Practical Elements of Business Economics - Essay Example

Introduction This paper involves practical elements and aspects of business economics in relation to real life businesses. To this end, the paper is written from the perspective of the managing directors of a manufacturing company. To this end, the research will examine the worth and importance of Business Economics by way of its contribution to planning and decision making. Q1: Business Economics & Manufacturing Company As a managing director of a manufacturing company, I will be overseeing a large entity that takes inputs from the society, processes it and offers it to consumers in the markets. Therefore, I will be concerned about various aspects of the markets as well as the wider business environment within which I operate. The elements of Business Economics will be essential in helping me to figure out elements and aspects of the wider country and economy within which I conduct my business. Also, concerning the actual market, I will need to identify some aspects of consumer behaviour and important trends relating to that in order to provide the best and most optimal services to consumers. Concerning the wider external environment within which I conduct business, I will need to find out about the macroeconomic conditions and this will include amongst other things: 1. Government policy 2. Taxation policy 3. Import and export arrangements 4. Industry regulations 5. Product regulations These things will enable me to understand the elements of the wider market and the general trends in the economy. Macroeconomics will revolve around the overall rules and regulations like government budget, taxes and others that are imperative upon my business and will determine profitability. Macroeconomics is important because it will enable me to examine the dynamics of the market within the industry our manufacturing company operates. Thus for instance, in the area of demand, I can figure out the demand structures and systems that exists on the market and take decisions that will enable me to maximise revenue and sales. Q2: In-Depth Look at Government Policy & Demand Trends Government policy is important, central and far-reaching with a given country (Boyes & Melvin, 2012). Each year, the government will have to come up with new regulations and rules concerning the way they will fund public spending as well as ensure balance of payment stability. Hence, the government will have to draw a budget and present it to parliament for approval. This culminates in the formulation of new rules and regulations concerning taxation as well as budgetary allocations. Government policy influences the main circulation of money in the economy. The annual budget shows opportunities and threats for our manufacturing industry. This is because it enables us to know the sectors of the economy that is being encouraged and those areas that are being discouraged. Through this, we can make decisions about how to distribute our scarce resources and also pay our obligations to the state in a way and manner that suits our best interest. There is also the need for our firm to position itself in a way and manner that will enable us to make the best use of opportunities and minimise the impacts of threats from the new policies that are put forward by the government. This will enable us to plan affairs and steer the organisation in such a way that will meet our targets and expectations in the best way possible. Perhaps the greatest and best aspect of government policy is the tax obligation. Typically, in the UK, a manufacturing company will pay between 19% and 30% of its revenue as tax. There is the need to study the government’s taxation policy in each year and from there, plan our taxation systems and processes. Microeconomics is about the elements of demand and supply and it studies trends and patterns in consumer decision-making in a given industry (Morgan, Katz, & Rosen, 2010). Microeconomics is important and essential because it will allow me and my team of decision makers to identify patterns in consumer behaviour amongst our actual and potential consumers. Based on this, we can find ways of offering our products to consumers and getting our consumers interested in our products so that we maintain a steady flow of demand. A fair understanding of the markets will enable us to get a good insight into the consumer behaviour patterns and systems. This will be done through examining household purchasing patterns and behaviour for our products and the products offered by our competitors. This will allow our manufacturing firm to position itself appropriately and we can capture a considerable share of the market and expand our business to other sections of the market. This can only be done by a considerable examination of the demand patterns and trends in household consumption and other corporate and regional consumption trends. Q3: Establishment of our Manufacturing Company Branch in China China was a purely Communist nation in 1949 and it was struggling with technology and development like any other Third World nation at the end of the Second World War. However, a number of developmental plans put forward by the various Communist governments enabled China to grow and attain major macroeconomic and technological advancements. Macroeconomic Conditions The current macroeconomic conditions of China can be traced back to the economic reforms of 1979 where there was a restructuring of aspects of the economy which culminated in the focus on exports and the maintenance of basic and vital consumption levels (Morrison, 2012). China’s current macroeconomic trends and processes are strongly influenced by the World Trade Organization membership and its contribution to the economy (Morrison, 2012). This is because China’s economy is based on exports, primarily to the United States of America and this has caused the country to accrue a large foreign exchange reserve. China is one of the fastest growing economies in the world and has grown steadily at a rate of 9.6% per annum since 1979 when the economic reforms came to place (Morrison, 2012). Analysts predict that if China continues at the same pace, they will soon be the largest economy in the world, this is a position currently held by Japan which has the world’s largest economy (Morrison, 2012). As a Communist country, China is ran by a series of State-owned Enterprises (SOEs). The country’s macroeconomic policies and processes are typically implemented through these SOEs which are run by appointed public officials who have ties to the Communist Party. However, critics claim that this is the main setback for the country since these public officials run the state-owned enterprises inefficiently and they seek to promote the welfare of people as opposed to attaining the highest and optimal levels of profits to stimulate the economy and ensure that the country has a healthy economy. Current Economic Policy China’s economic policy is steeped in large scale industrialisation and the growth of the country through the maintenance of a welfare system model that will enable the country to maintain a fair and equitable distribution of wealth (Chan, Ngok, & Phillips, 2010). This has led to the creation of two main things: 1. The existence and maintenance of state-owned enterprises that focus on ensuring that resources of China are distributed to all the people with the best and most appropriate processes and methods; 2. The existence of cheap labour that enables the country to meet its needs and expectations through the provision of welfare-based services and processes. However, China’s economy is heavily supported by an export-orientation and the desire to create a massively industrialised nation that produces cheap goods that can be marketed and sold in different parts of the world. This enables China to maintain its balance of trade surplus system that it has maintained over the past decade and also target new markets around the world in order to build and enhance their position and their status as a major exporter. Establishing a Plant in China China’s economy is growing steadily. This means that we can examine the trend in the growth of the economy to open up to the local markets and enhance and improve our position in the country. This is because the middle class is growing. Thus, if we set up a manufacturing unit in China, we are most likely to get access to a large market that can enable us to sell our products and maintain a reasonable profit. Also, China is a strategic location for manufacturing. With their current economic policy which opens up the country to foreign investors, China will be an ideal location to manufacture products and export them to some parts of the developing world and the developed world alike in order to retain profits and join the Chinese wave of manufacturing and enhancing the markets through exports and other treaties of the government. Secondly, China’s special administrative regions give us the opportunity to set up a UK based organisation in China in a fairly protected environment. This will enable us to get access to world-class services like international finance firms and banking and also grow steadily. Additionally, the presence of state-owned firms that have the objective of improving the lives of people implies that our manufacturing company will do quite well in China because we will be up in competition against entities that are not positioned to compete as aggressively as other UK entities around the world. Hence, we have an advantage in China and the propensity to attain better results and achieve better successes than our competitors, the SOEs of China. Finally, locating our business in China gives us the chance to get lower operation costs. This is because the costs of doing business in China are low due to the current economic policy which encourages businesses from overseas to set up their operations in China. Hence, we can do business at a very low cost and be able to create large profit margins by selling our products in the West. Additionally, the cost of labour in China is cheap due to the national welfare-oriented policy. Therefore, we can manufacture and maintain our plants in China at a fraction of what we pay in the UK. This will enable us to save on our resources and also gain more in terms of profits and other benefits that will help us to further our agenda of getting a better profit position than we did in the UK. Hence the knowledge of the Chinese macro-economy and the current economic policy will be a plus for us in dealing with our expansion policy. This will have an impact on our earning capability and potency. Bibliography Boyes, W., & Melvin, M. (2012). Economics. Mason, OH: Cengage. Chan, C. K., Ngok, K. L., & Phillips, D. (2010). Social Policy in China. London: Policy Press. Morgan, C. W., Katz, M. L., & Rosen, S. H. (2010). Microeconomics. London: McGraw-Hill Education. Morrison, W. M. (2012). Chinas Economic Conditions. CRS Brief for Congeress , 42-59. Read More