Basic Understanding of Commerce

My Current Understanding of Commerce[pic 1]

Comm101-102

Nov 29, 2013

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Below are the 10 points from the Mind Map above that I would like to elaborate on.

1. Market & Economy State

There are many different types of firms out there in the world. Each would belong in a market, and those market would often overlap each other. Within each market holds all the competitive firms that will fight for a similar customer base. However, each firm does not just rely on their own independent skills of attracting customers and trading with them. Each and every single firm also rely on each other, as well as the customers as an entire population. Generally, the market state of any industry relies on the economy state in a direct relationship. Ironically, the economy can be predicted but never be foreseen by humans, yet it is created by humans. The economy fluctuates based on many factors like politic, international affairs, technology, environment, and consumer preferences. As all these can influence the economy, the economy will also affect the market state, ultimately affecting individual firms because of the investments put into it. As the economy changes, so will the worth of a company or object. This type of cause and effect is the simple version of how I perceive finance.

1. Equity

As finance influences a firm from many outside sources, a company will also have the power to control itself to a great extent. The accounting department of any firm is in charge of a firm’s own market power. That market power is mainly about how much this firms controls and what it controls, simply out: Equity. It is the difference between what the company have and what it still owns to others. Equity is the basis of any firm because it controls what the firm is capable of doing. Therefore, the entire firm’s ideas is built upon it, or how to grow the equity. A firm’s equity is usually not private information because it is on the financial statement that many companies’ financial accounting department provides for the public. However, the management accounting department are those that really analysis the equity and decided what to do with it. This is described as cost influenced decisions and behaviors, which is private to the firm. I personally think that those behaviors can very easily shape the culture and ideals of a company, which is fitting, since many companies strive to make maximum profit. So it is a rounded cycle of equity influencing the culture of a company, and then that culture induces actions that will generate more equity for the firm.

1. Organizational Behavior

While the idea of maximizing profit seems like a very genuine base to build a firm’s culture upon, every firm, or any other organization will have its starting cultures. These cultures are always a big part of the firm’s organizational behavior because it influences how the firm works. Organizational behavior is how the people in that organization works as individuals or groups. Organizational behavior not only focuses the main ideas and structure of a firm, it also influences how a business is run- its management style. The style of how a firm works, the firm’s back story, or original culture may all seem pointless from a finance perspective, but it influences accounting in the most major way possible: what and how the firm should act with their given equity. It also affects the marketing department greatly. Take Starbucks as an example, this firm has very strong culture, so it is not just providing its customers the products of Starbucks, but it is allowing the customers to experience Starbucks’ culture. This essentially is also part of Starbucks’ culture itself. I feel that even though OB is not directly related to making profit, it is also very important because it holds one of every firm’s main assets: people and their capabilities.

1. Government Control

The government usually tries to accomplish the best for its people and the land it is using. While some people argue that government intervention is unnecessary because it prevents a free market from establishing, I feel that government regulations are required most of the time, and could sometimes help the firm as well. Governments usually set up laws about how raw resources could be taken from nature, this is very necessary in my opinion because without that, many firms will try to save cost and ruin the environment while producing the product with the least cost. Governments could also try to set up tariffs to help small companies start up without major competition and create international alliances that could benefit many firms by allowing them to easier access to expand. Moreover, many governments try to set up laws that prevent ethical issues for firms.

1. Business Ethics

In business, many people instantly will think ‘make more profit!’ This is most likely what many firms think of as well. In the process of maximizing profit though, many firms will forget their social responsibilities. They may often create ethical problems. Many firms outsource production to third world countries to lower production cost. However, they took away the jobs of thousands in first world countries, is paying current workers minimal wage, giving them a harsh work environment, or using child labours. Are those thing ethical? Most people and I would say no. Many social media firms will use target advertisement as a marketing strategy by recording the users search history understand their hobbies, lifestyle, background better. People should have the right to keep those facts private, so is target advertising ethical? This time, my answer and perspective would probably differ from everyone else because of their own unique values and morals. So where do most firms draw the line at what is acceptable and what it not? Some firms may not even draw those lines at all. They will only focus on one thing, and that is profit. I feel that profit should not be the only thing a firm should focus on, they should try to create social benefits just as much as they want to benefit themselves. Thus, introducing the Stakeholder theory, possibly the best way to run a business in my opinion.

1. Stakeholder Theory

This is a theory of managing a business using ethical ways, meaning that the firm sees significance in values and morals of all the stakeholders. Stakeholders are those connected to the firm in many ways, not necessarily just the major players. Stakeholders could be suppliers, customers, employees, shareholders, the government, or even society as a whole. The idea of this theory is to benefit all the stakeholders as much as possible while still allowing the firm to run smoothly and efficiently. I value this theory because I think that in a bigger organization, no one part if too small. Every single input into an organization is significant, so every input deserves a justified output. A firm that can utilize the stakeholder theory represents a firm that cares about its impact on society and on individuals involved with this firm. This creates a positive work image and encourages more efficient work methods, therefore not only allowing the firm to make a profit but also minimizes dead weight social loss.