Aspects of the Business from an Economics Perspective in Order to Run the Company Efficiently - Assignment Example

Economic Business Environment al Affiliation Economic Business Environment Question The productivity and success of the company depend on decisions made by top and leadership management on the internal and external environment. In this perspective, it is imperative to determine the macro and macroeconomic environment of the UK in order to warrant proper decision-making that best fit the business environment in where the company operates. Critical evaluation of the stability of the business environment is important since it helps to determine the economic changes of the decisions that the company intends to make. The UK business environment is characterized with a low unemployment rate and a decline in bankruptcies. This therefore means that the consumption of consumers is expected to stabilize or even increase in the future (Insight Media (Firm), 2009). The company can use this condition in making decisions by scaling up the plans to purchase inventory or commit to costly project expansion. The trend in the local area of operation, including in the neighborhood and region has an immediate impact on the company. Understanding of both economic trends of an economic environment of customers is an essential macroeconomic aspect that affects the company. There is increasing expectations of consumers in the local market. Media distortion usually influences the economic condition both at local and international levels. The company can attempt to take advantage of bad economic news in UK by manufacturing products that are less expensive or render services that are cost effective to local consumers (Cambridge, Tanna, & Turner, 2014). The aggregate supply and demand for the product(s) that the company intends to offer in the market is inevitable. Other economic factors that the company will determine include per capita income, individual personal income level, consumer preferences and local and international competitors in the UK. Question 2 Local trend is a key microeconomic perspective that can help the company to meet its economic objectives and goals. It involves examining the economic environment of the area of operation and region. The environmental and economic changes can hurt the effectual operation of the company and therefore need to be incorporated. Changes in personal income earned by local individuals determine consumer’s preference and consumption behavior of the company’s products. Change in fiscal policy by the government that attempt to increase the minimum wage increases the disposable income of local consumers. The disposable income has increased from €2,308 to €2,756 (Cambridge, Tanna, & Turner, 2014). The Company anticipates that the change in income level will increase the consumption pattern of local consumers and the demand for prestige and high standard products. The population increase and change in demographic nature of the local population have a direct impact on the company. Decline in rental expenses and land value in the local environment increases the attractiveness of this region, which led to increase in population. Using economic principles, increase in the population of the local community where the company operates has the tendency of influencing the economic situation and demand for its products. The company can also take the advantage of increasing customer loyalty to the company and failing expectation for local consumers. Conversely, the company should take into account the increasing competition in the local area created by the establishment of two more companies producing substitute products and offered in the local market. A considerable population of local consumers has started to adopt the new products produced by competitors. At the macro level, aggregate supply and demand of the company’s products is influenced by several exogenous factors. Aggregate demand in the UK economy is imperative in devising the appropriate manufacturing strategies to eliminate demand and supply imbalances in the economy. In this perspective, this macroeconomic aspect helps to control the price of the product in the economy (Cambridge, Tanna, & Turner, 2014). Inflation, the average net salary, per capita income change and unemployment is the key exogenous factors that influence the aggregate demand. The population of individuals living below the poverty line is increasing. Currently, 16% of the UK population is living below poverty level. The aggregate demand for the company’s products is deteriorating due to decline in average net salary from 3,729 to 2,756. This decreases the purchasing power of consumers in the economy, which leads to decline in the aggregate consumption pattern by consumers. In an attempt to decrease the negative implication of this change, the company should reduce its aggregate supply therefore stabilizing the price of products (Insight Media (Firm, 2009). Competition in the product market influences the aggregate supply of company’s products. Increase in competitors has increased the aggregate products, which have the tendency of affecting the price of the product. In aid to counteract price instability that is likely to occur, the company should adopt product development and differentiation to ensure its meets the competing needs of their consumers. To this end, aggregate demand and supply of products produced by the company have both direct and indirect implication in efficiency and effectiveness of the company. Question 3 Indian macroeconomic conditions and policies favor both local and foreign direct investment. The Indian economy is the twelfth largest in the world and is characterized with a gross domestic product of US $1.25 trillion (EconomyWatch, 2012). Global economist points out that the economy of India is the fastest budding economy in the world and has a gross domestic product growth rate of 9.4% for fiscal year 2012-2013. Ranging on its purchasing power, the economy is the third largest economy and therefore the consumption pattern of Indians is high compared to other developing countries. It is plausible to note that India’s economy is somehow diverse and is dependent on agriculture, textile, manufacturing, handicrafts and a multitude of services. It is a mixed economy and state planning and has a general budget. Among the financial institutions that support economic activities in India, include Reserve bank of India, railways, Bombay stock exchange and national stock exchange (EconomyWatch, 2012). Agriculture is a key sector that drives the economy where 51% of the Indian population is in agricultural farming. Other sectors that support the economic growth and development in India include industrial and service sectors. In this perspective, the contribution of sectors in gross domestic product was 17.4% of the agricultural sector, 25% from industry and 56.9% contribution came from the service sector (India Opine, 2001). The progress of the economy is challenged by several socioeconomic characteristics, including poverty, regional imbalance, corruption and occupations and unemployment. The government developed measures to attract foreign direct investment with the objective of improving the productive capacity of the economy. Major sectors of the foreign direct investment ventures in the economy are telecommunication, electrical equipment, transportation and service and energy sectors. Currently, foreign exchange resources in India are approximately 200 billion. Inflation affects the business economy in India and have facilitated to fluctuation in economic benefits to companies. In January 2014, inflation was 8.97% as per the consumer price index and wholesale price index indicates that the current level of inflation is 5.05%. Global economists suggest that the rationale for the increase in the rate of inflation is brought about by unfavorable economic policies adopted by the government. Increase in public expenditure by the government and deficit financing are among the important factors that may have contributed to increase in the value of commodities. There is an increase in money supply, which has increased the consumption behavior of local individuals, thereby raising the demand for local and imported commodities. Other factors include the rise in administering prices, rising taxes and inadequate industrial and agricultural growth. India’s economy has a comparative advantage since they are labor factor abundance. The population of India is approximately 1.065 billion composing of different ethnic make-up, Dravidian, Indo-Aryan, and Mongoloid amid others. However, the current investment activities are not vast enough to sustain the population growth. This results in persistent increase in unemployment in the economy. To be precise, the unemployment rate in India is 3.8%. The labor force by occupation across all sectors identifies that 51.1% of the population are in the agricultural sector, 22.4% in the industry sector and 26.6% are in the service sector (EconomyWatch, 2012). In this perspective, the economy has adequate and cheap labored. The company can take advantage of this economic condition (low cost structure) by developing a subsidiary manufacturing company in India. According to World Bank, India is ranked 132 in terms of the country’s ease of doing business. Since 2001, the government has initiated a series of radical economic changes in its finance, trade, policies related to industries and foreign investment and fiscal aspects. These structural adjustments have altered the business environment in the country and affects investment growth. The country has witnessed fluctuating economic crisis such as an increase in burden of national debt, high price level and a decline in foreign reserves. The company can therefore venture in this business environment since most of the economic policies formulated and enforced by the government favor the company’s objectives. Among this, economic policies include globalization that enabled the country to open up to international companies thereby increasing its economic activities. Liberalization and privatization featured in India are somehow supportive of foreign direct investment and local investors. Economic growth and price stabilization as adopted by the government enhances the profitability and reduces the risks of the business environment (Insight Media (Firm), 2009). Liberalization, stabilization, privatization and economic growth, create an enabling environment for business to flourish. Currently, the government has formulated economic reform strategies, which have assured growth and development of existing businesses. The primary objective of these reforms is to make India’s economy an international hub for investment and therefore achieve the highest economic growth. The country has adopted export-oriented strategies and market determined economic growth. To increase the economic interaction with other economies, India’s government has formulated an open economy where it encourages integration with other world markets. Other economic reforms include deregulation, de-licensing and de-bureaucratization. These reforms therefore reduce barriers to trade and increases investment opportunities to both international and local investors (India Opine, 2001). In attempt recover from the aftereffects of global financial meltdown, the country devised a new Indian economic policy targeting to relax its money supply activities. The government had intended to increase its public expenditure through borrowing. Three back-to-back economic stimulus packages have been implemented to stimulate the economic conditions in weaker sections of the Indian financial system. The economic system is consistent with the company’s objectives. The national government has employed efforts that will bring back the confidence of business and development establishments in India economy. The government is concentrating mainly in building confidence in the service sector, which have for decades suffered economic stagnation (India Opine, 2001). In this perspective, the company can take advantage of this economic policy by increasing its business venture especially in the service industry. With a decline in prime lending rates, the company can obtain finances either in India to increase its operation directly or through establishing a franchise with local companies. In this perspective, the macroeconomic condition in India presents a fertile investment ground for the company to venture. The economy has untapped economic resources, including workforce and natural resources that the company can effectively exploit. The contemporary economic policies favor the establishment and development of both local and international investments. References Cambridge, M. F., Tanna, S. K., & Turner, D. S. (2014). UK Economy. Economic Time. EconomyWatch (2012, October 13). India Economic Policy | Economy Watch. Retrieved April 3, 2014, from http://www.economywatch.com/economic-policy/india.html India Opine (2001). Review of Current Macro Economic Conditions In India. Retrieved April 3, 2014, from http://indiaopines.com/review-of-current-macro-economic-conditions-in-india/ Insight Media (Firm) (2009). Macroeconomic theories: Classical and Keynesian. New York: Distributed by Insight Media. Read More