The Impact of the Industry on the Macro Economy - Assignment Example

Running header: HP Student’s name: Instructor’s name: Subject code: Date of submission: Part 2 - The Impact of the Industry on the Macro Economy Identify the industry for this business. Research and explain the performance of similar businesses in this industry in recent years (2009/2010 or 2010/2011). (150 – 200 words) The hp company operates in the manufacturing industry, specifically in the electronics sector. In this industry, the firms develops, sells and support products, software, technologies, software, solutions and services to consumers, small- and medium-sized businesses as well as large enterprises which include customers in the government, health and education sectors. The other major firms in the industry whose performance will be compared to hp include dell, IBM and Toshiba. In the year 2009 and 2010, the three companies that performed best in the industry were IBM, Dell and HP. In the year 2009, IBM’s net income growth was 49.8% compared to the growth among its peers. It also had the highest Return on Equity (ROE) of 59.3X as compared to its peer’s average which had dropped to negative due to adverse performance of Seagate and Toshiba. However, HP’s performance has improved over the years and its rated second best in the industry. Industry Revenue in 2009 stood at $53.95 billion in the U.S for instance which translates into an overall 9 percent decline from 2008. 1. Explain how this industry has contributed to the economic growth of the UAE in recent years (2009/2010 or 2010/2011). (150 - 200 words) a. Given your research of this industry’s performance, did this industry contribute to the economic growth of the UAE? Explain your answer. The industry has significantly contributed to the economic growth of the United Arabs Emirates. The industry has contributed to the automation of most manufacturing companies which results to improved performance. The revenue obtained from the sale of technological electronics contributes to about 13.2% of the totals country income. This sector is ranked as the fourth highest contributor to GDP at 13.2% and contributes to$10.54bn. The industry has experienced an average growth of 8% per annum between the year 2007 and 2010, despite a decline in the growth curve between 2008 and 2009. The industry has also employed a great number of citizens. b. Define Gross Domestic Product (GDP). How important is this industry’s contribution to Gross Domestic Product (GDP)? Explain your answer. GDP refers to the total market value of all final goods and services produced within a given country in a particular year excluding net income from abroad. It shows the value of goods and services produced within a country’s borders in a particular year. The manufacturing sector is ranked fourth of the highest contributors of the UAE’s GDP as it accounts for 13.2% of the total Gross Domestic Product. The government uses this money to better the standards of lining of its citizens as well as re-invest. This therefore shows the great impact the manufacturing sector has on the total value of goods and services. UAE would therefore have less GDP if the manufacturing sector is not performing well. The manufacturing industry is therefore crucial to UAE’s growth. c. Identify two ways (either positive and/or negative) that this industry has had an impact on society’s well-being in the UAE. Explain your answer. The manufacturing sector has both positive and negative impacts to UAE. They include, Creation of employment The manufacturing sector has created many jobs for the citizens. This includes computer specialists, programmers and manufacturers among others. This improves the standards of living of the employees as well as their purchasing power. Economic growth and development The manufacturing sectors’ contribution to the GDP improves the country’s welfare. The government is able to offer its citizens high quality public goods and services such as quality education and health services. The government is also able to settle any public debts and donate funds to third world countries. The negative impacts include, Pollution The manufacturing sectors emit poisonous gasses which are a health hazards to the citizens as well as pollution of the environment. These include noise, air and water pollution. However, such firms have come up with ways to reduce such pollution by adopting safe measures of production and waste management. 2. Explain how this industry has contributed to employment in the UAE in recent years (2009/2010 or 2010/2011). (150 – 200 words) a. Has this industry contributed to the creation of jobs in the UAE? Explain your answer. The manufacturing industry has led to significant employment in UAE. A significant number of people are employed in the research and development, processing, sales and marketing, assembly and offering technical support among others. It employs about 4.5% of the total population. Over the years, this sector has significantly reduced un employment rates. Moreover, the sector has also supported many other sectors for instance tourism, which are able to maximize on the output thus also providing more jobs. b. How important is this industry’s contribution to the creation of jobs for Nationals? Explain your answer. The industry’s creation of jobs has affected nationals in the following ways: Improved standards of living The nationals are able to have more purchasing power and therefore can afford better quality goods and services. This includes schooling, health services and vacation among others. The government is also able to offer subsidies as well good infrastructure to support other sectors. This in general improves their living standards. High per capita income and fair distribution of wealth The amount attributable to each individual is higher. Moreover, the national income becomes more evenly distributed and thus there is a lower disparity in the wealth distribution between the rich and the poor. Crime rate also tends to reduce when most people can afford a better livelihood. Explain the impact of this industry on price stability in the UAE in recent years (2009/2010 or 2010/2011). (150 – 200 words) The manufacturing industry has helped the country to check out on the inflation. The improved technology has significantly reduced the cost of production due to more accurate planning and forecasts. Production methods as well as waste and resources management have greatly improved therefore pushing down the cost of production. This is reflected in the reduced prices of goods and services. This ensures that there is minimal inflation even with the skyrocketing increases of raw materials. Define Consumer Price Index (CPI). How important are the main products /services in the Consumer Price Index (CPI)? Consumer Price Index is an inflationary indicator that measures the change in the cost of a fixed basket of goods and services. It may also be referred to as cost of living index. The changes in the main products and services in the CPI are used to access the price changes associated with the cost of living. An index that is greater than one would imply high inflation while one is close to one would imply little or no inflation. Impact of the industry on the stability of prices in the UAE. The relative stability in the prices of the HP computers, HP Omni 220xt series as well as the HP Office jet 6000 Printer which are HP’s major products has helped the industry to affect the overall economy in a favorable manner. The steady prices of these products have helped reduce or maintain the cost of production in many plants and firms. This is because the CPI is relatively low which also controls the rate of inflation. However, an increase in the prices of such items will increase GDP for the country when such products are exported. However, the manufacturers in this industry are keen to keep their prices rather low to maintain or increase the demand of these goods both in the UAE as well as the exports. This industry has therefore contributed to stable prices in the United Arabs Emirates over the last few years. This stability has also positively influenced other sectors of the economy such as tourism, banking as well as the infrasture and real estate. 3. The Impact of the Macro Economy on the Industry a) how the economic situation in the UAE may affect the industry the economic situation of a country may affect an industry either positively or negatively depending on the nature of the situation. For instance if the UAE economy performs poorly, the peoples propensity to save will be lowered since much of what they have will be used to meet the day to day needs. Therefore, not much will be left to save or buy things that are non essential. HP operates in the IT industry. In this case, the industry will be affected negatively as the demand for the products will go down . This is because people will spend the little they have on basic commodities such as food and shelter. On the other hand, if the economy is performing well, people, jobs will be created and businesses will generate more profits. This implies that people will have much to save and also buy the non essential goods such as the HP commodities. As such, the industry will experience growth as more of its products will be bought. How the economic growth rate of the UAE will affect this industry in terms of sales. Research indicates that the UAE economy is slowly but surely recovering from the 2008 global financial crisis that forced the economic growth to slow down in 2009. the real GDP grew by 2.2% in 2010 and 3.3% in 2011. moreover, there are prospects that the economy may surpass this growth in 2012. the effect of this upward trend on the industry is expected to be positive as more and more companies and individuals will buy the industries products thereby pushing up the demand. This will be translated into more jobs being created in the industry, more profits for the industry as well as better wages for the workers. This implies that the industry is expected to exhibit more vibrancy (growth) as the UAE economy fully recovers from the global economic crisis. This is because the demand for ICT products is expected to rise as the economy grows as people’s propensity to save will be expected to rise. In other words, people will have extra money to also spend on the purchase of ICT products offered by the industry. In other words, the economic growth rate of UAE is expected to lead to more sales in the industry and hence better performance for the industry. How the inflation rate in the UAE will affect this industry in terms of costs of production. Inflation is described as the general increase in prices level of goods and services in an economy. This implies that increase in inflation rate in the UAE will lead to increased cost of production for the industry. This is due to the fact that the prices for the industry's inputs are expected to increase. Similarly, workers are also expected to demand for better wages so as to cushion themselves against the increasing prices of basic commodities. In other words, the costs for securing all the factors of production will be expected to rise thereby pushing up the cost of production for the industry. Therefore, the industry's cost of production will increase and less goods will be produced at the same cost of production due to the increase in prices of the input factors. How this industry might respond to the macroeconomic conditions. a) Economic growth As earlier observed, positive economic growth will lead to increase in sales levels. The industry will therefore need to take advantage of good economic conditions in order to sell more. To do this, the industry will need to produce more commodities as well as invest more on marketing of its products. This will ensure that the industry takes full advantage of the increased demand. b) Inflation It is obvious that inflation is likely to lead to increased costs of production. In order to cushion itself against the increasing cost of production, the industry may either; I) Opt to produce at the current level of production and sell at the old price in which case its profit levels will be reduced. II) Opt to increase the prices of its commodities so as to cater for the increasing cost of production in a bid to ensure that the profitability levels are maintained. III) Cut on some factors of production such as labor in order to reduce the increasing cost of production. Work cited: Mankiw, N. Gregory – “Principles of Economics” – 5th edition – Southwestern – 2009 Read More