TLE - Business Management

TLE 7 – Second Quarter

By:Manuel L. Hermosa, EdD

Professor

• The Economic Systems and Business Environment

• Economic System• Is a set of economic institutions that dominates

a given economy: economic institutions• Financing• Production• Marketing• Taxation• And profit maximization

• The basic objective of economic system is to satisfy the economic need of the people

• The criteria for evaluating the economic system are:

• Abundance• Growth• Stability• Security• Efficiency• Justice• Economic Freedom

• Economic System Model:• Capitalism. The factors of production and

distribution are owned and managed by private individuals.

• Features:• Private property - economic • freedom• Free competition - profit

motive

• Communism. This is exactly opposite of capitalism. The factors of production and distribution are owned and manage by the state. It is a command economy.

• Features:• No one owns property privately• Government is the only producer and seller• There are no economic freedoms• The profit motive is prohibited

Socialism. This is a mix of capitalism and communism. Major industries belong to the state while the minor industries to private individuals. Karl Marx called socialism as the lower stage of post capitalism. Its feature constitute both those of capitalism and communism

• Basic Economic Models• Market Models• Are theoretical frameworks for existing firms

and industries• Describe the features of the various market

structures• Models or theories help us understand the

real world where the market system is the principal element of the economy

• Pure Competition• It is a market situation where there is a large

number of independent sellers offering identical products, like corn, rice, fish, vegetable, etc. It is easy to the sellers to enter and leave the market. They only pay market fee. In addition, there is a non-price competition like advertising and sales promotion because products are basic and identical. Under this there is no single buyer can influence the prevailing market price.

• Pure Monopoly• It refers to a market situation where there is

only one producer or seller. Goods and services are unique in sense that there are no closes substitutes. The monopolist determines the market price since he is only supplier. It is extremely difficult for new firms to enter the market because of the huge capital required, and it is a formidable competition to challenge an existing established monopolist. Example MWSS and Meralco

Monopolistic competition. It pertain to a market situation where there is relatively large number of small producers or suppliers selling similar but not identical products. Exaples are banks, book publications, drugs, tailoring shops, gasoline stations among others. Products are differentiated in terms of advertising, packaging, services and sales promotion. This market model employs extensive advertising and aggressive non-price competition in product quality, credit terms, services, locations, and physical appearance of the product

Oligopoly. It is a market where there are few firms offering standardized or differentiated goods and services. Examples are producers or manufacturers of car, diamonds, steel, cement, airplanes, locomotive, and others. Usually there is a price agreement among oligopolists for their own business interest

• Philippine Business Environment• Business Environment• -refers to the factors that affect the

efficiency of a business enterprise. In economics, it is called economies of scale

• Internal Business Environment• Management - technology• Facilities - financial

incentives

• External Business Environment• Peace and order• Transportation, telephone and electric

facilities• Monetary and fiscal policy• Political, social, and economic conditions

• Peace and order• The principal target of investors is to earn

profits. It is evident that no sensible individual is going to put up his business in a place where crimes are rampant

• Transportation, telephone, and electric facilities

• These are the vital to the efficient operations of business. Many Foreign investors are reluctant to do their businesses here in the Philippines, although land, labor and materials are comparatively cheaper, due to limitations of such facilities

• Monetary and Fiscal Policy• Monetary policies refer to interest rates, legal

reserve requirements, open market operations (buy and sell of government securities by the Bangko Sentral), among others

• Policies are made by the monetary board of Bangko Sentral

• Fiscal Policies pertain to taxation, borrowing, and expenditures of the government

• Political, social, and economic conditions• Political instability, such as frequent changes

in government officials, forms of government and government laws, is not conducive to the efficient operations of business enterprises.

• The Role of the Government• Major areas of government regulation of

business enterprises:• Occupational safety• The government is directly involved in seeing

to it that the workplace and work environment are safe for the workers. This is the job of DOLE.

• Fair labor practices• There are laws and regulations against unfair

labor practices, sych as conditions of employment, hours of work, wages, dismissal of workers, and violation of collective bargaining agreement.

• Consumer protection• To protect the welfare of the consumers, the

government has to regulate the activities of business firms. For instance, the sale of products which unfit for human consumption is not allowed. Even rentals of apartment are regulated to help the poor renters.

• Pollution Prevention• There are governmental laws and policies for

the policies of the people and the environment against the ravages of pollution

• Economic security• By means of government laws which are

implemented by GSIS, SSS, NHC, and other agencies, and small employees and small entrepreneurs are given economic security

• FORMS OF BUSINESS ORGANIZATION:• Single/sole proprietorship• This is owned and usually managed by on

person. It is the oldest and the simplest form of business organization. They nominate retail, agriculture, and service industries.

• Procedure in organizing sole proprietorship:• Register the business name with the bureau of

domestic trade or department of trade and industry

• Pay the municipal licenses to the local government

• Apply for VAT or non VAT number• Register with the BIR the books of account

(simplified bookkeeping records or journals and ledger) and the business forms to be used (sales invoices, cash sales invoices, official receipts, etc..)

• Advantages• It is easy to form and dissolve. It requires a small capital

and there are no legal papers needed excepts the usual business license from the department of Trade and Industry and a business permit from the city/municipal government.

• All profits belong to the business owners. This is the greatest incentive to the entrepreneur.

• The owner is the boss. He makes his own decisions and executes them in accordance with his wish.

• Tax advantage and less government regulation. Usually, the owner only pays personal income tax. The only time the sole deals with the government is when he pays his license, permit, and tax.

• Disadvantages• Unlimited liability. This is the other side of profit. In case

of business loss, the owner assumes all the financial obligations.

• Lack of stability. If the owner dies, it is end of business unless members of the family or other relatives can continue the business.

• Limited access to credit. Banks and other financial institutions are usually not willing to lend big money to sole proprietors.

• Limited business knowledge and skills. The owner is the manager, salesman, bookkeeper, messenger, and janitor. There is no specialization by means of division of labor

• Partnership• Is defined as an association of two or more

persons who bind themselves to contribute money, property, or industry to a common fund with intention of dividing the profits among themselves

• Provisions of Civil Code on Partnership Formation:• @Article 1771 – A partnership may be

constituted in any form except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary.

• @Article 1772 – every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the office of the Securities and Exchange Commission.

• Procedure in organizing Partnership• Register the business name in the DTI• Have the partnership agreement (articles of co-partnership)

notarized• Obtain a tax account number the partnership from the BIR• Have a partnership agreement ( articles of co-partnership)

notarized and then registered and then registered with the SEC

• Obtain a municipal licenses from the local government• Obtain the value added tax account number (VAT) or the

NON – VAT, as the case may be• Register books of accounts (journals and general ledger) and

business forms to be used (sales invoice, official receipts, cas sales invoices, etc.) with the BIR

• The contract between the partners is called the article of co-partnership. It contains, among other items, the following:

• Name of partnership• Names of partners• Place of business• Effective date of partnership• Nature of business• Investment of each partner and corresponding capital credit• Duration of the contract• Rights, powers, and duties of partners• Accounting period• Manner of dividing profits and losses• Liabilities of the partners for partnership debts• Compensation for services offered by partners• Treatment of partners’ additional investment and withdrawals• Procedures for resettlement of partner’s upon dissolution of partnership• Provisions for settlement of disputes

• Classification of Partnership• Based on object or scope of subject matter:• Universal partnership• This may refer to the contribution by partner of all

present property or fall profits.• Universal partnership of all present property. This may

refer to all the properties that actually belong to each of the partners at the time partnership is formed, with the intention of dividing the same among themselves as well as the profits that they may acquire therewith.

• Universal partnership. This refers to all the partners may acquire by their industry or work during the existence of the partnership

• Particular partnership• Its objects are determinate things, their use of

fruits, or a specific undertaking, or the exercise of a profession or vocation

• Based on liability of partners for partnership obligations:– General partnership

• In this kind of partnership, all the partners are general partners (or partners liable for partnership debts to the extent of their personal property after all the partnership assets have been exhausted)

• b. Limited partnership• this refers to partnership having one or more

general partners and one or more limited partners ( or partners who are liable for partnership debts only to the extent of their capital contributions)

• Classes of partners• Based on their contribution:• Capitalist partner. He is a partner who

contributes money or property to the capital of the partnership

• Industrial partner. He is a partner who contributes his work, labor or industry to the partnership

• Capitalist – industrial partner. He is one who contributes money or property as well as hos work or industry to the capital of the partnership

• Based on their liability for partnership debts:• General partner. He is one who is liable for

partnership debt to the extent of his personal property after partnership assets are exhausted.

• Limited partner. He is one whose liability for partnership debts is limited to his capital contribution.