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THE COMPANY AND THE CORPORATE ENVIRONMENT, Lecture notes of Economics

"The relationship between a company and its corporate environment examines how external factors, such as market dynamics and regulations, impact the company's operations and strategic decisions."

Typology: Lecture notes

2021/2022

Available from 10/25/2023

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CHAPTER 3
THE COMPANY AND THE CORPORATE ENVIRONMENT
UNDERSTANDING THE COMPANY
What is meant by company? The definition of a company is a place where production activities
take place, both goods and services, and a place where all factors of production gather.
A company can also be defined as an institution in the form of an organization that is operated
with the aim of providing goods and services to society with a profit motive or incentive.
A company is an economic entity that operates with the aim of producing goods or services to
be sold to consumers or customers with the aim of making a profit. Companies can operate in
various forms, such as sole proprietorships, joint ventures, private companies, or public
companies. Here are some key elements in the definition of a company:
1. Primary Objective: The primary objective of a company is to generate profits by selling
products or services to consumers or customers.
2. Legal Entity: A company is usually considered a separate legal entity from its owners or
founders. This means companies have their own legal rights and obligations.
3. Capital and Resources: Companies need capital and resources such as financial capital,
labor, technology and other resources to operate and achieve their goals.
4. Organizational Structure: A company has an organizational structure that may include
different management, departments, and work units to manage its operations.
5. Social Responsibility: Companies also have a social responsibility towards the community
and environment around them, which is known as corporate social responsibility (CSR).
OBJECTIVES OF ESTABLISHING THE COMPANY
The establishment of a company usually has several different goals, depending on the nature of
the business, vision and mission of the company. The following is a complete and detailed
explanation of the purpose of establishing a company along with examples:
1. Creating Value for Owners or Shareholders: One of the main goals of establishing a
company is to create value for owners or shareholders. Owners invest in the company in
the hope of making a profit. This can be achieved through dividend distributions, growth
in share value, or future sale of the company.
Example: An entrepreneur founded a
technology company and became the sole owner. The goal is to develop the company until
its value increases significantly, then sell the shares at a higher price or make a profit from
the sale of the company.
2. Generating Profits and Revenue: Profit is one of the main goals of business enterprises.
Companies strive to generate enough revenue to cover operational costs and generate
sufficient profits. These profits can be used for business development or distribution to
shareholders.
Example: A retail store opens a new branch in the hope of increasing their
sales and profits. With the new branch, the company can increase revenue and net profit.
3. Job Creation: Companies also have a social responsibility to create jobs for the community.
Establishing a company can help reduce unemployment rates and improve economic
prosperity in local communities.
Example: A manufacturing plant opens a production
facility in a region that previously had a high unemployment rate. This creates hundreds of
jobs for local residents.
4. Product or Service Innovation and Development: Many companies are founded with the
goal of developing innovative products or services that address customer needs or problems.
Innovation is the key to long-term success in business.
Example: Technology companies like
Apple were founded with a focus on product innovation. They created products like the
iPhone and iPad that changed the way people interact with technology.
5. Filling Market Gaps: The founding of a company is often triggered by a gap or opportunity
in the market that has not been exploited by competitors. Creating a product or service that
fills this gap can be an important goal.
Example: Fast food companies first emerged to fill a
gap in the market for food that could be served quickly. They provide convenient meal
options for busy customers.
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CHAPTER 3

THE COMPANY AND THE CORPORATE ENVIRONMENT

UNDERSTANDING THE COMPANY

What is meant by company? The definition of a company is a place where production activities take place, both goods and services, and a place where all factors of production gather. A company can also be defined as an institution in the form of an organization that is operated with the aim of providing goods and services to society with a profit motive or incentive.

A company is an economic entity that operates with the aim of producing goods or services to be sold to consumers or customers with the aim of making a profit. Companies can operate in various forms, such as sole proprietorships, joint ventures, private companies, or public companies. Here are some key elements in the definition of a company:

  1. Primary Objective: The primary objective of a company is to generate profits by selling products or services to consumers or customers.
  2. Legal Entity: A company is usually considered a separate legal entity from its owners or founders. This means companies have their own legal rights and obligations.
  3. Capital and Resources: Companies need capital and resources such as financial capital, labor, technology and other resources to operate and achieve their goals.
  4. Organizational Structure: A company has an organizational structure that may include different management, departments, and work units to manage its operations.
  5. Social Responsibility: Companies also have a social responsibility towards the community and environment around them, which is known as corporate social responsibility (CSR).

OBJECTIVES OF ESTABLISHING THE COMPANY The establishment of a company usually has several different goals, depending on the nature of the business, vision and mission of the company. The following is a complete and detailed explanation of the purpose of establishing a company along with examples:

  1. Creating Value for Owners or Shareholders: One of the main goals of establishing a company is to create value for owners or shareholders. Owners invest in the company in the hope of making a profit. This can be achieved through dividend distributions, growth

in share value, or future sale of the company. Example: An entrepreneur founded a

technology company and became the sole owner. The goal is to develop the company until

its value increases significantly, then sell the shares at a higher price or make a profit from

the sale of the company.

  1. Generating Profits and Revenue: Profit is one of the main goals of business enterprises. Companies strive to generate enough revenue to cover operational costs and generate sufficient profits. These profits can be used for business development or distribution to

shareholders. Example: A retail store opens a new branch in the hope of increasing their

sales and profits. With the new branch, the company can increase revenue and net profit.

  1. Job Creation: Companies also have a social responsibility to create jobs for the community. Establishing a company can help reduce unemployment rates and improve economic

prosperity in local communities. Example: A manufacturing plant opens a production

facility in a region that previously had a high unemployment rate. This creates hundreds of

jobs for local residents.

  1. Product or Service Innovation and Development: Many companies are founded with the goal of developing innovative products or services that address customer needs or problems.

Innovation is the key to long-term success in business. Example: Technology companies like

Apple were founded with a focus on product innovation. They created products like the

iPhone and iPad that changed the way people interact with technology.

  1. Filling Market Gaps: The founding of a company is often triggered by a gap or opportunity in the market that has not been exploited by competitors. Creating a product or service that

fills this gap can be an important goal. Example: Fast food companies first emerged to fill a

gap in the market for food that could be served quickly. They provide convenient meal

options for busy customers.

  1. Business Development and Growth: Many companies are founded with the goal of growing their business from scratch into a larger, more successful company. Business growth may include expanding into new markets, adding branches, or acquiring other companies.

Example: A franchise company may be founded with the intention of growing their brand

into a national franchise with multiple locations across the country.

  1. Relationship Development with Customers: Creating strong relationships with customers is an important goal for companies that want to maintain and expand their market share. This can include good customer service, high quality products, and high customer satisfaction.

Example: A restaurant was founded with the vision to become customers' favorite place for

family dinners, with friendly service and delicious food.

  1. Reputation and Brand Development: Companies may also aim to develop a good reputation and a strong brand. A good reputation can increase customer trust and influence their

purchasing decisions. Example: A computer security software company might be founded

with a commitment to providing highly secure and l products, thereby building a reputation

as experts in digital security.

  1. Other Stakeholder Satisfaction: Apart from shareholders, companies also have other stakeholders such as employees, suppliers and local communities. Ensuring their

satisfaction can also be an important goal. Example: A textile company may have a goal of

providing safe and decent working conditions for their employees and supporting the

development of local communities.

  1. Sustainability and Corporate Social Responsibility: Some companies may aim to operate sustainably and socially responsibly, by minimizing environmental impacts and providing

support to social or environmental causes. Example: An electric car manufacturer might be

founded with the vision to reduce greenhouse gas emissions and make a positive

contribution to the environment.

It is important to note that the goals of establishing a company can vary significantly from one company to another, depending on a number of factors including the industry, the founder's vision, and current market conditions. Each of these goals must be integrated into the company's business plan to achieve long-term success.

PLACE AND LOCATION OF THE COMPANY The domicile and location of the company are two concepts that are closely related in the business context. They refer to the physical location where a company operates. The following is a detailed and clear explanation along with examples:

  1. Company Domicile: The domicile of a company refers to the legal address or head office of the company. This is the official location where a company is registered and is usually used for administrative and legal purposes. This location may be in a different city or country

than the actual operational location. Example: Company XYZ, based in New York City, has

their corporate seat at a legal address in Delaware, which is often used by many US

companies due to favorable tax provisions.

  1. Company Location: A company's location refers to the physical location where a company's primary business operations take place. This includes the location of headquarters , factories, retail stores, warehouses, or other facilities used to produce goods or provide

services. Example: A shoe manufacturing company called ABC Shoes has several production

facilities in several Asian countries. This is the actual location of their company because this

is where the shoes are manufactured.

The considerations used by companies to choose the place and location of the company can be based on:

  1. Legal Identity: The company's domicile is the company's legal identity and is used in legal documents such as the company's deed of establishment, permits , and contracts.
  2. Taxes and Regulations: Domicile may impact applicable tax and regulatory responsibilities. Some regions may offer certain tax incentives to attract companies.

TYPES OF COMPANIES BASED ON OWNERSHIP

  1. State Companies are companies founded and capitalized by the state
  2. A Cooperative Company is a company founded and capitalized by its members
  3. Private Companies are companies founded and capitalized by a group of people from outside the company

ELEMENTS OF A COMPANY

  1. Business Entity, namely: a company has a clear and permanent form, whether it is a legal entity or not a legal entity. Among the forms of business entities are Firms, Limited Liability Companies or PT, Trading Companies, Limited Liability Companies, Limited Partnerships or CV, Cooperatives and Public Companies.
  2. Economic activities, which include trade, industry, financing and services.
  3. Carried out continuously, the Company covers business activities as the main livelihood, not part-time work and not something incidental.
  4. It is fixed in nature, the business activities carried out do not change and are carried out for a long period of time.
  5. Carried out openly and openly, business activities are aimed at and known to the public, are pleasing to other parties and are recognized by the government based on applicable law.
  6. There is profit or gain. The aim of the activities carried out by a company is of course to pursue profit or profit.
  7. Having bookkeeping, every established company must have bookkeeping which contains records of obligations and rights relating to its business activities.

The elements of a company and its legal basis as well as the term company are referred to in Law Number 3 of 1982 concerning Mandatory Company Registration and Article 6 of the Trade Code

COMPANY FEATURES

  1. Operative namely the existence of economic activities relating to production activities, provision/distribution of goods and services.
  2. Coordinating It requires coordination of all parties to support each other to achieve the goal.
  3. Regular , to achieve company sustainability, regularity is needed which can support activities so that they can always move forward.
  4. Dynamic , the environment is always changing therefore it is able to follow and adapt to changes.
  5. Formal , subject to applicable regulations after fulfilling the establishment requirements,
  6. Location , the company is founded in a certain place in a geographically clear area.
  7. Conditional Service , the company's success in achieving its vision and mission in a geographically clear area.

COMPANY FUNCTIONS

  1. Operation Function a. Purchasing and Production b. Marketing c. Accounting d. Finance e. Personnel f. Administration g. Information Technology/Computing h. Transformation and Communication i. Public service j. Law/Legislation and Public Relations
  1. Management Function a. Planning b. Organizing c. Briefing d. Control

COMPANY ENVIRONMENT: A company's internal and external environment are two important concepts in business environmental analysis that help companies understand the factors that influence their operations and success. Here is a further explanation about both:

  1. Company Internal Environment: The company's internal environment refers to all the elements and factors that exist within the company itself, which can be controlled or influenced by company management. This includes all aspects that are under the direct control of the company. Some of the main components of a company's internal environment include: a. Organizational Structure: This includes how the company is organized, including management hierarchies, departments, and employee relationships. An effective organizational structure can influence internal communication and decision making. b. Corporate Culture: Organizational culture includes the norms , values, and beliefs that govern employee behavior. A strong culture can impact a company's productivity and long-term success. c. Human Resources: Employees, their skills, motivation, and knowledge are very important assets in the internal environment. Human resource management and employee development greatly influence company performance. d. Financial Resources : A company's finances, including revenues, profits, assets, and debt, are an important component of its internal environment. Healthy finances are important for a company's growth and survival. e. Products and Services: The products or services offered by a company are an important part of the internal environment. Companies need to continually update and improve their products or services to remain competitive. f. Internal Processes: Business processes, operations, and systems used within a company also fall within the internal environment. Operational efficiency and innovation in processes can provide a competitive advantage.
  2. Company External Environment: A company's external environment includes all factors outside a company's direct control that may influence their operations and decisions. These are factors that may be difficult or even impossible for a company to change. Some examples of components of a company's external environment include: a. Markets and Competition: Market conditions, level of competition, and competitor behavior are important factors in the external environment. Companies need to understand the markets in which they operate and how their competitors are acting. b. Regulations and Laws: Government laws and regulations governing business, including taxation, the environment, and consumer rights, can have a major impact on a company's operations. c. Technological Change: Technological advances can impact companies in a variety of ways , including how they communicate, operate, and compete. d. Social and Cultural Factors: A society's social and cultural values, norms , and trends can influence consumer preferences and the ethical demands placed on companies. e. Economic Factors: Economic cycles, inflation rates, interest rates, and currency fluctuations are economic factors that can affect a company. f. Natural Factors: Natural events such as natural disasters or climate change can have a major impact on a company's operations, especially for companies involved in agriculture, fishing, or other industries that are heavily influenced by nature.