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Seminar: Applying economic concepts to your business
Topic Number:5
Principles of Business
Overview
The economic environment is an important determinant of business success. This seminar looks to determine the implications and impacts of the global economy on your business.
You are tasked with initially explaining the concept of supply & demand and the factors that influence it in relation to your business activity.
As part of this analysis you will determine a number of the key economic indicators in relation to your business. As you have recently learnt about the various strategies you can adopt when ‘going global’, determine how the theory of comparative advantage can help your business.
Finally, if you were going to make an investment abroad explain if you would opt for direct or indirect FDI.
Learning outcomes of this seminar
• Be able to explain the concept of supply & demand and the factors that influence it in relation to your business activity
• Identify and describe the key economic indicators that could impact your business?
• Illustrate and apply the comparative advantage theory in your business
• Critically evaluate and describe the various global investment options
Agenda for this seminar
What is the impact on key economic indicators such as GDP, inflation and employment?
Explain how you would use the concepts of comparative advantage to your businesses benefit.
If you were going to make an investment abroad explain if you would opt for direct or indirect FDI. Explain your rationale.
Explaining the concept of supply & demand and the impact of a slowing Asian economy on the UK’s economy? How could this impact your business?
Structure for the session
You will have 15 minutes to
discuss each question
We will have a debrief at the
end of each 15 minutes to hear your thoughts on each area
Feel free to ask questions but please do not have separate conversations ‘we are all in
this together’!
Explaining the concept of supply &
demand and the impact of a slowing Asian economy on the UK’s economy?
How could this impact your business?
Lets look at the UK & Developing Asia
According to the IMF (2012:60), developing Asia (DA) is moderating primarily due to the slowing of exports to the EU region, reliance on Euro banks, crisis and deteriorating business sentiment. However, domestic demand still fuels growth in key economies across the region (e.g. China) (IMF, 2012:60).
Source: IMF, 2012
Implications for supply and demand in the UKSelling UK goods/services in DA (Exports)
Demand goes down
Short term supply stays the same
Implication on price?Price goes down
Implications for supply and demandSelling UK goods/services in DA (Exports)
Demand goes down
Long term supply decreases
Implication on price?New equilibrium price is reached
Implications for supply and demandSelling UK goods/services in DA (Exports)
Quantity
Pric
e
InitialDemand Initial
Supply
Implications for supply and demandSelling UK goods/services in DA (Exports)
Quantity
Pric
e
Initial Demand Initial
Supply
ReducedDemand
Implications for supply and demandSelling UK goods/services in DA (Exports)
Quantity
Pric
e
Initial Demand Initial
Supply
ReducedDemand
Reduced Supply
Implications for supply and demandSelling DA goods in the UK (Imports)
Supply goes down (as GDP in DA has
fallen)
Short term demand in the UK remains the same
Implication on price?Price rise
Demand goes down (as GDP decreases*)
Implication on price?New equilibrium price is reached
Implications for supply and demandSelling DA goods in the UK (Imports)
Supply goes down (as GDP in DA has
fallen)
* This is an assumption; in reality a number of outcomes could occur
Quantity
Pric
e
InitialDemand Initial
Supply
Implications for supply and demandSelling DA goods in the UK (Imports)
Quantity
Pric
e
InitialDemand Initial
Supply
Implications for supply and demandSelling DA goods in the UK (Imports)
Reducing Supply
Quantity
Pric
e
InitialDemand Initial
Supply
Implications for supply and demandSelling DA goods in the UK (Imports)
Reducing Supply
ReducedDemand
What is the impact on key economic
indicators such as GDP, inflation and
employment?
Implication for UK; GDP
DA GDP
If the UK export more than it imports
to the DA
If the UK import more than it exports
to the DA
What about substitution?
Implication for UK; Inflation
DA GDP
If supply goes down and demand stays
the same then goods become more
expensive leading to increased inflation
Implication for UK; Unemployment
DA GDPIf DA goods prices increase it will lead to increased cost of
production and unemployment
could go up
If DA goods prices increase it will lead to increased cost of production and UK companies seek to purchase the goods
in the UK umemployment will
go down
Explain how you would use the concepts of comparative
advantage to your business’s benefit
Comparative Advantage: A Re-cap
View video: https://www.youtube.com/watch?v=FpTBjRf8lGs
Consider your core production lines: Where should you produce them?
100
(1C=1R)
100
(1R=1C)
50
(1C=4R)
200
(1R=1/4C)
Cars Rice
A
B
Consider the per unit opportunity cost and go for the lowest option
Remember the rule to calculate
the opportunity cost: Other goes over
Consider why one location has lower opportunity cost
Source: Wikipedia.org
How will this benefit your business?
Higher Margins
Lower Costs
More Profit
Are there any other implications?
If you were going to make an
investment abroad explain if you would opt for
direct or indirect FDI. Explain your
rationale.
Firstly consider the options
View video: https://www.youtube.com/watch?v=I8w7Kv2aZPg
Firstly consider the options
Direct Indirect
• Invests directly in business operations in another country
• M&A or establish a new business
• More control• Greater stake• Form global synergies• More sticky
• Investing in a company operating in another country through a financial instrument
• Invest in shares or bonds
• Less control• Less stake• No global synergies• Less sticky
Secondly, consider what your business needs and what its current resource position is
Do you currently have the
ability/capability or do you need to
acquire it?
Does it make strategic sense for
your business?
Do you have the required
resources?
Consider how you would structure a
deal
Thirdly, identify good opportunities to invest in, considering fit with your organisation
Determine if you will be able to realise the
anticipated synergies
Scan the market for a strategic fit
End of Seminar
Note: This recording is for your personal use only and not for further distribution or wider review.
© Pearson College 2013