SOCIAL, ETHICAL, ECONOMIC, AND INTERNATIONAL ENVIRONMENT OF BUSINESS Chapters 2-3-4

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1 SOCIAL, ETHICAL, ECONOMIC, AND INTERNATIONAL ENVIRONMENT OF BUSINESS Chapters 2-3-4

2 U.S. 305,704,154 World 6,756,907,578 01:56 GMT (EST+5) Jan 29, 2009

6 Other companies have also revised their policies and have worked on other means to accommodate their Muslim employees. As of 2009, there is an estimated 6 million Muslims in America - a growing number of whom are demanding flexibility to practice their faith in the workplace. Watermark Donut Company, a franchisee for Dunkin Donuts already provided religious accommodations for its Muslim employees who make up 40% of its workforce. Employees are allowed flexible schedules for Ramadhan (month of fasting), religious holidays, opportunity to perform daily prayers, and time to attend Friday prayers. A Coca-Cola bottling company revised its policies to accommodate Muslim workers with beards so that they could continue working.

7 Of what significance is this chart especially as the baby boomers retire and collect social security?

9 There are currently 182 properties listed in Detroit for less than $1000, including several more for sale at a list price of $1, and 7 houses for $100

10 154,447,000 labor force Jan % Jan OVER 1M JOBS HAVE BEEN LOST OVER THE LAST YEAR.

12 Prohibiting companies from building in foreign countries because labor is cheaper The nation's poverty rate declined last year for the first time this decade, but the number of Americans without health insurance rose to a record 47 million, according to annual census figures released yesterday.

16 IN THE 70 sit WAS BUSSING IN THE 80 s IT WAS AFFIRMATIVE ACTION IN THE 90 s IT WAS COMPARABLE WORTH & PAY EQUITY WHAT IS THE ISSUE FOR ? Jot down your idea??

19 CHAPTER 3 ECONOMIC ENVIRONMENT OF BUSINESS

20 Economic Systems By definition --an organized way for a country to decide how to use its productive resources.

21 Types of Economic Systems Market Economy Consumers and producers decide what, how, and for whom goods will be produced. --Free Enterprise system based on supply and demand. Characteristics: --Government intrusion but limited. --Profits limited only by an individual s own limits. Ex: United States

22 Command Economy A central planning authority decides what, how, and for whom goods will be produced. HARACTERISTICS: -Government leaders assign people to careers based on the need to produce certain goods/services. x: Cuba, Saudia Arabia

23 Mixed Economy Some who, what, and how decisions are made by consumers and producers while others are made by central planning authorities. --Most countries have a mixed economy because there isn t a PURE capitalistic society. --U.S. govt. controls post office, public schools, utilities, etc.

24 Privatization when a country or state transfers its authority to provide a good or service to individuals or businesses Ex: cable once run by govt. --Should health care be privatized or be governmentrun? Is President Obama proposing universal health care which is now privatized. Should there be universal health care? (run by gov t?) cost estimates: $34-$69B+ currently 45M Americans have no health care. Should the post office be privatized? Referred to as snail mail WHY???

25 Types of Economic-Political Systems Capitalism (U.S.)--private citizens are free to go into business for themselves to produce whatever they choose, and to distribute what they produce as they please. Is there some government intervention? Yes. You must pay taxes, your business dealings must be legal. September meltdown temporary or long lasting?? Socialism (Sweden, Italy) the government controls and regulates the means of production. Communism (Cuba) forced socialism where all or almost all the productive resources of a nation are owned by the government. Consumer goods often in short supply because the government needs (military) are taken care of first.

27 3) Right to Price Determination Price Setting - determined by supply and demand Demand - number of products that will be bought at a given time at a given price. (Demand is determined not only be the desire for a good but also having the money to purchase it at whatever price it is offered.) Supply - the number of like products that will be offered for sale at a particular time at a certain price. Competition rivalry among sellers for consumer dollars Fundamentals of Capitalism 1) Right to own Private Property - items of value that individuals have the right to own, use and sell. 2) Right to make a Profit - the incentive for producing goods and services. total earned receipts total costs = profits

28 If supply outpaces demand, what happens to price? RISE OR DROP If demand outpaces supply, what happens to price? RISE OR DROP WHAT IS MEANT BY MARKET PRICE? MARKET PRICE SUPPLY 10 0 DEMAND

29 COMPETITION WHAT IS THE MOTIVE BEHIND ALL BUSINESSES? PROFIT IN A FREE ENTERPRISE SYSTEM, SELLERS TRY TO MAKE A PROFIT,CONSUMERS TRY TO GET GOODS AT THE MOST REASONABLE COST ENTER COMPETITION WHICH: 1) Insures control on pricing 2) Insures quality 3) Insures producers will use our resources more efficiently no waste 4) Insures if a business cannot operate effectively and efficiently, they will be short lived.

30 PRICE COMPETITION firm takes business away from its competition by lowering prices (ex: isn t this what WalMart does?) NONPRICE COMPETITION attracting customers away from its competitors by providing better quality, better service, or something others don t offer. (ex: Sears manufactured and sold Kenmore washers if you liked Kenmore products, you had to shop Sears.) MONOPOLY competition is lacking for a product or service seller or producer in a position to control supply and price of goods or services. (ex: Bill Gates/Microsoft accused of a monopoly)

31 Income Distribution The share of goods an individual receives is determined by the amount of money that person has to purchase goods and services. The same factors that determine prices of goods are also the same factors that determine wages and salaries. (supply and demand) Ex: think about LeBron James how many LeBron s are out there so limited supply; how many people attend games because of him demand

32 Economic Growth - occurs when a country s output exceeds its population growth. Ways to increase economic growth: 1. Increase the number of people in the work force. 2. Increase the productivity of the work force 3. Increase the supply of capital goods. 4. Improve technology 5. Improve efficiency 6. Increase the sale of goods and services to foreign countries. 7. Decrease the purchase of foreign goods and services.

33 MEASURING ECONOMIC GROWTH CPI Consumer Price Index measure of the average change in prices of consumer goods and services bought by people at the retail level GDP Gross Domestic Product measures how things are going at country level. How many quarters of negative growth to declare a recession?

34 Index of Leading Economic Indicators --outlook of economic strength for next 6-9 months --based on past and present events

35 EMPLOYMENT --measure of jobless rate RETAIL SALES --amount of goods and services sold by stores within various regions of the country --PERSONAL INCOME CONSUMPTION --consumer increasing spending/bigger paychecks

36 ECONOMIC PROBLEMS RECESSION --SUPPLY HIGH DEMAND LOW INDICATORS --rising unemployment because decrease in production of new goods --decreased production to get supply in line with demand --GDP growth slow for three or more quarters

37 INFLATION --DEMAND HIGH SUPPLY LOW OF GOODS/SERVICES INDICATORS --Decline in purchasing power THINGS COST MORE SO DOLLAR DOESN T STRETCH FAR --Wages go up because trying to keep up with cost of living (ex: Social Security has built in cost-of-living factor)

38 DEFLATION --DECREASE IN GENERAL LEVEL OF PRICES INDICATORS --Occurs during recession or depression --Wages lower, Overtime cut, Price of goods lowered, --Consumer has less money to spend

39 --Deepened recession. DEPRESSION --in recession, people tighten their belts --in depression people can t afford the belt to tighten INDICATORS --prolonged period (year or longer) of high unemployment, weak sales of goods and services, and business failures --rapid, severe drop in GDP

40 BUSINESS CYCLE/PRODUCT CYCLE EXPANSION INTRODUCTION --Modest rise in GDP, profits, employment --low inflation --EX: COMPUTER INDUSTRY HUMBLE BEGINNINGS HOT NEW PRODUCT STARTING TO SEE DEMAND PEAK GROWTH --Growth, profit, employment at highest level --modest to runaway inflation EX: COMPUTER INDUSTRY HAS COMPETITION BUT SEEING LESS DEMAND SO OFFER INCENTIVES CONTRACTION MATURITY --Growth declines, employment begins to decline --modest inflation EX: COMPUTER INDUSTRY PROFITS LOWER, LESS GROWTH, SATURATION TROUGH DECLINE --Lowest point in cycle, increased unemployment, no growth - recession EX: ONLY STRONG SURVIVE, ALL OTHERS DROP OUT.

41 INTERNATIONAL ENVIRONMENT OF BUSINESS CHAPTER 4

**1996 In trouble with the FTC for making false claims about their products being made in America in 1996.

42 **1996 In trouble with the FTC for making false claims about their products being made in America in **Case closed with an agreement to make appropriate attribution of sourcing and exporting data. **New Balance now using of the 70% level to claim made in the USA. One thing is clear about Buying American : it s all very ambiguous!

43 INTERNATIONAL BUSINESS Business activities that occurs between two or more countries REASONS FOR ENTERING INTERNATIONAL TRADE: Profit Reached peak Lower cost elsewhere Comparative Advantage

44 Multinational firms (aka transnational, international corporations) Businesses that own or control production or service facilities outside the country in which it is based. Examples: WalMart, McDonalds, Nike HOME COUNTRIES Simply put, the country that headquarters the multinational corporation. (U.S. is the home country of WalMart.) PARENT COMPANY is a business which owns and controls the operations of another by either outright ownership or controlling a majority of the voting stock. (GE owns 80% of NBC and is the parent company of NBC.) HOST COUNTRY The foreign country housing the multinational corporations. Decisions must be made in terms of host country customs & traditions (Host countries for WalMart: Canada, Brazil, Mexico, Argentina, etc.) SUBSIDIARIES branches of a company that operates under the control of a parent company which may have a majority of voting rights.

45 COMPARATIVE ADVANTAGE THEORY The idea that a country should specialize in the production of goods and services for export that they can produce more efficiently than any other country based upon which resources it can access and use most cheaply. For example, Saudi Arabia has a comparative advantage in oil production, and can export its oil to pay for other goods that it wants to import.

46 Exports---goods we make and send out of country. Exporting---when a company sells its goods and services to a foreign country. Imports---goods from other countries that are sent here. Importing---buying goods and services made in a foreign country. Balance of Trade Deficit---more money leaving country than coming in. Balance of Trade Surplus---more money coming into country than going out.

BALANCE OF TRADE The difference between money coming into and going out of a country. Total exports and imports of goods and services as well as investments in and out of country.

47 BALANCE OF TRADE The difference between money coming into and going out of a country. Total exports and imports of goods and services as well as investments in and out of country. How is balance of trade determined? Total exports total imports Goods exported in November 2008 amounted to. Goods imported in November 2008 amounted to. IS THERE A TRADE SURPLUS OR TRADE DEFICIT?

48 TERMS USED IN INTERNATIONAL TRADE Free Trade Trade between countries which takes place completely free of restrictions (no tariffs, no quotes.) Tariff Government tax on imported goods to protect domestic industries or raise revenue. (ex: sugar) Non-tariff barriers Trade barriers that restrict imports but are not in the usual form of a tariff--may be in the form of product standards and technical regulations, which may dictate particular manufacturing guidelines or product specifications. If products do not meet the given requirements, they will face an import ban. Quotas - limits on the quantity or dollar value of goods permitted to enter a country to protect domestic industries. (ex: Quotas on Chinese textiles imported into U.S. to protect U.S textile industries.

49 TERMS USED IN INTERNATIONAL TRADE continued Dumping--- is selling goods on a foreign market at prices below what it charges its home country. (ex: Chinese dumping wooden bedroom furniture on U.S. market below fair market value.) Embargo banning of trade with a country no selling or buying from these countries. (ex: most notable: Cuba) Sanctions they are lighter form of embargo generally to keep goods out that can create weapons, etc. while still allowing some goods needed by the general population food items, etc. (Ex: North Korea, Iran, China continued by Obama administration for violation of laws on missle and weapon technology)

50 INTERNATIONAL AGREEMENTS Treaties business agreements reached bilaterally (between two countries) or multilaterally (several countries.) WTO replaced GATT (General Agreement on Tariffs and Trade) as the world's global trading body in ) International forum that encouraged free trade between member states by regulating and reducing tariffs on traded goods. 2. Provides a framework for resolving trade disputes between countries. 3. Governs international trade dealing with issues such as: tariff reductions, anti-dumping, and non-tariff measures 4. Most of the world s leading nations belong to the WTO membership: 153.

51 INTERNATIONAL AGREEMENTS continued IMF (International Monetary Fund) was set up to help countries with trade deficits and no money to repay loans or pay for imports. World Bank - international development organization that is owned by most of the countries of the world (180) developed and developing. Its role is to reduce poverty by lending money to the governments of its poorer members often called "developing" countries and to those countries whose economies are in transition. World Bank loans help to increase economic productivity and to improve the standard of living of people in these countries.

52 INTERNATIONAL AGREEMENTS continued TRADING BLOCS PTA s (preferential trading arrangements) favor trade among member nations and ensure the economic growth and benefit of the participating countries. (ex: EU (European Union which is 27 states primarily in Europe) and North American Free Trade Agreement (aka: NAFTA which is the free-trade agreement among Canada, the United States, and Mexico, provides for elimination of all tariffs on industrial products traded among these three countries within ten years from the date of implementation of the NAFTA agreement January 1, ) The 5 main trading blocs (APEC, CAIRNS GROUP, EU, G20, and NAFTA account for 45% of world trade.

53 CAREER OPPORTUNITIES ABROAD Why would a parent company send American employees/managers over to a host country to work in one of its subsidiaries instead of hiring foreign? American employees has: KNOWLEDGE OF COMPANY SKILL EXPERIENCE 1) 150,000+ Americans work abroad for American for foreign firms. 2) 2-5 year tours What kinds of problems arise from sending Americans abroad to run foreign companies? a. Discrimination against women b. Loss of contact w/parent company c. Language barriers d. Cultural changes

54 WHO ARE THEY? Foreign Nationals (FN S) An individual who is a citizen of any country other than the United States. FN s are foreigners here on visas work visas, education visas, etc. WHY HIRE THEM? 1) FN S offer a higher degree of qualification than the employer can find in a U.S. permanent resident or citizen. 2) FN S have business experience in their home country. 3) Countries hire FN s because of their experience in or knowledge of a foreign country in which we have an interest or subsidiaries. 4) FN s are used to fill the management slots in overseas companies. Many times we train them in the U.S and then they return to their home country to fill management slots.

SOCIAL AND ETHICAL, ECONOMIC, AND INTERNATIONAL ENVIRONMENT OF BUSINESS NAME: MOD. DATE GIVEN: DATE DUE:

CHAPTER 2-3-4 SOCIAL AND ETHICAL, ECONOMIC, AND INTERNATIONAL ENVIRONMENT OF BUSINESS OBJECTIVES : Explain the social, ethical, economic, and international problems we must encounter and define solutions