 30 minutes in the airport per trip. Economists commonly place a value on time to convert an opportunity cost in time into a monetary figure. Because many air travelers are relatively highly paid business people, conservative estimates set the average “price of time” for air travelers at $20 per hour. Accordingly, the opportunity cost of delays in airports could be as much as 800 million (passengers) × 0.5 hours × $20/hour—or, $8 billion per year. Clearly, the opportunity costs of waiting time can be just as substantial as costs involving direct spending.

Measuring Trade Between Nations

To evaluate the nature and consequences of its international trade, a nation looks at two key indicators: balance of trade and balance of payments.

Balance of Trade

A country’s balance of trade is calculated by subtracting the value of its imports from the value of its exports. If a country sells more products than it buys, it has a favourable balance, called a trade surplus. If it buys more than it sells, it has an unfavourable balance, or a trade deficit.

In 2023, the value of Canada’s annual merchandise exports decreased 1.4% to $768.2 billion, while the value of annual imports rose 1.4% to $770.2 billion. Between 1980 and 2008, Canada recorded a positive trade balance every year, with an expectation of 1991 and 1992. From 2009 onwards, the trade balance shifted to a deficit. In 2021, it switched again to a trade surplus, with energy products making the largest share of exports (Refer to Figure 7.2). The United States remains the country’s biggest trading partner. Other countries, such as China and Taiwan, which manufacture high volumes for export, have large trade surpluses because they sell far more goods overseas than they buy.

 

Deficits

A nation's deficit is when a government spends more money than it receives in revenue over a period of time. This can be due to a number of factors, including excessive spending or borrowing. A nation’s deficit can be an indicator of its financial health and economic situation.

Are trade deficits a bad thing? Not necessarily. They can be positive if a country’s economy is strong enough both to keep growing and to generate the jobs and incomes that permit its citizens to buy the best the world has to offer. That was certainly the case in the Canada in the 1990s and early 2000s. Some experts, however, are alarmed by trade deficits. Investment guru Warren Buffet, for example, cautions that no country can continuously sustain large and burgeoning trade deficits. Why not? Because creditor nations will eventually stop taking IOUs from debtor nations, and when that happens, the national spending spree will have to cease. “A nation’s credit card,” he warns, “charges truly breathtaking amounts. But that card’s credit line is not limitless”.

Surpluses

A country has a trade surplus when it sells more to other countries than it buys from them. It’s the opposite of a trade deficit. A surplus can lead to economic growth and employment, but it can also cause higher prices, interest rates, and a more expensive currency.

Trade surpluses aren’t necessarily good for a nation’s consumers. For example, Japan’s export-fueled economy produced high economic growth in the 1970s and 1980s but most domestically made consumer goods were priced at artificially high levels inside Japan itself—so high, in fact, that many Japanese traveled overseas to buy the electronics and other high-quality goods on which Japanese trade was dependent.

CD players and televisions were significantly cheaper in Honolulu or Los Angeles than in Tokyo. How did this situation come about? Though Japan manufactures a variety of goods, many of them are made for export. To secure shares in international markets, Japan prices its exported goods competitively. Inside Japan, because competition is limited, producers can put artificially high prices on Japanese-made goods. Due to a number of factors (high demand for a limited supply of imported goods, high shipping and distribution costs, and other costs incurred by importers in a nation that tends to protect its own industries), imported goods are also expensive.

Today, Japan may not be as expensive as you think. While prices for certain goods and services are generally higher than you’d find in countries like China, Thailand, and Vietnam, on the whole you might discover that costs are lower than places such as Singapore, Australia, and Scandinavia.

Balance of Payments

The second key measure of the effectiveness of international trade is balance of payments: the difference, over a period of time, between the total flow of money coming into a country and the total flow of money going out. As in its balance of trade, the biggest factor in a country’s balance of payments is the money that flows as a result of imports and exports. But balance of payments includes other cash inflows and outflows, such as cash received from or paid for foreign investment, loans, tourism, military expenditures, and foreign aid. For example, if a Canadian company buys some real estate in a foreign country, that investment counts in the Canadian balance of payments, but not in its balance of trade, which measures only import and export transactions. In the long run, having an unfavorable balance of payments can negatively affect the stability of a country’s currency. Canada has experienced unfavorable balances of payments since the turn of the century which has forced the government to cover its debt by borrowing from other countries.

The national debt is the combined debt of all three levels of government in Canada: federal, provincial, and territorial. The debt is held by a variety of entities, including the Canadian public, foreigners, and banks, trust and loan companies, and insurance companies. The balance of payments is comprised of three accounts: the current account, the capital account, and the financial account. Figure 7.3 is a chart showing the years 2016-2023 with the year 2023 showing the current account balance posted at a $17.8 billion deficit, up $7.4 billion compared with 2022. The increase in the deficit was largely due to the trade in goods balance going from a surplus of $19.7 billion in 2022 to a deficit of $1.8 billion in 2023.

Below are a few interesting facts about who owes money to whom:

• As of 2021, China owed Canada $371 million in loans it incurred decades ago, and is not expected to repay them in full until 2045.
• As of 2024, Pakistan owed China $26.6 billion for money borrowed for infrastructure and energy projects.
• The United States boasts both the world’s biggest national debt in terms of dollar amount and its largest economy, which resolves to a debt-to GDP ratio of approximately 121.31%. The United States’ government’s spending exceeds its income most years, and the US has not had a budget surplus since 2001.
• Japan, China, the United Kingdom, Belgium, and Luxembourg own the most U.S. debt, in that order.

Opportunities in International Business

The fact that nations exchange billions of dollars in goods and services each year demonstrates that international trade makes good economic sense. For a company wishing to expand beyond national borders, there are a variety of ways it can get involved in international business. Let’s take a closer look at the more popular ones.

Importing and Exporting

Importing (buying products overseas and reselling them in one’s own country) and exporting (selling domestic products to foreign customers) are the oldest and most prevalent forms of international trade. For many companies, importing is the primary link to the global market. American food and beverage wholesalers, for instance, import for resale in U.S. supermarkets the bottled waters Evian and Fiji from their sources in the French Alps and the Fiji Islands respectively. Other companies get into the global arena by identifying an international market for their products and becoming exporters. The Chinese, for instance, are fond of fast foods cooked in soybean oil. They also have an increasing appetite for meat, therefore, they need high-protein soybeans to raise livestock. The United States exported $15.06 billion worth of soybeans to China in 2023, making it the top destination for US soybean exports.

A few reasons why companies may engage in importing include:

1. Importing to reduce costs as importing may be more affordable than producing the same product locally.
2. Importing new products before competitors in an attempt to become a leader in the industry.
3. Importing the products that are not core to the business will allow a business to specialize. For example, companies can specialize in a part of a good, such as producing just brake pads for cars, and rely on other companies or countries for the rest.
4. Importing increases competition for domestic products. Companies may import products from other countries to compete with other businesses selling domestic products.

A few reasons why companies may engage in exporting include:

1. Exporting can help a company reach new markets or expand in existing markets and increase sales and profits.
2. Exporting can spread business risk by diversifying into multiple markets instead of one domestic market.
3. Exporting can improve a company’s competitiveness against both domestic and international competitors.
4. Exporting can lead to enhanced innovation and the acquisition of new skills.
5. Exporting can help boost a company’s profile and credibility.
6. Exporting may allow a company to take advantage of trade agreements with reduced trade barriers.
7. Exporting can help a company manage seasonal product use and market fluctuations.
8. Exporting may allow a company to take advantage of exchange rates, depending which currency is at a higher rate.

When goods are shipped from one country to another, they must go through customs. Customs is the process of declaring and paying taxes on imported goods. All countries have different regulations for what can and cannot be imported. Some items, such as drugs or weapons, are prohibited because they are dangerous. Other items, such as used tires or chemicals, are restricted because they may harm the environment. The purpose of customs is to protect a country’s economy, environment, jobs, and residents.

Licensing and Franchising

A company that wants to get into an international market quickly while taking only limited financial and legal risks might consider licensing agreements with foreign companies. An international licensing agreement allows a foreign company (the licensee) to sell the products of a producer (the licensor) or to use its intellectual property (such as patents, trademarks, copyrights) in exchange for what is known as royalty fees. Here’s how it works: You own a company in the Canada that sells coffee-flavored popcorn. You’re sure that your product would be a big hit in Japan, but you don’t have the resources to set up a factory or sales office in that country. You can’t make the popcorn here and ship it to Japan because it would get stale. So, you enter a licensing agreement with a Japanese company that allows your licensee to manufacture coffee-flavored popcorn using your special process and to sell it in Japan under your brand name. In exchange, the Japanese licensee would pay you a royalty fee – perhaps a percentage of each sale or a fixed amount per unit.

The best way to understand licensing is to think about something that a company owns that they agree to sell to another company to use, either locally or globally. For example, Lego, a company that produces building block toys had to get a license from companies like Disney when they wanted to create their Star Wars Lego sets.

Another popular way to expand overseas is to sell franchises. Under an international franchise agreement, a company (the franchiser) grants a foreign company (the franchisee) the right to use its brand name and to sell its products or services. The franchisee is responsible for all operations but agrees to operate according to a business model established by the franchiser. In turn, the franchiser usually provides advertising, training, and new-product assistance. Franchising is a natural form of global expansion for companies that operate domestically according to a franchise model, including restaurant chains, such as McDonald’s and Kentucky Fried Chicken, and hotel chains, such as Holiday Inn and Best Western. Unlike franchising in the franchisor’s home country, where the franchisor grants the franchisee a license to use the marketing, branding and operations of the franchisor, international franchising usually involves actually selling the franchise rights to a third party to operate as the master franchisee in that area, giving them the rights to open company-owned outlets and sub-franchise in the country or region.

Contract Manufacturing and Outsourcing

Canadian companies are increasingly drawing on a vast supply of relatively inexpensive skilled labour to perform various business services, such as software development, accounting, and claims processing. This is known as outsourcing. In contrast, contract manufacturing is a specific type of outsourcing related specifically to products when two parties sign a contract manufacturing agreement.

Because of high domestic labour costs, many U.S. and Canadian companies manufacture their products in countries where labour costs are lower. This arrangement is called international contract manufacturing, a form of outsourcing. A domestic company might contract with a local company in a foreign country to manufacture one of its products. It will, however, retain control of product design and development and put its own label on the finished product. Contract manufacturing is quite common in the U.S. apparel business, with most American brands being made in a number of Asian countries, including China, Vietnam, Indonesia, and India.

Thanks to twenty-first-century information technology, non-manufacturing functions can also be outsourced to nations with lower labour costs. Canadian companies are increasingly drawing on a vast supply of relatively inexpensive skilled labour to perform various business services, such as software development, accounting, and claims processing. With a large, well-educated population with English language skills, India has become a centre for software development and customer-call centres. In the case of India, as you can see in the graph below, the attraction is not only a large pool of knowledge workers but also significantly lower wages.

Strategic Alliances and Joint Ventures

A strategic alliance is an agreement between two companies (or a company and a nation) to pool resources in order to achieve business goals that benefit both partners. A strategic alliance and a joint venture are both collaborative business arrangements between companies, but they differ in structure, commitment, and goals.

Strategic Alliance

What if a company wants to do business in a foreign country but lacks the expertise or resources? Or what if the target nation’s government doesn’t allow foreign companies to operate within its borders unless it has a local partner? In these cases, a firm might enter a strategic alliance with a local company or even with the government itself.

A strategic alliance is an agreement between two companies (or a company and a nation) to pool resources in order to achieve business goals that benefit both partners. Alliances range in scope from informal cooperative agreements to joint ventures— alliances in which the partners fund a separate entity (perhaps a partnership or a corporation) to manage their joint operation.

An alliance can serve a number of purposes:

• Enhancing marketing efforts
• Building sales and market share
• Improving products
• Reducing production and distribution costs
• Sharing technology
• Sharing risks

With a strategic alliance, companies remain legally independent and the focus is on sharing resources, knowledge, and access to markets. The agreement is typically less binding and easier to dissolve compared to a joint venture. An example of a strategic alliance is Starbucks and PepsiCo partnering to market and distribute Starbucks-branded read-to-drink beverages globally. Strategic alliances are used to enter new markets, share technological expertise, or achieve cost efficiencies without significant financial or operational commitment.

A few examples of a strategic equity alliance (one company buys equity in the other, or both buy in each other) is between:

• One prominent example of a successful strategic partnership is the partnership between Apple and Nike. This collaboration brought together Apple’s technological expertise and Nike’s extensive knowledge in sports and fitness. Through this partnership, they created the Nike+ iPod, a product that revolutionized the way people track their workouts using their iPod and Nike shoes.
• Tesla and Panasonic formed a strategic alliance to build Tesla’s Gigafactory, a large-scale battery manufacturing plan in the United States. This collaboration focuses on producing lithium-ion batteries to support Tesla’s electric vehicles (EVs) and energy storage products. Under the agreement, Tesla manages the land, buildings, and utilities for the Gigafactory, while Panasonic manufactures and supplies cylindrical lithium-ion cells. Panasonic also invests in equipment and machinery for production. By co-locating suppliers and optimizing manufacturing processes, this partnership aims to reduce battery costs through economies of scale. The Gigafactory’s output supports Tesla’s goal of producing mass-market EVs, such as the Model 3, and lowering energy storage costs across applications. The alliance highlights the strategic benefit of combining Tesla’s EV expertise with Panasonic’s battery technology to advance sustainable energy solutions and the EV market.
• Non-equity strategic alliance is when two companies share resources and proprietary information. An example of this is between Kroger and Starbucks, any time you shop at the grocery chain, there’s a Starbucks stand near the door.

Joint Venture

A joint venture involves two or more companies forming a new, independent legal entity to pursue a specific business objective or project. The companies share ownership, profits, risks, and governance in the newly created entity. This typically involves significant capital investment and a long-term commitment. The joint venture ends when the project or objective is completed unless extended by the parties. An example of a joint venture is Sony Ericsson, which was the resulting company formed by Sony and Ericsson to produce mobile phones (eventually acquired by Sony). Another prime example of a joint venture is the partnership between NASA and Google, which created the business Google Earth. Another example is SIA and TATA, which ventured into forming Vistara Airlines out of India. Joint ventures are used when there are large-scale, resource-intensive projects, entering highly regulated markets, or pooling expertise for mutual benefit. Refer to Table 7.1 for a comparison of the key differences between strategic alliances and joint ventures.

Table 7.1: Key Differences Between Strategic Alliance and Joint Venture

Aspect	Strategic Alliance	Joint Venture
Legal Structure	No new entity formed	New independent entity created
Commitment	Flexible and less binding	Long-term and formal commitment
Risk and Control	Risks and control are individual	Shared risks, profits, and governance
Duration	Typically short to medium term	Often long-term
Examples	Co-branding agreements, research collaborations	Infrastructure projects, product development partnerships

Foreign Direct Investment and Subsidiaries

Foreign Direct Investment

Many of the approaches to global expansion that we’ve discussed so far allow companies to participate in international markets without investing in foreign plants and facilities. As markets expand, however, a firm might decide to enhance its competitive advantage by making a direct investment in operations conducted in another country. Foreign direct investment (FDI) refers to the formal establishment of business operations on foreign soil—the building of factories, sales offices, and distribution networks to serve local markets in a nation other than the company’s home country. On the other hand, offshoring occurs when the facilities set up in the foreign country replace Canadian manufacturing facilities and are used to produce goods that will be sent back to Canada for sale.

FDI is generally the most expensive commitment that a firm can make to an overseas market, and it’s typically driven by the size and attractiveness of the target market. For example, German and Japanese automakers, such as BMW, Mercedes, Toyota, and Honda, have made serious commitments to the U.S. market: most of the cars and trucks that they build in plants in the South and Midwest are destined for sale in the United States.

Subsidiary

A common form of FDI is the foreign subsidiary: an independent company owned by a foreign firm (called the parent). This approach to going international not only gives the parent company full access to local markets but also exempts it from any laws or regulations that may hamper the activities of foreign firms. The parent company has tight control over the operations of a subsidiary, but while senior managers from the parent company often oversee operations, many managers and employees are citizens of the host country. Not surprisingly, most very large firms have foreign subsidiaries. IBM and Coca-Cola, for example, have both had success in the Japanese market through their foreign subsidiaries (IBM-Japan and Coca-Cola–Japan). FDI goes in the other direction, too, and many companies operating in the United States are in fact subsidiaries of foreign firms. Gerber Products, for example, is a subsidiary of the Swiss company Novartis, while Stop & Shop and Giant Food Stores belong to the Dutch company Royal Ahold. Where does most FDI capital end up? The graph below provides an overview of amounts, destinations (high to low income countries), and trends.

Foreign Acquisition

Walmart Example of Both FDI And Subsidiary

The acquisition of a foreign company by a domestic company is considered a form of foreign direct investment (FDI). When a company based in one country acquires a substantial ownership stake (typically 10% or more) in a business located in another country, it qualifies as FDI. The key feature of FDI is that it involves not only capital transfer but also control or significant influence over the foreign entity’s operations.

Walmart and Flipkart formed a significant business relationship when Walmart acquired a 77% majority stake in Flipkart for $16 billion in 2018. This move marked Walmart’s entry into India’s burgeoning e-commerce market, which is among the fastest-growing in the world. However, this is not a joint venture but rather an acquisition, as Walmart gained control of Flipkart while maintaining the existing brand and operations of the Indian company.

Flipkart is a leading e-commerce platform in India, and the acquisition allowed Walmart to establish a foothold in India’s online retail market to compete against Amazon. Walmart leveraged Flipkart’s extensive logistics network, while also applying its own expertise to enhance supply chain efficiency and improve customer satisfaction. Flipkart benefited from Walmart’s resources and global reach, including its financial strength and technological capabilities, while Walmart tapped into Flipkart’s local market expertise and established customer base. Walmart had to navigate India’s restrictions on foreign direct investment in multi-brand retail. The deal was structured to comply with these laws, ensuring Flipkart’s operations could continue while adapting to regulatory requirements. This acquisition highlights how multinational corporations like Walmart strategically invest in emerging markets, often through partnerships or acquisitions, rather than joint ventures. The success of such strategies hinges on aligning operational strengths, navigating local regulations, and meeting competitive challenges.

Walmart’s investment in Flipkart qualifies as foreign direct investment (FDI) because it involved Walmart acquiring a controlling 77% stake in Flipkart, an Indian company, for $16 billion. This type of investment is categorized as FDI since it entails a direct investment by a foreign company (Walmart, based in the United States) into a business operating in another country (Flipkart in India). Walmart’s majority stake gives it control over Flipkart’s operations and strategic direction, characteristic of FDI.

Following the acquisition, Flipkart operates as a subsidiary of Walmart, meaning Walmart owns the company while Flipkart continues to function under its own brand and management in the local market. The deal exemplifies Walmart’s strategic move to enter India’s growing e-commerce sector and highlights the nature of FDI as a tool to penetrate foreign markets. This arrangement combines the principles of FDI with subsidiary operations, allowing Walmart to benefit from Flipkart’s established local presence while providing Flipkart with resources and expertise to expand its market share further​.

These strategies have been employed successfully in global business. But success in international business involves more than finding the best way to reach international markets. Global business is a complex, risky endeavor. Over time, many large companies reach the point of becoming truly multi-national.

Foreign Mergers

A strategic alliance with a foreign company is not the same as a merger. These two concepts involve different types of business relationships and commitments. A strategic alliance is a formal agreement between two or more companies to collaborate and leverage each other’s resources, expertise, or market presence without forming a new legal entity or transferring ownership. A merger involves two or more companies combining to form a single new entity, often with shared ownership, resources, and management. In a merger, ownership and control are consolidated. It involves permanent restructuring. Often, one company may dissolve into the other, or both may dissolve into a newly formed entity. A strategic alliance focuses on mutual benefit without ownership transfer, while a merger represents a deeper level of integration where the entities combine to form a single organization.

A well-known example of a domestic company merging with a foreign company is the merger between Vodafone Group, based in the UK, and Idea Cellular, an Indian telecom provider. This merger created Vodafone Idea Limited, a major player in India’s telecommunications market. The merger combined the resources and market strengths of both companies to enhance competitive positioning and operational efficiencies in a rapidly evolving market. This type of cross-border merger is complex, involving regulatory approvals, alignment of corporate strategies, and integration of operations across different legal and cultural environments. These collaborations are essential for companies looking to expand their global footprint and leverage each other’s strengths in their respective markets.

Both mergers and joint ventures facilitate collaboration, but they differ significantly in purpose, scope, and legal integration.

Refer to Table 7.2 for a comparison of the key differences between strategic alliances, joint ventures, and mergers.

Table 7.2: Key Differences Between Strategic Alliance, Joint Venture, and Merger

Aspect	Strategic Alliance	Joint Venture	Merger
Legal Structure	No new entity created; companies remain separate	Companies remain separate	Companies combine into a single entity
Ownership	Independent ownership remains intact	Shared control over the joint project, not the company	Ownership is shared in the new entity
Control	Each company retains control over its operations	Shared risks, profits, and governance of the project, not the company	Control is unified under the merged company
Commitment	Collaboration is often flexible and limited	Project-based and temporary	The commitment is permanent and comprehensive

Multinational Corporations

A company that operates in many countries is called a multinational corporation (MNC). According to Fortune’s Global 500 2024 rankings, Walmart is the world’s largest company by revenue for the 11th year in a row, with almost $648 billion in revenue in 2024. Walmart also has the most employees of any company in the world. Microsoft is one of the most profitable companies in the world, along with Apple and Alphabet. As of June 2024, Apple was the most profitable company in the world, with a net income of $100 billion. Apple was also one of the companies with the largest corporate annual earnings of all time in 2021 and 2022.

Many MNCs have made themselves more sensitive to local market conditions by decentralizing their decision making while still maintaining a fair amount of control. Today, fewer managers are dispatched from headquarters; MNCs depend instead on local talent. Not only does decentralized organization speed up and improve decision making, but it also allows an MNC to project the image of a local company. IBM, for instance, has been quite successful in the Japanese market because local customers and suppliers perceive it as a Japanese company. Crucial to this perception is the fact that the vast majority of IBM’s Tokyo employees, including top leadership, are Japanese nationals.

Some MNCs standardize their products globally while others adapt their products to the local region they operate within. Standardization delivers a single unified product that sits comfortably in all markets. Standardization allows manufacturers to keep costs down using one set of manufacturing tools and the same packaging, creating a truly global product in the process. Production is more straightforward with only one set of options, as opposed to multiple versions of the same product creating considerable additional costs; conversely, waste is also kept to a minimum. Compared to alternative versions that appeal directly to local users, standardized products have a mass-market appeal, ideal for travelers who can immediately appreciate what they’re getting wherever they acquire it.

Here are a few examples of product standardization in foreign markets:

• Sporting manufacturers, such as Nike and Adidas, retain global standardization across global markets with strict branding, marketing and product themes remaining the same throughout. However, the sports and teams they sponsor and supply locally in each region are culturally considered to match the brand’s values and the product’s sales potential.
• Red Bull, despite its Austrian roots, with its typically European style remains almost untouched across its international markets. It retains the same packaging, product size, and branding throughout to stay so instantly recognizable. And with its prime marketing tactic supporting every type of extreme, high-energy sports, it’s market-appropriate across the masses too.

MNCs often adopt the approach encapsulated in the motto “Think globally, act locally”. They often adjust their operations, products, marketing, and distribution to mesh with the environments of the countries in which they operate. Because they understand that a “one-size-fits-all” mentality doesn’t make good business sense when they’re trying to sell products in different markets, they’re willing to accommodate cultural and economic differences. Adaptation delivers a modified version of the product (may also modify promotional strategy and pricing) that considers local requirements, culturally and legally. Increasingly, MNCs supplement their mainstream product line with products designed for local markets.

Here are a few examples of product adaptation in foreign markets:

• Coca-Cola, for example, sells a coffee alternative and citrus-juice drinks developed specifically for the Japanese market.
• MacDonalds adapts its menu for many global markets, retaining the same branding throughout yet bolstering the phrase ‘glocal’ through regional changes so you can enjoy Chicken McArabia in the Middle East, McSpaghetti in the Philippines, and Macarons in France.
• Domino’s pizza changed its toppings preferentially for local diners. They played to the popular diets of seafood and fish in Asia and curries in India.
• Dunkin’ Donuts amends its menus to cater for each of the 36 countries where it operates. You might not instantly warm to the idea of a dry pork and seaweed donut, but they’re all the rage in China.
• P&G Diapers completely remodelled its product when moving into alternative local markets. Their research into local markets found that many features weren’t considered necessary in poorer countries, and the price seemed to be the critical factor. So, by amending packaging and product materials, they managed to match the price point (to the same as a single egg) without damaging the brand.

Benefits of MNCs

Supporters of MNCs respond that huge corporations deliver better, cheaper products for customers everywhere; create jobs; and raise the standard of living in developing countries. They also argue that globalization increases cross-cultural understanding.

Some of the benefits of MNCs include:

• Create wealth and jobs around the world. Inward investment by multinationals creates much needed foreign currency for developing economies. They also create jobs and help raise expectations of what is possible.
• Their size and scale of operation enable them to benefit from economies of scale enabling lower average costs and prices for consumers. This is particularly important in industries with very high fixed costs, such as car manufacture and airlines.
• Large profits can be used for research & development. For example, oil exploration is costly and risky; this could only be undertaken by a large firm with significant profit and resources. It is similar for drug manufacturers who need to take risks in developing new drugs.
• Ensure minimum standards. The success of multinationals is often because consumers like to buy goods and services where they can rely on minimum standards. i.e. if you visit any country you know that the Starbucks coffee shop will give something you are fairly familiar with. It may not be the best coffee in the district, but it won’t be the worst. People like the security of knowing what to expect.
• Products which attain global dominance have a universal appeal. McDonald’s, Coca-Cola, and Apple have attained their market share due to meeting consumer preferences.
• Foreign investments. Multinationals engage in Foreign direct investment. This helps create capital flows to poorer/developing economies. It also creates jobs. Although wages may be low by the standards of the developed world – they are better jobs than alternatives and gradually help to raise wages in the developing world.
• Outsourcing of production by multinationals – enables lower prices; this increases disposable incomes of households in the developed world and enables them to buy more goods and services – creating new sources of employment to offset the lost jobs from outsourcing manufacturing jobs.

Criticisms of MNCs

The global reach of MNCs is a source of criticism as well as praise. Critics argue that they often destroy the livelihoods of home-country workers by moving jobs to developing countries where workers are willing to labour under poor conditions and for less pay. They also contend that traditional lifestyles and values are being weakened, and even destroyed, as global brands foster a global culture of American movies; fast food; and cheap, mass-produced consumer products. Still others claim that the demand of MNCs for constant economic growth and cheaper access to natural resources do irreversible damage to the physical environment. All these negative consequences, critics maintain, stem from the abuses of international trade—from the policy of placing profits above people, on a global scale.

Some of the criticisms of MNCs include:

• In the pursuit of profit, multinational companies often contribute to pollution and use of non-renewable resources which is putting the environment under threat. For example, some MNCs have been criticized for outsourcing pollution and environmental degradation to developing economies where pollution standards are lower.
• Outsourcing to cheaper labour-cost economies has caused loss of jobs in the developed world. This is an issue in the US where many multinationals have outsourced production around the world.
• MNCs possess substantial financial and technological resources, enabling them to dominate markets. This often leads to monopolistic or oligopolistic practices, pushing smaller, local businesses out of competition. For example, global retail giants have faced criticism for undermining small-scale retailers in developing countries, disrupting local economies and livelihoods.
• MNCs are frequently criticized for repatriating their profits to their home countries rather than reinvesting them in the host nations. This practice can drain foreign exchange reserves in developing countries and limit the local economic benefits of their operations. Host economies often see minimal returns despite significant contributions to MNC revenues.
• MNCs are often accused of exploiting natural resources in host countries without adequate regard for sustainability. Industries such as mining, oil extraction, and agriculture are particularly notorious for depleting resources and leaving host countries with long-term environmental degradation.

The Global Business Environment

In the classic movie The Wizard of Oz, a magically misplaced Midwest farm girl takes a moment to survey the bizarre landscape of Oz and then comments to her little dog, “I don’t think we’re in Kansas anymore, Toto”. That sentiment probably echoes the reaction of many businesspeople who find themselves in the midst of international ventures for the first time. The differences between the foreign landscape and the one with which they’re familiar are often huge and multifaceted. Some are quite obvious, such as differences in language, currency, and everyday habits (say, using chopsticks instead of silverware). But others are subtle, complex, and sometimes even hidden.

Success in international business means understanding a wide range of cultural, economic, legal, and political differences between countries. Let’s look at some of the more important of these differences.

The Cultural Environment

The cultural environment is the set of factors that shape the way people interact with each other and their physical and social environment. Even when two people from the same country communicate, there’s always a possibility of misunderstanding. When people from different countries get together, that possibility increases substantially. Differences in communication styles reflect differences in culture: the system of shared beliefs, values, customs, and behaviors that govern the interactions of members of a society. Cultural differences create challenges to successful international business dealings. Let’s look at a few of these challenges.

Some social scientists argue that CQ (Cultural Quotient) is the new IQ (Intelligence Quotient) and that it is an even more important measure for determining professional success than smarts measured by traditional intelligence quotient tests. Review this article “Increase Your Cultural Intelligence” for some tips on improving your cultural intelligence. Take this Test Your Cultural Intelligence quiz if you wish to know whether or not you have a high CQ.

Language

English is the international language of business. The natives of such European countries as France and Spain certainly take pride in their own languages and cultures, but nevertheless English is the business language of the European community.

Whereas only a few educated Europeans have studied Italian or Norwegian, most have studied English. Similarly, on the South Asian subcontinent, where hundreds of local languages and dialects are spoken, English is the official language. In most corners of the world, English-only speakers—such as most Canadians—have no problem finding competent translators and interpreters. So why is language an issue for English speakers doing business in the global marketplace? In many countries, only members of the educated classes speak English. The larger population—which is usually the market you want to tap—speaks the local tongue. Advertising messages and sales appeals must take this fact into account. More than one English translation of an advertising slogan has resulted in a humorous (and perhaps serious) blunder.

Here are a few advertisements that were lost in translation:

• In Belgium, the translation of the slogan of an American auto-body company, Body by Fisher, came out as Corpse by Fisher.
• Translated into German, the slogan, Come Alive with Pepsi became Come Out of the Grave with Pepsi.
• A U.S. computer company in Indonesia translated “software” as “underwear”.
• A German chocolate product called “Zit” didn’t sell well in the U.S.
• An English-speaking car wash company in Francophone Quebec advertised itself as a “lavement d’auto” or “car enema” instead of the correct “lavage d’auto.
• In the 1970s, General Motors’ Chevy Nova didn’t get on the road in Puerto Rico, in part because “nova” in Spanish means “it doesn’t go”.

Furthermore, relying on translators and interpreters puts you as an international businessperson at a disadvantage. You’re privy only to interpretations of the messages that you’re getting, and this handicap can result in a real competitive problem. Maybe you’ll misread the subtler intentions of the person with whom you’re trying to conduct business. The best way to combat this problem is to study foreign languages. Most people appreciate some effort to communicate in their local language, even on the most basic level. They even appreciate mistakes you make resulting from a desire to demonstrate your genuine interest in the language of your counterparts in foreign countries. The same principle goes doubly when you’re introducing yourself to non- English speakers in Canada. Few things work faster to encourage a friendly atmosphere than a native speaker’s willingness to greet a foreign guest in the guest’s native language.

Time and Sociability

North Americans take for granted many of the cultural aspects of our business practices. Most of our meetings, for instance, focus on business issues, and we tend to start and end our meetings on schedule. These habits stem from a broader cultural preference: we don’t like to waste time. (It was an American, Benjamin Franklin, who coined the phrase “Time is money.”) This preference, however, is by no means universal. The expectation that meetings will start on time and adhere to precise agendas is common in parts of Europe (especially the Germanic countries), as well as in Canada, but elsewhere—say, in Latin America and the Middle East—people are often late to meetings.

High- and Low-Context Cultures

Don’t expect businesspeople from these regions—or businesspeople from most of Mediterranean Europe, for that matter—to “get down to business” as soon as a meeting has started. They’ll probably ask about your health and that of your family, inquire whether you’re enjoying your visit to their country, suggest local foods, and generally appear to be avoiding serious discussion at all costs. For Canadians, such topics are conducive to nothing but idle chitchat, but in certain cultures, getting started this way is a matter of simple politeness and hospitality.

High-context and low-context cultures refer to different approaches to communication: High-context cultures rely on implicit messages, body language, and context. High-context cultures are often found in Asia, the Middle East, and Latin America. Low-context cultures prioritize explicit verbal communication and clarity. Low-context cultures are typically associated with Western countries like the United States and Germany.

Different cultures have different communication styles—a fact that can take some getting used to. For example, degrees of animation in expression can vary from culture to culture. Southern Europeans and Middle Easterners are quite animated, favoring expressive body language along with hand gestures and raised voices. Northern Europeans are far more reserved. The English, for example, are famous for their understated style and the Germans for their formality in most business settings. In addition, the distance at which one feels comfortable when talking with someone varies by culture. People from the Middle East like to converse from a distance of a foot or less, while North Americans prefer more personal space.

While people in some cultures prefer to deliver direct, clear messages, others use language that’s subtler or more indirect. North Americans and most Northern Europeans fall into the former category and many Asians into the latter. But even within these categories, there are differences. Though typically polite, Chinese and Koreans are extremely direct in expression, while Japanese are indirect: They use vague language and avoid saying “no” even if they do not intend to do what you ask. They worry that turning someone down will result in their “losing face”, i.e., an embarrassment or loss of credibility, and so they avoid doing this in public.

In summary, learn about a country’s culture and use your knowledge to help improve the quality of your business dealings. Learn to value the subtle differences among cultures, but don’t allow cultural stereotypes to dictate how you interact with people from any culture. Treat each person as an individual and spend time getting to know what he or she is about.

The Economic Environment

Economic development refers to the process through which a region, country, or community improves the well-being of its citizens by increasing income, reducing poverty, creating jobs, and expanding access to healthcare and education. If you plan to do business in a foreign country, you need to know its level of economic development. You also should be aware of factors influencing the value of its currency and the impact that changes in that value will have on your profits.

Economic Development

If you don’t understand a nation’s level of economic development, you’ll have trouble answering some basic questions, such as: Will consumers in this country be able to afford the product I want to sell? Will it be possible to make a reasonable profit? A country’s level of economic development can be evaluated by estimating the annual income earned per citizen. The World Bank, which lends money for improvements in underdeveloped nations, divides countries into four income categories (Refer to Figure 7.4):

World Bank Group Income Categories as of July 1, 2024:

• High income—Great than $14,005 or higher (United States, Germany, Japan, Canada)
• Upper-middle income—$4,516 to $14,005 (China, South Africa, Mexico)
• Lower-middle income—$1,146 to $4,515 (Kenya, Philippines, India)
• Low income—$1,145 or less (Afghanistan, South Sudan, Uganda)

Note that that even though a country has a low annual income per citizen, it can still be an attractive place for doing business. India, for example, is a lower-middle-income country, yet it has a population of a billion, and a segment of that population is well educated—an appealing feature for many business initiatives.

 

The classification of countries into income categories has evolved significantly over the period since the late 1980s. In 1987, 30% of reporting countries were classified as low-income and 25% as high-income countries. Jumping to 2023, these overall ratios have shifted down to 12% in the low-income category and up to 40% in the high-income category.

The scale and direction of these shifts, however, varies a great deal between world regions. Here are some regional highlights:

• 100% of South Asian countries were classified as low-income countries in 1987, whereas this share has fallen to just 13% in 2023.
• In the Middle East and North Africa there is a higher share of low-income countries in 2023 (10%) than in 1987, when no countries were classified to this category.
• In Latin America and the Caribbean, the share of high-income countries has climbed from 9% in 1987 to 44% in 2023.
• Europe and Central Asia has a slightly lower share of high-income countries in 2023 (69%) than it did in 1987 (71%).

The long-term goal of many countries is to move up the economic development ladder. Some factors conducive to economic growth include a reliable banking system, a strong stock market, and government policies to encourage investment and competition while discouraging corruption. It’s also important that a country have a strong infrastructure—its systems of communications (telephone, Internet, television, newspapers), transportation (roads, railways, airports), energy (gas and electricity, power plants), and social facilities (schools, hospitals). These basic systems will help countries attract foreign investors, which can be crucial to economic development.

Currency Valuations and Exchange Rates

If every nation used the same currency, international trade and travel would be a lot easier. Of course, this is not the case. The United Nations currently recognizes 180 currencies that are used in 195 countries across the world. Some currencies you’ve heard of, such as the British pound; others are likely unknown to you, such as the manat, the official currency of Azerbaijan. If you were in Azerbaijan you would exchange your Canadian dollars for Azerbaijan manats. The day’s foreign exchange rate will tell you how much one currency is worth relative to another currency and so determine how many manats you will receive. If you have traveled abroad, you already have personal experience with the impact of exchange rate movements.

The Legal and Regulatory Environment

One of the more difficult aspects of doing business globally is dealing with vast differences in legal and regulatory environments. Canada, for example, has an established set of laws and regulations that provide direction to businesses operating within its borders. But because there is no global legal system, key areas of business law—for example, contract provisions and copyright protection—can be treated in different ways in different countries. Companies doing international business often face many inconsistent laws and regulations. To navigate this sea of confusion, Canadian business people must know and follow both Canadian laws and regulations and those of nations in which they operate.

Business history is filled with stories about North American companies that have stumbled in trying to comply with foreign laws and regulations. Laws change as well over time. For example, the government in the Netherlands made working from home a legal right. This means companies can expect requests from employees to work remotely, therefore, companies should develop a work from home policy outlining the factors they will consider when an employee makes a request.

One approach to dealing with local laws and regulations is hiring lawyers from the host country who can provide advice on legal issues. Another is working with local business people who have experience in complying with regulations and overcoming bureaucratic obstacles.

Foreign Corrupt Practices Act

One Canadian law that creates unique challenges for Canadian firms operating overseas is the Corruption of Foreign Public Officials Act (CFPOA), which prohibits the distribution of bribes and other favors in the conduct of business. Despite the practice being illegal in Canada, such tactics as kickbacks and bribes are business-as-usual in many nations. According to some experts, Canadian business people are at a competitive disadvantage if they’re prohibited from giving bribes or undercover payments to foreign officials or business people who expect them. In theory, because the Corruption of Foreign Public Officials Act warns foreigners that Canadians can’t give bribes, they’ll eventually stop expecting them.

Where are business people most likely and least likely to encounter bribe requests and related forms of corruption? Transparency International reports on corruption and publishes an annual Corruption Perceptions Index that rates the world’s countries. Transparency International annually rates nations according to “perceived corruption” and defines corruption as “the abuse of entrusted power for private gain.” A score of 100 would be perfect (corruption free) and anything below 30 establishes that corruption is rampant. In 2023, Canada scored 76/100 on the Corruption Perceptions Index, ranking 12/180 countries. Top-scoring countries also tend to have well-functioning justice systems, stronger rule of law and political stability.

Ranked as the least corrupt country was Denmark, ranking 1/180 and scoring 90/100, followed by Finland, New Zealand, Norway, Singapore, and Sweden. The most corrupt countries include Somalia, ranked 180/180, followed by Venezuela, Syria, South Sudan, Yemen, and North Korea.

Transparency International reports on corruption and publishes an annual Corruption Perceptions Index that rates the world’s countries. A score of 100 would be perfect (corruption free) and anything below 30 establishes that corruption is rampant.

Trade Controls

The debate about the extent to which countries should control the flow of foreign goods and investments across their borders is as old as international trade itself. Trade controls are policies that restrict free trade, and governments continue to control trade. To better understand how and why, let’s examine a hypothetical case. Suppose you’re in charge of a small country in which people do two things—grow food and make clothes. Because the quality of both products is high and the prices are reasonable, your consumers are happy to buy locally made food and clothes. But one day, a farmer from a nearby country crosses your border with several wagonloads of wheat to sell. On the same day, a foreign clothes maker arrives with a large shipment of clothes. These two entrepreneurs want to sell food and clothes in your country at prices below those that local consumers now pay for domestically made food and clothes. At first, this seems like a good deal for your consumers: they won’t have to pay as much for food and clothes. But then you remember all the people in your country who grow food and make clothes. If no one buys their goods (because the imported goods are cheaper), what will happen to their livelihoods? And if many people become unemployed, what will happen to your national economy? That’s when you decide to protect your farmers and clothes makers by setting up trade rules. Maybe you’ll increase the prices of imported goods by adding a tax to them; you might even make the tax so high that they’re more expensive than your homemade goods. Or perhaps you’ll help your farmers grow food more cheaply by giving them financial help to defray their costs. The government payments that you give to the farmers to help offset some of their costs of production are called subsidies. These subsidies will allow the farmers to lower the price of their goods to a point below that of imported competitors’ goods. What’s even better is that the lower costs will allow the farmers to export their own goods at attractive, competitive prices.

Canada has a long history of subsidizing farmers. Subsidy programs guarantee farmers (including large corporate farms) a certain price for their crops, regardless of the market price. This guarantee ensures stable income in the farming community but can have a negative impact on the world economy. How? Critics argue that in allowing Canadian farmers to export crops at artificially low prices, Canadian agricultural subsidies permit them to compete unfairly with farmers in developing countries. A reverse situation occurs in the steel industry, in which a number of countries—China, Japan, Russia, Germany, and Brazil—subsidize domestic producers. U.S. trade unions charge that trade subsidy practices gives an unfair advantage to foreign producers and hurts American industries, which can’t compete on price with subsidized imports.

The top exports of Canada in 2022 were Crude Petroleum ($123B), Cars ($29.4B), Petroleum Gas ($24.3B), Refined Petroleum ($17.2B), and Gold ($14.7B), exporting mostly to United States ($438B), China ($25.4B), Japan ($14.3B), United Kingdom ($12.9B), and Mexico ($7.39B). The top imports of Canada are Cars ($31.9B), Refined Petroleum ($19.8B), Motor vehicles; parts and accessories (8701 to 8705) ($17.4B), Delivery Trucks ($17.3B), and Crude Petroleum ($16.8B), importing mostly from United States ($308B), China ($62.1B), Mexico ($22.2B), Germany ($14.1B), and Japan ($9.87B). So, if Canada imported $308B from the United States and exported $438B to the United States, Canada achieved a positive trade balance of $130B.

Whether they push up the price of imports or push down the price of local goods, such initiatives will help locally produced goods compete more favorably with foreign goods. Both strategies are forms of trade controls—policies that restrict free trade. Because they protect domestic industries by reducing foreign competition, the use of such controls is often called protectionism. Though there’s considerable debate over the pros and cons of this practice, all countries engage in it to some extent. Before debating the issue, however, let’s learn about the more common types of trade restrictions: tariffs, quotas, and embargoes.

Tariffs

Tariffs are taxes on imports. Because they raise the price of the foreign-made goods, they make them less competitive. Tariffs are also used to raise revenue for a government. Donald Trump, President of The United States, for example, announced in March of 2018 that the U.S. would increase tariffs on imported steel products from 10% to 25% as a means of enhancing the American steel industry and protecting U.S steel manufacturers.

Quotas

A quota imposes limits on the quantity of a good that can be imported over a period of time. Quotas are used to protect specific industries, usually new industries or those facing strong competitive pressure from foreign firms. Canadian import quotas take two forms. An absolute quota fixes an upper limit on the amount of a good that can be imported during the given period. A tariff-rate quota permits the import of a specified quantity and then adds a high import tax once the limit is reached.

Sometimes quotas protect one group at the expense of another. For example, let us assume that a hypothetical country restricts the number of mangoes imported. If the demand for mangoes in the country is 27,000 pounds and the current international market price for one pound of mangoes is $1.35. Upon introducing an import quota, the country imposes restriction and allows importing only 18000 pounds of mangoes. When this happens, it hikes the domestic price to $1.89 per pound of mangoes. At this price, the domestic farmers of the country can afford to increase their production from 4000 to 9000 pounds. At the same time, at the price of $1.89 per pound, the country’s demand for mangoes declines to 25000 pounds. In this example, the restriction helps domestic mango farmers increase production and decrease demand through price regulation.

Another example, the wheat export quota implemented by India has prompted Nepal’s flour industry to adapt and innovate. It was introduced in response to concerns about reduced wheat production due to heatwaves in India, but it has spurred resilience in Nepali flour mills. Nepal, which primarily sources wheat from India, initially received a partial quota allocation, leading to concerns about potential price increases. In response to this situation, calls have been made for the Nepali government to engage in constructive dialogue with India to secure 200,000 tonnes of wheat, which could help mitigate potential shortages. While the initial quota allocation did offer some relief by reducing flour prices, industry leaders are now advocating for a comprehensive, long-term solution, recognizing that domestic production alone may not suffice to meet the demand.

Embargos

An extreme form of quota is the embargo, which, for economic or political reasons, bans the import or export of certain goods to or from a specific country.

Dumping

A common political rationale for establishing tariffs and quotas is the need to combat dumping: the practice of selling exported goods below the price that producers would normally charge in their home markets (and often below the cost of producing the goods). Usually, nations resort to this practice to gain entry and market share in foreign markets, but it can also be used to sell off surplus or obsolete goods. Dumping creates unfair competition for domestic industries, and governments are justifiably concerned when they suspect foreign countries of dumping products on their markets. They often retaliate by imposing punitive tariffs that drive up the price of the imported goods.

The Pros and Cons of Trade Controls

Opinions vary on government involvement in international trade. Proponents of controls contend that there are a number of legitimate reasons why countries engage in protectionism. Sometimes they restrict trade to protect specific industries and their workers from foreign competition—agriculture, for example, or steel making. At other times, they restrict imports to give new or struggling industries a chance to get established. Finally, some countries use protectionism to shield industries that are vital to their national defense, such as shipbuilding and military hardware.

Despite valid arguments made by supporters of trade controls, most experts believe that such restrictions as tariffs and quotas—as well as practices that don’t promote level playing fields, such as subsidies and dumping—are detrimental to the world economy. Without impediments to trade, countries can compete freely. Each nation can focus on what it does best and bring its goods to a fair and open world market. When this happens, the world will prosper, or so the argument goes. International trade is certainly heading in the direction of unrestricted markets.

Reducing International Trade Barriers

Many organizations work to remove barriers to trade, and an increasing number of countries are coming together to foster trade and shared economic benefits. Lowering trade barriers helps businesses source materials and products from more affordable international suppliers, reducing production costs and boosting competitiveness. For example, when China lowered its trade barriers, it made cheaper goods available to businesses worldwide, resulting in lower prices for consumers globally. Additionally, the reduction of tariffs and quotas allows businesses to tap into larger markets, creating more sales opportunities and higher profits. A case in point is the European Union, where the removal of trade barriers among member countries enables businesses to sell products across all EU nations without incurring extra costs.

Let’s review some of the important initiatives in reducing international trade barriers.

Trade Agreements and Organizations

Free trade is encouraged by a number of agreements and organizations set up to monitor trade policies. The two most important are the General Agreement on Tariffs and Trade and the World Trade Organization.

General Agreement on Tariffs and Trade

After the Great Depression and World War II, most countries focused on protecting home industries, so international trade was hindered by rigid trade restrictions. To rectify this situation, twenty-three nations joined together in 1947 and signed the General Agreement on Tariffs and Trade (GATT), which encouraged free trade by regulating and reducing tariffs and by providing a forum for resolving trade disputes. The highly successful initiative achieved substantial reductions in tariffs and quotas, and in 1995 its members founded the World Trade Organization to continue the work of GATT in overseeing global trade.

World Trade Organization

Based in Geneva, Switzerland, with nearly 150 members, the World Trade Organization (WTO) encourages global commerce and lower trade barriers, enforces international rules of trade, and provides a forum for resolving disputes. It is empowered, for instance, to determine whether a member nation’s trade policies have violated the organization’s rules, and it can direct “guilty” countries to remove disputed barriers (though it has no legal power to force any country to do anything it doesn’t want to do). If the guilty party refuses to comply, the WTO may authorize the plaintiff nation to erect trade barriers of its own, generally in the form of tariffs.

Affected members aren’t always happy with WTO actions. In 2002, for example, President George Bush’s administration imposed a three-year tariff on imported steel. In ruling against this tariff, the WTO allowed the aggrieved nations to impose counter-tariffs on some politically sensitive American products, such as Florida oranges, Texas grapefruits and computers, and Wisconsin cheese. Reluctantly, the administration lifted its tariff on steel.

Financial Support for Emerging Economies: The IMF and the World Bank

A key to helping developing countries become active participants in the global marketplace is providing financial assistance. Offering monetary assistance to some of the poorest nations in the world is the shared goal of two organizations: the International Monetary Fund and the World Bank. These organizations, to which most countries belong, were established in 1944 to accomplish different but complementary purposes.

The International Monetary Fund

The International Monetary Fund (IMF) loans money to countries with troubled economies, such as Mexico in the 1980s and mid-1990s and Russia and Argentina in the late 1990s. There are, however, strings attached to IMF loans: in exchange for relief in times of financial crisis, borrower countries must institute sometimes painful financial and economic reforms. In the 1980s, for example, Mexico received financial relief from the IMF on the condition that it privatize and deregulate certain industries and liberalize trade policies. The government was also required to cut back expenditures for such services as education, health care, and workers’ benefits.

The World Bank

The World Bank is an important source of economic assistance for poor and developing countries. With backing from wealthy donor countries (such as Canada, the United States, Japan, Germany, and United Kingdom), the World Bank has committed $128.3 billion in loans, grants, and guarantees to partner countries and private businesses. Loans are made to help countries improve the lives of the poor through community-support programs designed to provide health, nutrition, education, infrastructure, and other social services.

Trading Blocs: USMCA and the European Union

So far, our discussion has suggested that global trade would be strengthened if there were no restrictions on it—if countries didn’t put up barriers to trade or perform special favors for domestic industries. The complete absence of barriers is an ideal situation that we haven’t yet attained. In the meantime, economists and policymakers tend to focus on a more practical question: Can we achieve the goal of free trade on the regional level? To an extent, the answer is yes. In certain parts of the world, groups of countries have joined together to allow goods and services to flow without restrictions across their mutual borders. Such groups are called trading blocs. Let’s examine two of the most powerful trading blocs—USMCA and the European Union.

USMCA Association

USMCA is a free trade agreement between the United States, Mexico, and Canada which replaced the NAFTA free trade agreement. In April 2020, Canada and Mexico notified the U.S. that they were ready to implement the agreement. The USMCA took effect on July 1, 2020, replacing NAFTA. Each country benefits from the comparative advantages of its partners: each nation is free to produce what it does best and to trade its goods and services without restrictions.

The European Union

The forty-plus countries of Europe have long shown an interest in integrating their economies. The first organized effort to integrate a segment of Europe’s economic entities began in the late 1950s, when six countries joined together to form the European Economic Community (EEC). Over the next four decades, membership grew, and in the late 1990s, the EEC became the European Union. Today, the European Union (EU) is a unique economic and political union between 27 countries that have eliminated trade barriers among themselves (Refer to the map in Figure 7.5).

The EU is more than a trading organization: it also enhances political and social cooperation and binds its members into a single entity with authority to require them to follow common rules and regulations. It is much like a federation of states with a weak central government, with the effect not only of eliminating internal barriers but also of enforcing common tariffs on trade from outside the EU. In addition, the EU also allows people to come and go freely: if you possess an EU passport, you can work in any EU nation.

 

The Euro

A key step toward unification occurred in 1999, when most (but not all) EU members agreed to abandon their own currencies and adopt a joint currency. The actual conversion occurred in 2002, when a common currency called the euro replaced the separate currencies of participating EU countries. The common currency facilitates trade and finance because exchange-rate differences no longer complicate transactions.

The formation of the European Union (EU) paved the way for a unified, multi-country financial system under a single currency: the euro. Most EU member nations agreed to adopt the euro but a few have decided to stick with their legacy currencies. There are 27 member countries in the European Union but six of them are not in the Eurozone and therefore don’t use the euro. Denmark is a member country but has negotiated an opt-out with the Union and it has kept its own currency. The six countries that are not in the Eurozone choose to use their own currencies as a way to maintain financial independence on certain key issues. These issues include setting monetary policy, dealing with issues specific to each country, handling national debt, modulating inflation, and choosing to devalue the currency in certain circumstances. The Euro enables trade to operate far quicker by removing the need and risk of currency exchanges when operating across eurozone countries. Currency exchanges cost money to complete and are a risk to businesses as fluctuations in rates lead to uncertainty about the cost of the exchange. Therefore, by removing this barrier, trade has flowed easier between countries.

Only time will tell whether the trend toward regional trade agreements is good for the world economy. Clearly, they’re beneficial to their respective participants; for one thing, they get preferential treatment from other members. But certain questions still need to be answered more fully. Are regional agreements, for example, moving the world closer to free trade on a global scale—toward a marketplace in which goods and services can be traded anywhere without barriers?

CPTPP and CETA Agreements

Canada is engaged in more recent trade agreements including the following:

• The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) too effect in January 2019 and is a comprehensive and progressive agreement that is made up of 11 member countries. TPP will increase Canada’s foothold in Asia Pacific and create opportunities to open new markets, such as Canadian beef and pork producers gaining access to the Japanese market. Opponents of the TPP agreement highlights the impact on the dairy industry, the auto sector, and other groups.
• Canadian-European Union Comprehensive Economic and Trade Agreement (CETA). With CETA, Canada has negotiated trade deals in which 98% of Canadian goods are now duty-free and eventually 99% of tariffs will be eliminated.
• Canada started negotiations with Mercosur (made up of the following: Argentina, Brazil, Uruguay, Paraguay and Venezuela) in 2018, but had to pause when other priorities took over. As of 2023, Canada resumed negotiations for a free trade agreement (FTA) with Mercosur, a trading bloc and customs union consisting of Argentina, Brazil, Paraguay, and Uruguay.

Other Free Trade Agreements and Blocs

Nations have grouped together to form regional trade associations for their own benefits, including the following:

• ASEAN Free Trade Area;
• The Asia-Pacific Economic Cooperation (APEC);
• The Economic Community of Central African States;
• The Gulf Cooperation Council; and
• BRICS – Brazil, Russia, India, China and South Africa.

 

 Attributions

The contents of this chapter is a compilation sourced from various OER resources, please refer to the Book Information for details.

References

(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks)

What is Marketing?

When you consider the functional areas of business—accounting, finance, management, marketing, and operations—marketing is the one you probably know the most about. After all, as a consumer and target of all sorts of advertising messages, you’ve been on the receiving end of marketing initiatives for most of your life. What you probably don’t appreciate, however, is the extent to which marketing focuses on providing value to the customer. According to the American Marketing Association, “Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.”

In other words, marketing isn’t just advertising and selling. Marketing encompasses every part of a plan to turn a prospective consumer into a happy and satisfied customer. It includes everything from market research to advertising. The goal of marketing is to convince a person that your product is worth investing in, establish brand loyalty and increase overall sales. It includes everything that organizations do to satisfy customer needs, including:

• Coming up with a product and defining its features and benefits
• Setting its price
• Identifying its target market
• Making potential customers aware of it
• Getting people to buy it
• Delivering it to people who buy it
• Managing relationships with customers after it has been delivered

Think about a typical business—a local movie theater, for example. It’s easy to see how the person who decides what movies to show is involved in marketing; they select the product to be sold. It’s even easier to see how the person who puts ads in the newspaper works in marketing; they are in charge of advertising—making people aware of the product and getting them to buy it. What about the ticket seller and the person behind the counter who gets the popcorn and soda or the projectionist? Are they marketing the business? Absolutely. The purpose of every job in the theater is satisfying customer needs, and as we’ve seen, identifying and satisfying customer needs is what marketing is all about. Marketing is a team effort involving everyone in the organization.

If everyone is responsible for marketing, can the average organization do without an official marketing department? Not necessarily: most organizations have marketing departments in which individuals are actively involved in some marketing-related activity—product design and development, pricing, promotion, sales, and distribution. As specialists in identifying and satisfying customer needs, members of the marketing department manage, plan, organize, lead, and control the organization’s overall marketing efforts.

Consumer Behaviour

Knowledge of consumer buying behaviour and the influences on the consumer’s buying decision are critical to effective marketing.

The consumer buying process involves five steps:

1. Need recognition (first you realize you need or want something)
2. Information search (depending on the item you may do a short search or extensive search)
3. Evaluation of Alternatives (hmm…you consider where you will buy the item, getting the best deal, best quality, meeting your needs, etc.)
4. Purchase or No Purchase Decision (maybe you buy, maybe you don’t at this time)
5. Post-purchase Evaluation (you consider whether you enjoy it, if it works as advertised or will you return it, telling others about your experience, etc.)

Consumer Decision-making

The five step consumer decision-making process is part of a broader environmental context that influences each step. Effective marketing attempts to help consumers with their information search and the evaluation of alternatives, but there are other major influences on a consumer’s buying decision. These influences are listed below:

• Socio-cultural Influences: Culture, subculture, social class, family, and peers.
• Psychological Influences: Motivation, perception, attitudes, and learning.
• Situational Influences: Physical and social surroundings, type of product purchased.
• Personal Influences: Age, economic situation, lifestyle, and personality.
• Marketing Mix Influences: Product, price, place, and promotion.

The Marketing Concept

The marketing concept is a business philosophy where the organization’s goals are achieved by identifying customer needs and delivering value more effectively than competitors.

The nature of marketing has evolved over the years.

1. The Production Era (1920s-1940s) during which time companies focused on manufacturing and selling as many products as possible, assuming customers would buy whatever was available.
2. The Sales Era (1940s-1960s), Post-World War II economies led to increased competition as supply often exceeded demand. Businesses emphasized persuasion (door-to-door sales) and advertising (radio and print ads) to drive sales without prioritizing customer preferences.
3. The Marketing era (1960s-1980s). Consumer orientation, seeking to understand and satisfy needs and preferences of customer groups. The rise of market research and consumer behaviour studies. The 4Ps of marketing were introduced: product, price, place, promotion. This focus on creating products based on customer needs has become the foundation of modern marketing practices.
4. The Relationship era (1980s-2000s). Growth in technology allowed companies to engage with customers more personally. Benefits derived from deep, ongoing links with customers, employees, suppliers, and other businesses.
5. The Digital and Social era (2000s-Present). New ways for businesses and consumers to communicate and share information through the Internet and social media.
6. The Sustainability and ESG era (2010s-Present). Businesses prioritize ethical and sustainable practices, emphasizing green energy, ethical sourcing, and community impact. They aim to balance customer satisfaction, profitability, and societal well-being. Sustainability is integrated into core operations, addressing climate change, fair labour, and social responsibility.

The most important thing to remember about the marketing concept is that it is consumer-centric, meaning, it puts the customer first. Everyone in the organization must work to satisfy consumer needs while still being able to balance organizational needs. The company must ensure that it is profitable so that the organization can survive and grow.

Marketing Strategy

A marketing strategy consists of two major elements: the organization must determine its target market and then develop a marketing mix to meet the needs of that market. The target market is the specific group of consumers, with similar needs and wants, toward which a firm directs its marketing efforts. A target market is the group of people who are most likely to buy your product or service. The marketing mix is the combination of four factors, known as the “4Ps” of marketing. The 4Ps are designed to serve the target market and include product, price, promotion, and place.  A marketing strategy must not only define the target market, it must also define goals and outcomes, timelines, resources, and opportunities as well.  For example, the Statistics Canada 2021 Census stated that 6.2 million people (more than one in six Canadians) live in the GTA (Greater Toronto Area). A business would want to segment several specific customer groups to more effectively sell to its potential target markets living in the Toronto area.

There are five steps in the marketing planning process:

1. Mission (Understand the company’s mission and corporate objectives)
2. Situation Analysis (Identify opportunities, SWOT analysis, PEST analysis, 5C analysis)
3. Marketing Strategy (Define the target audience, Set measurable goals, Develop budget)
4. Marketing Mix (Product development, pricing, place and distribution, promotion)
5. Implementation and Control (Put plan into action, Monitor results)

Strategic marketing planning involves setting goals and objectives, analyzing internal and external business factors, product planning, implementation, and tracking your progress. Consider the example of Apple, winner of the CMO Survey Award for Marketing Excellence for the past sixteen years. Here’s an example of the five steps of the marketing planning process aligned to Apple Inc., one of the most successful companies in the world:

Mission: Apple is dedicated to making innovative, high-quality products.

Situation Analysis: Apple’s competitive advantage is driven by its commitment to understanding customer needs, focusing on the products that are core to its mission, and fostering a collaborative work culture.

Marketing Strategy: Apple usually is first to the marketplace with new products and the company relies on brand loyalty from existing customers as a strategy when launching new products and services.

Marketing Mix: While Apple offers a range of products, it values premium pricing and relies on strict guidelines for distribution.

Implementation and Control: Each Apple product complements the others and works within the same ecosystem, so customers tend to stay with the brand, creating loyal consumers.

The strategic marketing process puts all the pieces together so that everything you do contributes to the success of the business. Rather than executing haphazard activities and ideas, developing a solid plan that weaves goals and tactics into a seamless experience is essential.

Target Markets

Businesses earn profits by selling goods or providing services. It would be nice if everybody in the marketplace was interested in your product, but if you tried to sell it to everybody, you’d probably spread your resources too thin. You need to identify a specific group of consumers who should be particularly interested in your product, who would have access to it, and who have the means to buy it. This group represents your target market, and you need to aim your marketing efforts at its members.

Identifying Your Market

How do marketers identify target markets? First, they usually identify the overall market for their product—the individuals or organizations that need a product and are able to buy it. This market can include either or both of two groups:

• A consumer market—buyers who want the product for personal use
• An industrial market—buyers who want the product for use in making other products

You might focus on only one market or both. A farmer, for example, might sell blueberries to individuals on the consumer market and, on the industrial market, to bakeries that will use them to make muffins and pies.

Segmenting the Market

The next step in identifying a target market is to divide the entire market into smaller portions, or market segments—groups of potential customers with common characteristics that influence their buying decisions. You can use a number of characteristics to segment a market including demographic, geographic, behavioral, and psychographic. Demographic and geographic segmentation are quite common. To read more about each type of segmentation review the examples below.

Clustering Segments

Typically, marketers determine target markets by combining, or “clustering,” segmenting criteria. What characteristics does Starbucks look for in marketing its products? Three demographic variables come to mind: age, geography, and income. Buyers are likely to be of any gender, ranging in age from about twenty-five to forty (although college students, aged eighteen to twenty-four, are moving up in importance). Geography is a factor as customers tend to live or work in cities or upscale suburban areas. Those with relatively high incomes are willing to pay a premium for Starbucks specialty coffee and so income—a socioeconomic factor—is also important.

The Marketing Mix

After identifying a target market, your next step is developing and implementing a marketing program designed to reach it. This program involves a combination of tools called the marketing mix, often referred to as the “4P’s” of marketing:

1. Developing a product that meets the needs of the target market
2. Setting a price for the product
3. Distributing the product—getting it to a place where customers can buy it
4. Promoting the product—informing potential buyers about it

There are other models used for the marketing mix. One of which is the SAVE model, which stands for Solution, Access, Value, and Education. Unlike the initial 4Ps this idea promotes and advertises different virtues that fit productively in today’s marketing industry. Solution replaces product, access replaces place, value replaces price, and education replaces promotion. SAVE could potentially be a modern adaptation or evolution of this traditional framework. Another model is the 4Cs model, which stands for Customer, Cost, Convenience, and Communication. This is a contemporary marketing framework that expands on the conventional 4Ps paradigm. The 4Cs framework was proposed as a customer-centric alternative to the 4Ps, concentrating on the customer’s perspective and demands.

We will focus on the 4Ps Marketing Mix for the time being.

1st P=Product

There are many things that are involved in product development. The first step starts with coming up with an idea. It’s important to remember that when it comes to this first “P” of the marketing mix, the term “product” refers to both products and services.

New product development teams often consist of top management, and specialists from sales and marketing, research and development, manufacturing, and finance. This team will conduct market research and gather customer and employee feedback before formulating ideas for new products. The team will also evaluate the feasibility of ideas, consider the resources available, and identify risks. This group considers and plans new and improved products following the seven stages of new product development:

1. Idea Generation (Idea formulation)
2. Idea Evaluation (Screening)
3. Concept Testing
4. Product Development
5. Testing and Execution
6. Post Development (Commercialization, Market Introduction)
7. Support and Maintenance

Product Life Cycle

Once a product is developed, it begins the product life cycle. A product life cycle is a theoretical model describing a product’s sales and profits over the course of its lifetime. During this cycle the product typically goes through four stages: an introductory stage, a growth stage, a maturity stage, and a declining stage. Refer to Table 8.1 for a summary of the characteristics, marketing objectives, and strategies for each of the four stages of a product’s life cycle.

Table 8.1: The Product Life Cycle Model

Characteristics	Introduction	Growth	Maturity	Decline
Sales	Low sales	Radically rising sales	Peak sales	Declining sales
Costs	High cost per customer	High cost per customer	Low cost per customer	Low cost per customer
Profits	Negative	Rising	High	Declining
Customers	Innovators	Innovators	Middle majority	Laggards
Competitors	Few	Growing number	Stable number beginning to decline	Declining number
Marketing Objectives	Create product awareness and trial	Maximize market share	Maximize profit while defending market share	Reduce expenditure and milk the brand
Product Strategy	Offer a basic product	Offer product extensions, services, warranty	Diversify brands and models	Phase out weak items
Price Strategy	Charge cost-plus	Price to penetrate market	Price to match or beat competitors	Cut prices
Distribution Strategy	Build selective distribution	Build intensive distribution	Build more intensive distribution	Go selective; phase out unprofitable outlets
Advertising Strategy	Build product awareness among early adopters and dealers	Build awareness and interest in the mass market	Stress brand differences and benefits	Reduce to level needed to retain hard-core loyals
Sales Promotion Strategy	Use heavy sales promotion to entice trial	Reduce to take advantage of heavy customer demand	Increase to encourage brand switching	Reduce to minimal level

Circular Economy in Marketing

At its core, circular economy aims to minimize waste, reduce environmental impact, and maximize the value of products and materials throughout their lifecycle. In the realm of marketing, companies often take a linear approach, where content creation follows a ‘use and discard’ mentality. This approach leads to the proliferation of content that may not be sustainable or aligned with long-term planetary goals.

Circular business models offer an alternative that shifts the focus from selling products to providing and preserving value, whether through traditional sales or innovative circular services and activities, such as repair or resale. Kantar’s 2022 Global Issues Barometer found that 64% of people believe businesses have a responsibility to solve climate and environmental problems. And they match that belief with action, spending more with brands that can find ways to eradicate waste and pollution while still offering the essentials of value and convenience.

Circular solutions can impact a business in many of the same ways, including a company’s philosophy, purpose, and values; its sourcing of raw materials; product and packaging design; production procedures; and even its chosen business model. Since branding and circular solutions affect similar aspects of a business, they must be aligned to ensure a consistent business strategy. If a company starts implementing circular economy solutions, they must be incorporated into its core values and overall brand strategy. Likewise, if sustainability and corporate social responsibility are fundamental pillars of a brand strategy, then the circular economy can be a great way to implement these values and deliver the brand’s promise to consumers.

A circular economy offers a clear pathway to deliver, while also offering opportunity to build brand growth and business resilience. By embracing circular models, brands can tap into new revenue streams, reduce costs, and strengthen customer relationships. The future of marketing could well be circular.

Market Research

Market research is the process of gathering, analyzing, and interpreting information about a market, product, service, and customers. It helps companies understand their customers, competitors, and industry, and make strategic decisions about marketing and selling.

Once a business has an idea for a new product or service, the next step is to figure out who is going to buy it. If we use the example of potential consumers in the Greater Toronto Area, we know they will not all buy what the business has to sell. How does the company determine how to market to specific groups of consumers effectively? That’s where market research can help. Conducting market research will help the company find out what its consumer profile looks like.

The term market research refers to the process of evaluating the viability of a new service or product through research conducted directly with potential customers. It allows a company to define its target market and get opinions and other feedback from consumers about their interest in a product or service. Research may be conducted in-house or by a third party that specializes in market research. It can be done through surveys and focus groups, among other ways. Test subjects are usually compensated with product samples or a small stipend for their time.

Questions the company needs answers to include the following:

• Who are our potential customers?
• What do they like about this product? What would they change?
• How much are they willing to pay for it?
• Where will they expect to buy it?
• How can we distinguish it from competing products?
• Will enough people buy this product to return a reasonable profit for the company?

This data had to be collected in a systematic way. Market research seeks two types of data:

1. Marketers generally begin by looking at secondary data—information already collected, whether by the company or by others, which pertains to the target market.
2. With secondary data in hand, they’re prepared to collect primary data—newly collected information that addresses specific questions.

Gather Secondary Data

The company may use secondary data when researching the market. Secondary data usually refers to information that has been collected, processed, and published by someone else, although it can come from inside or outside the organization. Internally available data includes sales reports and other information on customers. External data can come from a number of sources. Here is a list of secondary data examples:

• Government publications and databases are a good place to start. Statistics Canada, for example, posts demographic information on Canadian households (such as age, income, education, and number of members), both for the country as a whole and for specific geographic areas. Using secondary data that is already available (and free) is a lot easier than collecting your own information.
• Industry reports published by industry associations such as Nielson, Gartner, or IBISWorld provide insights into market trends, competitor analysis, and consumer behaviour.
• Trade journals and magazines, such as Canadian Business and Marketing Magazine, can help an organization stay informed about industry news, trends, and analysis.
• Reviewing company annual reports, whitepapers, or press releases from competitors or industry leaders are helpful when analyzing the market. Publicly traded companies are required to disclose detailed financial and market information.
• Online databases and market research platforms like Statista, ProQuest, or MarketLine provide detailed market analysis.
• Academic research such as academic journals and university databases provide research on consumer behaviour and emerging trends.
• News outlets, Globe and Mail or CBC, and online media such as news websites, blogs, and social media to learn about industry shifts, consumer sentiment, or competitive developments.
• Existing customer data on sales, customer feedback, and customer relationship management (CRM software) records can help identify patterns and preferences within the company’s own database.

 

Google Trends can be a valuable tool for gathering secondary data. It provides insights into the popularity of search terms over time, across regions, and in specific categories, making it useful for understanding market trends, consumer interests, and geographic patterns. Google Trends is an excellent starting point for secondary market research, especially when paired with other data sources for a well-rounded analysis.

Explore Google Trends – What are people in Canada Searching for Right Now?

Explore Google Trends – What are people in the USA Searching for Right Now?

Explore Google Trends – What are people in Finland Searching for Right Now?

Explore Google Trends – What are people in India Searching for Right Now?

Explore Google Trends – What are people in the World Searching for Right Now?

By using these resources, businesses can gain a comprehensive understanding of their market without the need for direct primary research. Gathering secondary data is usually less costly than gathering primary data because the data is already available. Companies can save time by accessing existing data rather than conducting primary research. Secondary data also provides insights into industry-wide trends and historical data. It does have some disadvantages: data may not answer specific questions or fit unique needs of a company, it may be outdated and not reflect the current market, and competitors also have access to secondary data (or much of it).

Secondary research is ideal when looking for a quick, cost-effective understanding of broader market conditions, trends, or context.

Gather Primary Data

Primary research involves collecting firsthand data directly from the source, tailored to specific needs. There are a variety of tools for collecting primary data is data gathered by the company firsthand, including:

Focus Groups. Focus groups involve getting a group of people together who fit the consumer profile and asking them questions about the company’s product or service and taking note of their thoughts. Usually, the company will need to pay people to participate in the focus group. With a focus group, you can bring together a group of individuals (perhaps six to ten) and ask them questions. A trained moderator can explain the purpose of the group and lead the discussion. If sessions are run effectively, you can come away with valuable information about customer responses to both your product and your marketing strategy.

Observations. It’s important to note that while an independent facilitator is asking the questions of consumers in observation; representatives from the market research team are behind a two-way mirror observing consumer behaviour. Observations may also take place by observing consumers in action, such as buying groceries or electronics. Observations sometimes include home visits to observe consumers using the product.

Surveys. Surveys are done through questionnaires, they can be mailed to the target market; the challenge with it is that the response rate is usually low. Businesses may offer coupons or other incentives to entice consumers to complete the survey. Sometimes marketers mail questionnaires to members of the target market. The process is time consuming and the response rate generally low. Online surveys are easier to answer and so get better response rates than other approaches.

Interviews. Interviews are a good method as market researchers can take the time to talk to people about their thoughts about the product or service; they can demonstrate how the product or service works and they can get real-time feedback. Though time consuming, personal interviews not only let you talk with real people but also let you demonstrate the product. You can also clarify answers and ask open-ended questions.

Experiments. Experiments in primary research involve testing specific variables or conditions to observe outcomes and gather data directly relevant to the research question. They are structured studies designed to establish cause-and-effect relationships. Experiments are widely used in scientific research but are also valuable in business contexts, such as marketing, product development, and operations. For example, assume a retailer wants to understand how price changes affect product demand. Products are sold at varying prices across different regions or time frames. The retailer can identify the price range that maximizes revenue without significantly reducing sales volume.

While gathering primary data may be more time consuming (designing, collecting, analyzing) and more expensive (panning, execution, analysis) than gathering secondary data, it has its advantages. Primary research allows the company to customize the questions to gather specific data. It provide current information. It has exclusive ownership, data collected is proprietary to the company. Primary research also requires skilled personnel for accurate data collection and interpretation.

Primary research is best when a business requires detailed, specific, and proprietary insights to solve unique challenges or validate hypotheses. Combining both types of research is ideal. Start with secondary research to gain a foundational understanding and guide the focus of primary research. Secondary research can help identify gaps or areas requiring in-depth exploration, which primary research can address.

Branding

Brand strategy is “The entire experience your prospects and customers have with your company, product or service. Your brand strategy defines what you stand for, a promise you make, and the personality you convey.”

Branding is an essential tool for marketing. Consumers relate so strongly to brands that you can show them just the brand logo and they know everything about the brand. Visit the World’s Most Recognizable Brand Logos to see if you can recognize the company with their brand logo.

 

Below is a list of some brands that have become so popular they are used to refer to common products.  For example:

• Kleenex, which is a brand name, has become synonymous with facial tissues. It is often used to refer to any type of facial tissue, regardless of the brand.
• Q-Tips brand is often used when people refer to cotton swabs.
• You might think you are riding around on a Jet Ski, but if it’s not made by Kawasaki Heavy Industries, it’s just a personal watercraft.
• The Crock-Pot, a brand name for the slow cooker, was originally developed as a beanery appliance.
• Chapstick is a brand name of lip balm produced by Pfizer.
• Xerox has been trying to stop people from calling photocopying “xeroxing” for years.
• Google is the world’s largest and most powerful search engine.
• The actual name for “Band-Aid” is actually “bandage.” Band-Aid became a trademark of Johnson & Johnson in 1920 and has dominated the wound care market ever since.

Branding Strategies

Companies can adopt one of three major strategies for branding a product:

1. With private branding (private labeling or store branding), a company makes a product and sells it to a retailer who in turn resells it under its own name. A soft-drink maker, for example, might make cola for Wal-Mart to sell as its Sam’s Choice Cola.
2. With generic branding, the maker attaches no branding information to a product except a description of its contents. Products are sold without a widely recognized brand name, often with plain packaging and minimal marketing. Customers are often given a choice between a brand-name prescription drug or a cheaper generic drug with the same formula.
3. With manufacturer branding, a company sells one or more products under its own brand names such as Apple, Nike, or Coca-Cola. Adopting a multiproduct-branding approach, it sells many products under one brand name. Food-maker ConAgra sells soups, frozen treats, and complete meals under its Healthy Choice label. Using a multi-branding approach, the company assigns different brand names to products covering different segments of the market. Automakers often use multi-branding. The Volkswagen group of brands also includes Audi and Lamborghini.

Refer to Table 8.2 for a comparison of differences between branding strategies.

Table 8.2: Key Differences on Branding Strategies

Aspect	Private Branding	Generic Branding	Manufacturer Branding
Ownership	Retailer	No brand owner focus	Manufacturer
Cost Positioning	Mid-tier or budget-friendly	Lowest price	Mid to premium
Marketing Investment	Moderate to low	Minimal	High
Examples	Kirkland, great value	“No Name” labels	Coca-Cola, Nike

Branding is used in hotels to allow chains (Marriott, Hyatt, Hilton) to offer hotel brands that meet various customers’ travel needs while still maintaining their loyalty to the chain. The same customer who would choose an Extended Stay hotel with a full kitchen when on a long term assignment might stay at a convention hotel when attending a trade show and then stay in a resort property when traveling with their family. By segmenting different types of hotel locations, amenities, room sizes and décor, hotel chains can meet the needs of a wide variety of travelers. In the past decade “soft” branding has become common to allow unique hotels to take advantage of being part of a chain reservation system and loyalty program. For example, Marriott has over 100 affiliated independent hotels in its Autograph Collection. Loyalty programs are heavily used in the hospitality industry, especially airlines and hotels, as part of their Customer Relationship Management programs. Loyalty programs are often targeted to high value business travelers with less price sensitivity. They achieve loyalty status and perks while traveling as well as earning points to use for personal travel rewards. Once a loyalty program member obtains elite status with significant associated perks such as guaranteed room availability, airport club lounge access, etc., the customer is much less likely to use other brands.

When consumers have a favorable experience with a product, it builds brand equity. If consumers are loyal to it over time, it enjoys brand loyalty. To get an idea of how valuable brand equity is, think for a moment about the effect of the name Dell on a product. When you have a positive experience with a Dell product—say, a laptop or a printer—you come away with a positive opinion of the entire Dell product line and will probably buy more Dell products. Over time, you may even develop brand loyalty: you may prefer—or even insist on—Dell products. Not surprisingly, brand loyalty can be extremely valuable to a company.

Each branding strategy suits specific market needs, allowing businesses to cater to varying consumer priorities, such as cost, trust in brand, or exclusivity.

Packaging and Labelling

Packaging can influence a consumer’s decision to buy a product or pass it up. Packaging gives customers a glimpse of the product, and it should be designed to attract their attention, with consideration given to color choice, style of lettering, and many other details.

Labelling not only identifies the product but also provides information on the package contents: who made it and where or what risks are associated with it (such as being unsuitable for small children).

Packaging and labelling can provide many benefits for companies, including:

• Advertising. Packaging and labelling can be used to convey an advertising message.
• Consumer trust. Attractive packaging labels can help build trust in the product’s quality and contents.
• Product Safety. Labels can help protect products and keep them safe.
• Product Identification. Packaging and labelling can help consumers quickly identify a brand.
• Shipping Efficiency. Clearly printed labels can help eliminate confusion during shipping.
• Competitive Advantage. Packaging and labelling can help a company differentiate themselves from competitors.

2nd P=Price

The second P in the four Ps of marketing is price. Naturally, the company needs to price its products in a way that allows it to operate profitably. However, pricing is far more complex than calculating the cost of goods and adding on an additional amount that will let the business meet its desired profit margin.

Price is the only element of the marketing mix that directly generates revenue for a company. It’s also the most flexible element, and it’s important to continuously monitor and revise it.

When determining price, marketers consider a number of factors, including:

• Customer value: How much customers are willing to pay for the product?
• Competitors: What competitors are charging for similar products?
• Supply costs: What are the costs of supplying the product?
• Seasonal discounts: What discount should we offer and when?
• Business model: How does the price fit with the company’s business model?

Marketers may also use pricing strategies like:

• Cost-plus pricing: Adding a fixed percentage to the unit cost to determine the selling price
• Competitive pricing: Adjusting prices based on what competitors are doing
• Price skimming: Starting with a high price and then reducing it as customer volume increases
• Value-based pricing: Basing the price on how much customers are willing to pay
• Penetration pricing: Starting with a low price to build a customer base
• Dynamic pricing: Continually changing prices based on market forces like competitor pricing and customer demand

3rd P=Place

In marketing, “place” is the third of the “4Ps” of marketing and refers to where and how a company sells its products to consumers:

• Where: The physical locations or digital channels where a company will sell its products.
• How: The distribution channels, transportation, and storage methods a company will use to get its products to consumers.
• Goal: To reach the target audience and meet sales targets.

A great deal is involved in getting a product to the place in which it is ultimately sold. If you’re a fast food retailer, for example, you’ll want your restaurants to be in high-traffic areas to maximize your potential business. If your business is selling beer, you’ll want it to be offered in bars, restaurants, grocery stores, convenience stores, and even stadiums. Placing a product in each of these locations requires substantial negotiations with the owners of the space and often the payment of slotting fees (an allowance paid by the manufacturer to secure space on store shelves).

Retailers are marketing intermediaries that sell products to the eventual consumer. Without retailers, companies would have a much more difficult time selling directly to individual consumers, no doubt at a substantially higher cost. Many retailers do not fit neatly into only one category, for example, WalMart, which began as a discount store, has added groceries to many of its outlets, also placing it in competition with supermarkets. Similarly, IKEA is a furniture retailer but also provides a place to eat, “IKEA Swedish Restaurant” within the store, placing it in competition with restaurants.

The logistics of place are all the activities required to move a product from the production line to the end user. This includes transportation, warehousing, inventory management, order processing, and selecting distribution channels. Effective logistics requires strategic planning and coordination to deliver the right product to the right place, at the right time, in the suitable condition, and at the correct cost.

4th P=Promotion

Promotion is a part of the marketing mix that refers to the methods used to communicate with customers about a product or service. It involves a combination of promotional tools and techniques to reach a company’s goals. The Promotional mix is the means by which a company communicates with its customers and may include advertising, social media, email marketing, personal selling, sales promotion, public relations, and more. The goal of promotion is to create a message that resonates with customers and encourages them to purchase a product.

Before deciding on an appropriate promotional strategy, a business should consider a few questions:

• What’s the main purpose of the promotion?
• Who is the target market?
• Which product features should be emphasized?
• How much can the business afford to invest in a promotional campaign?
• How do competitors promote their products?

To promote a product, you need to imprint a clear image of it in the minds of your target audience. What do you think of, for instance, when you hear “Ritz-Carlton”? What about “Motel 6”? They’re both hotel chains that have been quite successful in the hospitality industry, but they project very different images to appeal to different clienteles. The differences are evident in their promotions. The Ritz-Carlton website describes itself as the “gold standard” and promises that the chain provides “the finest personal service and facilities throughout the world”. Motel 6, by contrast, characterizes its facilities as “no frills ” and assures you that you’ll pay “the lowest price”.

Promotional Tools

Advertising

Advertising is paid, non-personal communication designed to create an awareness of a product or company. Ads are everywhere—in print media (such as newspapers, magazines, mailers), on billboards, in broadcast media (radio and TV), and, increasingly, online. It’s hard to escape the constant barrage of advertising messages. Research on the exact number of ads the average person sees each day varies, but estimates suggest that we are exposed to anywhere from 4,000 to 10,000 ads daily. This figure includes all forms of advertising, from traditional media like TV and radio to digital platforms such as social media, search engines, and websites. You wear a GymShark T-shirt or a pair of lululemon pants while scrolling through your Facebook or Instagram feed while brushing your teeth with Crest toothpaste; and just within the first 20 minutes of your day! At some point, you start a screening process for what you engage with and you start ignoring brands and advertising messages, unless it’s something that you have a personal interest in. Even so, advertising is still the most prevalent form of promotion.

The choice of advertising media depends on the company’s product, target audience, and budget. A travel agency selling spring-break getaways to college students might post flyers on campus bulletin boards or run ads in campus newspapers. The co-founders of Sleep Country Canada found radio ads particularly effective, ingraining their catchy jingle, “why buy a mattress anywhere else?” into listeners nationwide.

Personal Selling and Direct Marketing

Personal Selling

Personal selling refers to one-on-one communication with customers or potential customers. This type of interaction is necessary in selling large-ticket items, such as homes, and it’s also effective in situations in which personal attention helps to close a sale, such as sales of cars and insurance policies. Many retail stores depend on the expertise and enthusiasm of their salespeople to persuade customers to buy. Home Depot has grown into a home-goods giant in large part because it fosters one-on-one interactions between salespeople and customers. Best Buy has staff helping educate consumers on technical devices; the store also offers technical support through the “Geek Squad.” When you visit the Honda or Subaru dealerships to buy a vehicle you will be greeted by a sales associate who will spend time with you discussing the vehicles’ features, financing, options, etc.

It is often used in business-to-business consultations and sales. The sales pitch is tailored to each customer’s specific needs.  There is a high level of personal interaction with immediate feedback. It works well in complex high-value product/service sales (e.g., real estate, custom software solutions). It is relationship driven, requires in-depth explanations or demonstrations in industries where trust is critical.

Direct Marketing

Direct marketing is a marketing approach that involves direct communication with consumers to generate a response or transaction. It does not rely on intermediaries such as retailers or advertising platforms. The company communicates directly with customers through various channels to elicit an immediate response, such as making a purchase or signing up for a service. Examples include email marketing, catalogs, or direct mail campaigns. Customer interaction is limited with no face-to-face interaction and relies on impersonal communication. It is a good choice for quick responses to promotions, reaching a broad segmented audience efficiently, or building brand awareness and driving online traffic.

Refer to Table 8.3 for a comparison of direct marketing and personal selling features.

Table 8.3: Comparison of Direct Marketing and Personal Selling

Feature	Direct Marketing	Personal Selling
Communication	One-to-many	One-to-one
Medium	Digital, mail, SMS, automated systems	Face-to-face or direct voice calls
Cost	Relatively low per contact	Higher cost due to personal effort
Customer engagement	Indirect, often passive	Direct, active interaction
Focus	Promoting offers and generating leads	Building relationships and closing sales
Scalability	High; can target many customers simultaneously	Low; limited by salesperson capacity

Sales Promotion

A sales promotion is a marketing strategy that uses temporary offers or campaigns to increase sales, encourage customer loyalty, or build brand awareness. Sales promotions can include any of the following:

• discounts, coupons and rebates
• contests and sweepstakes
• free samples or trials
• bundling (e.g., buy a laptop and get a mouse free)
• loyalty programs (e.g., Tim Hortons)
• referral bonuses
• trade promotions (e.g., trade shows)
• in-store displays (e.g., while supplies last)
• seasonal promotions (e.g., Black Friday, Boxing Day, Back-to-school)
• event sponsorship and co-branding (e.g., movie promotions with fast-food chains)
• digital and social media campaigns (e.g., influencer collaborations, limited-time online sales)

It’s likely that at some point, you have purchased an item with a coupon or because it was advertised as a buy-one-get-one special. If so, you have responded to a sales promotion – one of the many ways that sellers provide incentives for customers to buy. Some promotional activities are targeted directly to consumers and are designed to motivate them to purchase now. You’ve probably heard advertisers make statements like “limited time only” or “while supplies last”. If so, you’ve encountered a sales promotion directed at consumers.

Other forms of sales promotion are directed at dealers and intermediaries. Trade shows are one example of a dealer-focused promotion. Mammoth convention centres such as the Enercare Centre in Toronto host enormous events in which manufacturers can display their new products to retailers and other interested parties. At food shows, for example, potential buyers can sample products that manufacturers hope to launch to the market. Feedback from prospective buyers can even result in changes to new product formulations or decisions not to launch. 

Publicity and Public Relations

Public relations (PR) refers to managing how others see and feel about a person, brand, or company. Free publicity—say, getting the company or product mentioned or pictured in a newspaper or on TV—can often generate more customer interest than a costly ad. Consumer perception of a company is often important to a company’s success. Many companies, therefore, manage their public relations in an effort to garner favorable publicity for themselves and their products. When the company does something noteworthy, such as sponsoring a fund-raising event, the public relations department may issue a press release to promote the event. When the company does something negative, such as selling a prescription drug that has unexpected side effects, the public relations department will work to control the damage to the company. Every year, Fortune puts out its list of the World’s Most Admired Companies. In 2024, these were the top five in ranked order: Apple, Microsoft, Amazon, Berkshire Hathaway, and JPMorgan Chase. Approximately 3,700 analysts, directors and executives are polled about corporate reputation to determine the final list.

Digital  and Social Media Marketing

Digital marketing is promotion through digital platforms, including websites, search engines, and social media. It includes all marketing efforts using digital channels to promote products, services, or brands. Examples include search engine optimization (SEO), pay-per-click (PPC) ads, and email campaigns.

In the last several years, the popularity of social media marketing has exploded. It is a subset of digital marketing focused specifically on using social media platforms to promote brands and engage audiences. You already know what social media is — Facebook, Twitter, TikTok ads, Instagram LinkedIn, YouTube, and any number of other online sites that allow you to network, share your opinions, ideas, photos, etc. Social media marketing is the practice of including social media as part of a company’s marketing program.

The days of trying to reach customers through ads on TV, in newspapers, or in magazines are over. Most television watchers skip commercials, and few people read newspapers or magazines, and even if they do, they don’t focus on the ads.

Social media marketing can have many advantages for businesses, including:

• Brand Awareness: Reaching a wider audience and increasing brand awareness.
• Website Traffic: Sharing links to the company website or blog on social media which can drive more traffic to the website.
• Customer Engagement: Improving customer engagement and customer service by connecting with customers and potential customers in two-way communication.
• Brand Loyalty: Building brand loyalty by providing opportunities for a targeted audience to participate in company-sponsored activities, such as contests.
• Incentives: Offering and publicizing incentives, such as special discounts or coupons.
• Feedback: Collecting feedback and ideas on how to improve products and marketing initiatives to get a better understanding of brand perception.
• Word-of-Mouth: Allowing customers to interact with each other and spread the word about the company’s products or marketing initiatives.
• Low-Cost: Taking advantage of low-cost marketing opportunities by being active on free social sites, such as Facebook.
• Target Segments: Delivering personalized content to specific audiences as social media platforms offer a range of targeting options.
• Rankings: Improving search engine rankings as Google and other search engines pull information from social media platforms into their search results.

Social media marketing can have several disadvantages, including:

• Negative feedback: Customers can publicly voice their complaints, which can damage a company’s reputation.
• Time-consuming: Social media marketing requires consistent content creation, community management, and engagement with followers.
• Difficult to measure: It can be challenging to measure the effectiveness of social media marketing, as it often involves tracking multiple metrics and analyzing complex data sets.
• Competition: With millions of businesses competing for attention on social media, it can be difficult to stand out.
• Platform changes: Social media platforms are constantly changing their algorithms and policies, which can make it difficult to predict and maintain success.
• Security and privacy policy issues: Social media platforms may have security and privacy policy issues.
• Not built for all groups: Social media marketing may not work for all groups of people.
• Expensive: Social media marketing can be expensive and confusing if done incorrectly.

Retaining Customers

Customers are the most important asset that any business has. Without enough customers, no company can survive. Firms must not only attract new customers but also retain current customers.

Here are a few facts about retaining customers:

• The probability of selling to an existing customer is 60-70%, while the probability of selling to a new prospective customer is only 5-20%.
• It costs up to 7 times more to acquire a new customer than to retain an existing customer.
• 65% of a company’s business comes from existing customers.
• Loyal customers spend 67% more than new ones.
• 82% of companies agree that customer retention is less expensive than customer acquisition.

Retaining customers is the purpose of customer-relationship management—a marketing strategy that focuses on using information about current customers to nurture and maintain strong relationships with them. The underlying theory is fairly basic: to keep customers happy, you treat them well, give them what they want, listen to them, reward them with discounts and other loyalty incentives, and deal effectively with their complaints. Do you know some companies that do a good job at retaining customers?  How about Amazon, Spotify, or Starbucks?  These companies seem to know how to keep customers happy.

Another advantage of keeping in touch with customers is the opportunity to offer them additional products. Amazon is a master at this strategy. When you make your first purchase at Amazon, you’re also making a lifelong “friend”—one who will suggest (based on what you’ve bought before) other things that you might like to buy. Because Amazon continually updates its data on your preferences, the company gets better at making suggestions.

Developed in-house, Amazon’s CRM software captures customer data at the point of purchase, which it uses to instantly customize its users’ online experience and get a full view of the customer journey. It learns about customer habits, improves relationships from the first purchase, and reduces returns or even cart abandonment based on the customer’s ecommerce activities.

Refer to Table 8.4 for key actions taken by Amazon, Nike, and Starbucks to retain customers.

Table 8.4: Key Actions to Retain Customers

Amazon	Nike
Membership: free two-day shipping, exclusive deals, access to streaming services (Prime Video, Prime Music), and more.	Strong Brand Identity: Creates a powerful emotional connection through the “Just Do It” slogan and campaigns featuring inspiring athletes.
Exceptional Customer Service: Customer support, hassle-free returns, and refunds.	Product Innovation: Constantly develops cutting-edge products like Flyknit, Air Max, and self-lacing shoes.
Personalization: Uses data analytics to recommend products based on customer behaviour, previous purchases, and browsing history.	Customization Options: Offers personalized products through Nike By You, allowing customers to design shoes and apparel.
Wide Product Selection: Offers nearly everything, from books and electronics to groceries and furniture, on a single platform.	Digital Ecosystem: Integrates apps like Nike Run Club and Nike Training Club for fitness tracking and personalized coaching.
Competitive Pricing: Monitors and matches competitor prices, offering deals and discounts.	Direct-to-Consumer Sales: Focuses on Nike-owned stores and online platforms, reducing reliance on third-party retailers.
Seamless User Experience: Provides an intuitive website and app interface with features like 1-click ordering and voice shopping through Alexa.	Community Engagement: Hosts events, challenges, and local running clubs to foster community among customers.
Subscription Services: Options like “Subscribe & Save” for recurring orders (e.g., household items, groceries) and Kindle Unlimited for eBooks.	Sustainability Initiatives: Introduced the “Move to Zero” campaign, aiming for zero carbon emissions and zero waste.
Gamification and Loyalty Incentives: Reward programs like Amazon Coins for digital purchases and exclusive deals for Prime members.	Endorsements and Collaborations: Partners with top athletes (e.g., LeBron James, Serena Williams) and designers for exclusive collections.
Continuous Innovation: Introduces new features like Amazon Go (cashier-less shopping), drone delivery (Prime Air), and Alexa devices.	Exceptional Customer Service: Provides easy returns, exchange policies, and support across channels.
Community Engagement and Trust: Provides reliable customer reviews and Q&A forums, ensuring transparency.	Social Media and Digital Marketing: Engages customers through platforms like Instagram, TikTok, and Twitter with dynamic content.

 

Attributions

The contents of this chapter is a compilation sourced from various OER resources, please refer to the Book Information for details.

References

(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks)