Business Economics and Macroeconomic Factors - Assignment Example

Business Economics Q As a manufacturing company’s managing director, there are various economic perspectives of the business that require attention for the company to run effectively. With regards to microeconomic factors, the first aspect is land and natural resources, which are naturally occurring products like minerals and soil. These factors are important since they provide raw material for manufacturing, while land requires rent payments that are part of business expenses (Parkin 29). Another aspect is labor, which refers to the human effort required in the manufacturing process and is imperative since the company will have to pay wages as part of its expenses. Finally, capital goods are also important aspects, including the means of production that are meant to produce other goods during the manufacturing process such as buildings, tools, and machinery (Parkin 32). Knowledge economy’s emergence has also distinguished human capital from this physical capital. The payment required from the company by capital is interest. Macroeconomic factors should also be considered when running a manufacturing company. One macroeconomic factor is economic growth that refers to selling and buying activities within the economy. Because it is not constant and can change often and rapidly, it has a significant effect on businesses (Lipsey 23). Another important macroeconomic factor is inflation, which leads to an increase in price levels if it increases over a specific time period. The manufacturing company; therefore, will incur increased operational costs, while it will also necessitate an increase in employee wages. Finally, interest rates will also impact on the effective running of the company. Interest rates are charges that financial institutions levy on loans and, therefore, an increase in interest rates will affect the business since the company will have to borrow loans from these institutions (Lipsey 24). If these rates increase, the company will incur increased costs in order to repay the bank loans. Q #2 In order to advance the running of the manufacturing company, it will be important to increase labor productivity. Labor productivity can be defined as the ratio of quantity of results to expended results in achieving a result, i.e. the output to input ratio (Parkin 56). There are various ways that the work of an employee during a normal shift can be improved in relation to managerial expectations. The first would be to identify morale and motivation issues since studies prove that a company’s workforce morale has a direct correlation to profitability. This is because when workers are satisfied with their job, as well as their employer, they tend to perform better, increasing productivity and subsequent profitability. Another way to improve labor productivity and, thus, business efficiency, is by setting attainable and clear targets and objectives for the workers. By setting realistic objectives, it is possible to ensure a combination of work quality and timeliness, which also enhances the employees; ability to move on to another project after completing the initial one (Parkin 57). It also assists in creating a feeling of accomplishment as employees attain set targets, increasing morale and productivity. In addition, it is also important to reevaluate the manufacturing company’s staff regularly. It is important to hire the right employees, retain the productive ones, and let the unproductive ones go. This is because an unproductive employee could harm the workplace environment and morale. However, this does not mean micromanaging the employees, as this will be counter-productive as employees, rather than focusing on tasks, tend to try to meet new expectations (Parkin 57). The running of the company can also be made more efficient by adapting the business strategy to economic growth or decline. Various economic activities that the company has to keep in mind include income level changes, future economic forecasts, global economic activity, global political activity, natural disasters, fluctuations in raw material prices, and stock market changes (Lipsey 76). The most important macroeconomic indicator for the manufacturing company to consider is Gross Domestic Product, which is referent to the total amount of products that are produced in the UK. The company will be significantly affected by the UK’s economic activity, as well as the resulting effect on the GDP rates since, when they decline or slow down; there will be a subsequent decline in the demand for the products manufactured by the company. Consequently, this will result in a decrease, in revenues and the company’s profit margins will shrink. In this case, to make the company run more effectively, the company will have to reduce prices of their products with the objective of surging its overall sales, while also decreasing their number of staff to reduce labor costs (Lipsey 78). On the other hand, if there is an upsurge in GDP rates, the manufacturing company will have to adapt to increased demand by increasing the price of its products. In addition, in order to cope with increased demand, the company has to employ additional workers to increase supply and meet the required manufacturing rates to meet demand. Q #3 (a) In the case that the manufacturing company wants to expand from the UK into Russia by opening a new manufacturing facility there, it will be important to consider first the macro-economic environment of Russia. As the global economy continues to recuperate, there has been a direct effect on Russia’s economic recovery (Yevstigneyev & Voinov 45). Rising prices of metal ores, gas, and oil has stabilized the currency rate and balance of payment in Russia, as has the stabilization and rapid growth in demand for Russian products. Gas and oil budget revenues have escalated, while inflation has been lowered by a fall in global food prices that, in turn, has facilitated the cutting of interest rates. In addition, the Russian banking sector has been able to find investment opportunities outside of Russia (Yevstigneyev & Voinov 45), allowing it to survive the effects of the global financial crisis. The unemployment rate in Russia is rising, and wages are falling, whereas Russians are also tending to save more than spend, which is an indicator of high uncertainty within the economy (Yevstigneyev & Voinov 47). This has resulted in contraction of consumer demand that is vital to economic growth. In spite of this fall, however, there has been no “bottoming out” of fixed capital investments because large organizations have sought to wait for better times to make new investments. Instead, they have tried to complete those investments already in progress. As the projects near completion, it is expected that there will be a more profound decline in investment activity with the investment decline forecast to exceed the economy’s average figure by ~12% (Yevstigneyev & Voinov 47). In addition, the recent spate of anti-Russian sanctions by the United States, UK, and the EU will have are expected to dramatically decrease investment in the country. Current government spending by the Russian government has increased by ~5% of the country’s GDP, becoming a vital factor in support of Russia’s economy. However, public finances have also become imbalanced because of the significant government spending. However, rather than the significant deficit in the federal budget that has been financed by Russia’s reserve funds, the biggest problem has to do with the financial crisis in the regional and local budgets that are beginning to become apparent (Yevstigneyev & Voinov 49). Hence, there is a consensus that revival of the Russian economy following the economic crisis of 2008/2009 will only be modest, while it has also been suggested that the economy will stagnate. This could result in stagnation of external demand for Russian products, which will portend substantial effects on the Russian economy’s revival since most internal factors are tending towards negative. Over the long term, the Russian economy is also faced by two important global effects. The first has to do with continued devaluation of the $US, which should result in significant global currency markets volatility. The second risk pertains to the Russian government’s difficulty in winding down its stimulus policy that was used to fight the financial crisis of 2008/2009 by injecting funds into the economy (Yevstigneyev & Voinov 51). Inflation may result if the CBR does not withdraw these funds from the economy in time. Q #3 (b) In setting up manufacturing facilities in Russia, the Manufacturing Company will also have to consider the current economic policy with regards to fiscal and monetary policy. With regards to Russia’s monetary policy, the government managed to stabilize the exchange rate in 2009 following its fall to 25 rubles per dollar in late 2008 from its previous rate of 6.5 rubles per dollar in mid-2008 (Yevstigneyev & Voinov 73). As of mid-2012, the Russian currency exchange rate stood at 31.4 rubles per dollar, from its earlier level at 29.2 rubles per dollar the previous year. Following some significant inflationary spikes in 2008 and 2009, which were conceived from the global financial and economic crisis, a steady decline in inflation rates have been witnessed. The cumulative CPI or Consumer Price Inflation for the year 2011 declined to ~18.6% (Yevstigneyev & Voinov 73). This was slightly below the previous year’s inflation a level of 20.2%, although it was also above the targeted inflation rate set out in the 2011 budget (Yevstigneyev & Voinov 74). Accumulation of foreign reserves by the Central Bank of Russia also acted to drive inflation rates higher; a trend, which is purported to continue in the foreseeable future. By the year 2012, the inflation rate estimates had began to decline and stood at 11.7%. Beginning from this period, the Russian financial institutions have started to realize what they have referred to as the flexible ruble. As this is realized step by step, it is expected that inflation rates will fall even lower. In fact, one of the results of this “flexible” ruble policy by the Central Bank of Russia has seen inflation rates reach their lowest levels since the USSR broke up in 1991, standing at 3.6% in 2013 (Yevstigneyev & Voinov 74). The manufacturing company will also have to consider Russia’s fiscal policy prior to setting up facilities in the country. Local and federal government expenditure in Russia is almost equal, coming to ~38% of Russia’s Gross Domestic Product (Yevstigneyev & Voinov 79). Since the Asian financial crisis of 1998, fiscal policy in Russia has been notably disciplined. In 2011, the overall surplus for the federal budget was 2.4% of the GDP, which enabled Russia to calculate the next year’s budget with a surplus that was ~1.63% of its Gross Domestic Product. This significant growth was mostly supported by consumption demand. However, there is widespread skepticism by various analysts that these high rates of economic growth will not be sustained, especially given the fact that Russia’s planned budgetary allocations through to 2015 have been calculated based on the hypothesis that there will be steady increase in the price of gas and oil (Yevstigneyev & Voinov 79). If there were a decline in prices of gas and oil, this would mean that the Russian economy would fail to attain the growth estimates set for the next six years (Yevstigneyev & Voinov 80). However, even if the prices of oil increase, this could still negatively affect the economy negatively as this would result in continued appreciation of the Russian Ruble, making exports from Russia less competitive since they would become more expensive. The budget law of 2007 sought to incorporate at least 25% increase in federal government spending, most of which is meant to go towards salary increments for public servants, social welfare, and pension increments (Yevstigneyev & Voinov 81). Education spending is also expected to increase by 60% by 2020, while healthcare spending has also been targeted to increase by 30% in the same period. Finally, funding for healthcare, housing, education, and agriculture is purported to upsurge by at least 100 billion Rubles by 2016. Works Cited Lipsey, Richard. Macroeconomic Theory and Policy. Cheltenham: Edward Elgar, 2013. Print. Parkin, Michael. Microeconomics. Boston, Mass: Pearson, 2012. Print. Yevstigneyev, Ruben. & Voinov, Arkady. Economic Reform and Its Interpretations in Russia. Helsinki: UNU World Institute for Development Economics Research (UNU/WIDER, 2014. Print. Read More