Foreword and acknowledgements

[3]It is the aim of this Introduction to Business and Economics to explain important basic concepts of business and economics and their interrelationships to those who have little previous knowledge but are interested to learn more and gain a better understanding of economic issues and business matters. As both business studies and economics are comprehensive, multifaceted and interdisciplinary scientific fields, a 100-page textbook can only cover selected topics. Nevertheless, it is the intention of this short introduction to provide a solid basis on which to build more knowledge as well as to spark an enduring interest in business and economics and motivate readers to learn more.

Such a textbook – no matter how many pages it has – always profits from feedback from other business teachers who are experts in their respective fields. I consider myself very lucky to have colleagues who have done so and contributed to the development of the text. Therefore, I would like to thank (in alphabetical order)

Nora Cechovsky, Jesus Crespo Cuaresma, Ingrid Dobrovits, Eva Eberhartinger, Richard Fortmüller, Gerhard Geissler, Edith Littich, Bernhard Löffler, Harald Oberhofer, Christian Riegler, Rupert Sausgruber, Christiane Schopf, Gerhard Speckbacher, Rosanna Steininger, Barbara Stöttinger and Julia Szoncsitz

for their valuable comments on the manuscript.

I would also like to thank my family for letting me work on the book not only during countless evenings but also on weekends. As it is my firm belief that economic knowledge is of utmost importance to each and every person regardless of his or her age, gender or personal or professional background, I dedicate the book to all learners, particularly the young ones, who will benefit from understanding – the sooner the better – that we are all an active part of the economy and there is no opting out of economic decisions.

Bettina Fuhrmann

Director of the Institute of Business Education
Vienna University of Economics and Business

Vienna, 2019

Contents

1. Introduction to business matters

2. Basic economic concepts

2.1 Being part of the economy

2.2 Scarcity of resources and opportunity cost

2.3 Economics is the study of economic decisions

2.4 Exchanging goods and services creates a circular flow and division of labour

2.5 Different economic systems

2.6 Supply and demand: households, businesses and the government meet in the market

2.7 Competition in the market

3. Focus on different types of businesses

3.1 Businesses combine different factors of production

3.2 Businesses operate in the primary, secondary and/or tertiary sector

3.3 Businesses can be profit-oriented or not-for-profit

3.4 Businesses come “in all sizes”: large and small

3.5 Businesses may be local, national or international

3.6 Businesses operate in an environment – stakeholders are important

4. Forms of business ownership and sources of finance

4.1 Sole proprietorship / sole traders

4.2 Partnership

4.3 Corporations

4.4 Summary: Overview of forms of business ownership

4.5 Overview of sources of finance

4.6 The choice of the source of finance

5. Marketing

5.1 What a product is

5.2 Objectives of marketing

5.3 Product orientation versus market orientation

5.4 The need for more responsibility and sustainability

5.5 Market research

5.6 Market segmentation and targeting strategies

5.7 The marketing mix

6. Accounting – keeping record of business transactions

6.1 What a balance sheet is

6.2 Other components of the financial statement of a business

6.3 What can be learnt from reading a balance sheet and an income statement

6.4 Types of accounting

6.5 Analysis of financial statements

7. Personnel management – because people matter

7.1 People are crucial for a business – the right people even more so

7.2 Elements of personnel management

7.3 Motivating people

8. Writing a business plan

8.1 What a business plan is

8.2 Why and for whom a business plan is written

8.3 The structure of a business plan

8.4 Why businesses fail

8.5 Why businesses succeed

9. Case study – applying the knowledge of business and economic concepts

9.1 DO & CO, an international business that was started in Austria

9.2 Solutions to the assignments for revision and analysis

10. Appendix

10.1 Suggested readings

10.2 Index

1 Introduction to business matters

[6]Over the past few years Tina has noticed that quite a lot of people buy new computers even though their old ones are still working. At the same time other people are perfectly happy with a used computer as long as it works. They do not need to have the latest model, they are just interested in having access to the Internet and the computer programs that they want to use. What is more, many people need help to get started with their new computer, and some also need help later on with new releases of software, data storage and security issues.

At school and also later during their university studies, Tina and her former classmate Steve specialised in computer science and in business. They have always tried to help their families and friends with any computer issues. And as more and more friends of their friends as well as neighbours and acquaintances of their families have asked for help, they have considered starting a business that offers a wide range of professional computer services.

A business is an entity that offers goods and/or services to customers. Businesses do not produce primarily for their own needs or work exclusively for their families’ and friends’ needs, but for someone else: for their customers. Businesses usually charge a price for their goods and services so that they get something in return. Exchanging goods and services against money or other means of payment (or exchange) is a main characteristic of the economy.

Tina and Steve consider the following idea: buying used computers at a low price, checking and repairing them (if necessary), and adjusting/modifying them to the needs and wishes of their customers. By doing so, Tina and Steve are able to offer ready-to-use computers at an affordable price and create value for their customers.

They also consider offering additional services such as setting up the computer at the user’s home, installing software, connecting the computer to the Internet, explaining how to use the computer etc. Another idea that comes to their minds is offering online help for problems that might occur. Customers facing a problem with their computer would be supported within 24 hours. Tina and Steve are even considering developing tailor-made software for their customers. With so many ideas, Tina and Steve are convinced that they can start a profitable business. That is exactly what they want to do as they need to earn money to make a living.

[7]Alternatively, Tina and Steve could easily find jobs that they are interested in because they both have a profound knowledge of business and computer science. During their studies both of them worked for AT&S, the Austrian company Austria Technologie & Systemtechnik AG, for a couple of months and they liked that very much. AT&S (https://ats.net/de/) is a manufacturer of high-end printed circuit boards and of new technologies such as IC substrates, mSAP and advanced packaging. It is located in Styria with some production sites in Asia and ranks among the globally leading companies in that field. In Europe, AT&S is the market leader, with revenue of about €990 million and almost 10,000 employees.

However, at the moment, they both prefer the idea of being self-employed, generating their own ideas, creating something new and being their own bosses. They prefer to become entrepreneurs who have developed an idea, solve problems and create value for their customers, take a risk and make sensible economic decisions.

They consider further aspects about founding their business. They are ready to work long hours and invest their savings in the business. They have found a business location that they consider appropriate, where they could rent two rooms in an office building for meeting with customers, working and developing software, storing the computers and other equipment. Additionally, they would need a car or – even better – a small van that they would use for transporting the computers between their customers and their office. Tina’s car, which she does not really use very often, could be used for that purpose, at least for the first few months. Yet, they know from what they have learned during their business studies that there are a few more questions to be considered. The following chapters cover the basic knowledge that is needed for answering these questions.

Important questions to be considered before setting up a business

Questions

covered in chapter

Which people and organisations have an interest in the business and/or are influenced by Tina’s and Steve’s business activity?
How does Tina’s and Steve’s business influence the environment and the economy?

Chapter 2
Basic economic concepts

What kind of business will Tina’s and Steve’s business be?

Chapter 3
Focus on different kinds of businesses

Tina and Steve work as a team, so which legal form should their business have?
Do Tina and Steve have enough funds to finance their business? What sources of finance could and should they use?
As they will have bills to pay or might have to repay a loan, how can they make sure that they have the funds for that and who will be liable for these payments?

Chapter 4
Forms of business ownership and sources of finance

[8]What exactly do their potential customers want and need, and how can these needs be addressed? Will there be (continuous) demand for what they want to offer?

Chapter 5
Marketing

How many people could potentially be interested in their offer (market potential), and are there any competitors in the market?

 

How much would people be willing to pay for their products and services and in which way would this price be affected if the market changed?

 

How can a business communicate its offer to its potential customers?

 

How will Tina and Steve know that their business is thriving?
How will they know if their financial situation is solid?
How will they know if their business not only generates profit but also turns profits into cash?

Chapter 6
Accounting – keeping record of business transactions

Why are skilled and talented people so important for a business?
What are the tasks of personnel management and how can employees be motivated?

Chapter 7
Personnel management – because people matter

What is a business plan and why is it written?
What is the structure and the content of a business plan?

Chapter 8
Writing a business plan

Summary and application of the learning content

Chapter 9
Case study

As Tina and Steve are thrilled about their business idea, they cannot wait to find answers to all these questions.