Taking Risks and Making Profits within the Dynamic Business Environment

QUESTIONS TO THINK
o Do you think the business environment of Hong Kong is dynamic?
Why?
o Is it easy to do business in Hong Kong? Do you think it is worthwhile to
start a business in Hong Kong at the present moment?
o What are the critical factors that lead to the success of business? And
what are the main factors that are associated with its failure?
I. Key terms
A BUSINESS and ENTREPRENEURS
1. Business -- Any activity that seeks to provide goods and services to
others while operating at a profit.
a. To earn profit provide desired goods, jobs, services to people in
the area
i. Goods -- Tangible products such as computers, food, clothing,
cars and appliances.
ii. Services -- Intangible products (that cant be held in your hand)
like education, healthcare, insurance, recreation and travel.
1 In a service economy like Hong Kong, the provision of good
services is very important
2. Entrepreneur -- A person who risks time and money to start and
manage a business.
a. Success in business is often based on the strategy of finding a need
and filling it. In doing so, the owner could make money and provide
jobs for others.
B REVENUE, PROFIT and LOSS
1. Revenue -- The total amount of money a business takes in during a
given period by selling goods and services.
2. Profit -- The amount of money a business earns above and beyond
what it spends for salaries and other expenses.
3. Loss -- Occurs when a businesss expenses are more than its revenue.
a. Revenue Expenses = Profit/ Loss
C RISK
1. Risk -- The chance an entrepreneur takes of losing time and money on
a business that may not prove profitable.
a. Not all businesses make the same amount of profit. Different
businesses tend to have different levels of risk.
b. Businesses take risks, but with great risks could come more profit.
D STANDARD of LIVING and QUALITY of LIVE
1. Standard of Living -- The amount of goods and services people can
buy with the money they have.
 a. Businesses/employees pay taxes govt uses to benefit community
(hospitals, schools, libraries, roads, public facilities, etc) improve
general standard of living
b. Hong Kong has one of the highest standards of living.
c. In some countries people may make more money, but prices for
products are higher.
2. Quality of Life -- The general well-being of a society in terms of its
political freedom, natural environment, education, healthcare, safety,
amount of leisure and rewards that add to personal satisfaction.
E STAKEHOLDERS
1. Stakeholders -- All the people who stand to gain or lose by the
policies and activities of a business and whose concerns the
businesses need to address.
a. * Businesses need to meet the expectations of their stakeholders.
b. But contradictions i.e. need to make profits VS employees needs,
need to protect environment, etc
i. To stay competitive, may need to outsource
1 Outsourcing -- Contracting with other companies (often in
other countries) to do some of the firms functions, like
production or accounting.
2 Insourcing -- Foreign companies opening offices and
factories in the home country.
a Large firms need to work with other local and foreign
firms.
F NONPROFIT ORGANIZATIONS
1. Nonprofit Organization -- An organization whose goals do not
include making a personal profit for its owners or organizers.
a. Major contribution to communitys welfare (since businesses cannot
bear it all)
II. Entrepreneurship
A THE UPS and DOWNS of ENTREPRENEURSHIP
1. The UPs The DOWNs
2. The freedom to succeed. The freedom to fail.
3. Make your own decisions. No paid vacations.
4. High possibility of wealth. No fringe benefits.
5. Hire your own staff. High commitment.
B WHO TAKES the ENTREPRENEURIAL CHALLENGE?
1. Millions of people have started businesses and succeeded.
2. Some people prefer to become entrepreneurs, by making use of new
technology to fill a market niche.
3. Women now own over one-third of all businesses in U.S.
C FIVE FACTORS of PRODUCTION
1. Entrepreneurs use what they have learned to grow their businesses
and increase wealth.
 2. 1. Knowledge (!!)
a. KNOWLEDGE and KNOWLEDGE-BASED ECONOMY
i. Knowledge is about how to make use of information, ideas, and
experience in the organization.
1 It is important for:
a decision-making
b Innovation; and
c enhancing efficiency.
ii. Knowledge-based economy is an economy which is based on
the production, distribution, and use of knowledge and
information.
1 In some
countries, it
becomes the
main driver of
growth and
wealth creation.
3. 2. Entrepreneurship (!!)
a. Need entrepreneurs to
take the risk of
starting businesses to
use resources
b. Entrepreneurship +
effective use of
knowledge make
country rich
4. 3. Capital (means of
manufacturing)
5. 4. Labor
6. 5. Land
III. WHAT is the BUSINESS
ENVIRONMENT?
A Stable environment decrease risk benefit business
1. Good environment allow businessmen to focus more on innovation
and improvement
B THE ECONOMIC and LEGAL ENVIRONMENT
1. Government can promote business by
a. 1. Minimizing spending and keeping taxes and regulations to a
minimum.
i. Minimize perception of risk of loss
b. 2. Allowing private ownership of businesses increase personal
incentive
c. 3. Minimizing interference with the free exchange of goods and
services.
 i. Allow more economic freedom
ii. Ideal: Big market, small government (~laissez faire?)
d. 4. Passing laws that enable businesspeople to write enforceable
contracts.
i. Lessen risk of entrepreneurship
ii. Rule of law
e. 5. Establishing a currency that is tradable in world markets.
f. 6. Minimizing corruption in business and government.
2. HK is pretty good at all 6^
C THE TECHNOLOGICAL ENVIRONMENT
1. Technology -- Everything from phones to copiers and the various
software programs that make business processes more effective,
efficient and productive.
a. Effectiveness -- Producing the desired result.
b. Efficiency -- Producing goods and services using the least amount
of resources.
c. Productivity -- The amount of output you generate given the
amount of input (example: hours you work).
2. USING TECHNOLOGY
a. E-Commerce -- The buying and selling of goods online.
1 B2C: Business to Consumer
2 B2B: Business to Business
b. Database -- An electronic storage file for information that help to
understand the customers.
i. Info about each client i.e. what product, when, where, how to
pay, etc can analyze each clients consumer patterns/habits
1 target promotions towards each client
2 more accurate stocking of products (prevent surplus/under-
supply)
3 criticism:
a devalue humanity into mere numbers
b Identity Theft -- The obtaining of individuals personal
information, such as ID card number and credit card
number, for illegal purposes.
i Businesses must spend time on security
D THE COMPETITIVE ENVIRONMENT
1. Customers want quality products at a good price with excellent
customer service.
a. Even if no competitors, can still lose customers with sub-par
service/products
2. Because business is more customer-driven, some managers give
frontline employees more decision-making power.
3. Empowerment -- Giving frontline workers the responsibility,
authority, and freedom to respond quickly to customer requests.
 a. Happier employees = better service
b. Also, more power/responsibility = more efficient service (quick
response) = customers more likely to return
E THE SOCIAL ENVIRONMENT
1. Different cultures = different environment
2. Demography -- The statistical study of the population in terms of
size, density and characteristics like age, race, gender and income.
a. Workplace diversity has grown from recruiting minority and female
workers.
i. Can better teamwork
b. The trend (and challenge) of ageing in most developed countries,
including Hong Kong.
i. We will have 1/3 population above 55+yo insufficient labor
population
c. Population shifts are creating opportunities for some industries and
limiting others.
d. Growth of single-parent households encouraged businesses to
implement programs, such as family leave and flextime.
F THE GLOBAL ENVIRONMENT
1. 1. Growth of global competition.
a. Trump, Brexit, etc
2. 2. Increase of free trade among nations.
3. 3. Development of efficient distribution systems.
4. 4. Advances in communication systems, e.g. Internet.
5. INCREASING COSTS of the GLOBAL ENVIRONMENT
a. Wars and terrorism cost billions of dollars.
b. More money is spent on spying and the military by the government.
c. For organizations, cost of security and cost of insurance go up.
d. Climate change and ecological concerns. Firms are expected to do
more to protect the environment.
i. Greening: trend toward saving energy and producing products
that cause less harm to the environment
IV. The EVOLUTION of BUSINESS
A Eras
1. Agriculture Era
2. Manufacturing Era
3. Service Era
4. Information-Based Era
B 1. The AGRICULTURAL and MANUFACTURING ERAS
1. US: In the 1800s, the agricultural industry led economic development.
2. Technology changed the farming industry by making it more efficient,
leading to fewer farmers with larger farms.
3. Industrialization in the 19th and 20th centuries moved jobs from farms to
factories.
 4. As technology improved productivity, fewer workers were needed in
factories.
C 2. The SERVICE ERA . . . and BEYOND
1. Services make up over 70% of the U.S. economy.
2. Since the mid-1980s, the service industry generated almost all the
increases in employment.
3. More high-paying jobs in service industries.
4. Information-based era with information technology that alters all
sectors of economy. It improves efficiency and changes the way of
doing business.
V. Hong Kong
A THE EVOLUTION of HONG KONG BUSINESS
1. Predomination of manufacturing industries in the 60s and 70s.
a. Lots of refugees
b. HK became export-oriented
i. Movies, music, etc
ii. Asias 4 small tigers: HK, SG, Taiwan, SK
2. Growth of service industries in the 80s and 90s.
a. DXP made China more commercial-based mainland has cheap
land and labor HK moved factories to China HK changed from
factories to service
3. Our future: Moving towards a knowledge-based economy?
4. What are our competitive advantages? How to sustain these
advantages?
a. Gateway
b. Path infrastructure, rule of law (very orderly ICAC), govt positive
non-intervention in business (simple, low tax, economic freedoms),
financial stability, high-quality human capital (high adaptability,
literate, large number), etc
B SOME KEY ISSUES in HONG KONG
1. Over-time decline in overall competitiveness of the economy.
2. Quantity and Quality of human resources.
3. Economic integration with China.
4. Role of HKSAR Government in promoting economic development.
5. Deep-level contradictions and social divides.
C FOUR KEY INDUSTRIES IN HK
1. Financial services
a. But everyone is aiming for this too concentrated on one area =
not good for society
2. Trading and logistics
3. Tourism
4. Producers and professional services
5. They together constituted 57.2% of our Gross Domestic Product (GDP)
and employed 47.1% of local labor force in 2015.
D SIX INDUSTRIES WITH CLEAR ADVANTAGES in HK
1. 1. Cultural and creative industries
2. 2. Medical services
3. 3. Educational services
4. 4. Innovation and technology
5. 5. Testing and certification services
6. 6. Environmental industries
7. In 2014, they constituted 9.2% of our GDP and employed 12.4% of the
labor force.
a. Does this constitute clear advantage?