Global Economic Crisis and Management of Organizations - Assignment Example

? Managing People and Organisation Table of Contents 3 Introduction 4 Discussion 5 The Euro Crisis 5 Global Economic Crisis and Its Cause 6 Importance of New Business Ventures 6 Impact of Economic Downturn on the creation of New Businesses 9 Importance of Job Creation and protection of individuals 9 Influence of an Individual towards the creation of an organization 10 Entrepreneurship and how it helps in the economy of a country 10 Individual Influence in Management Practices 12 13 Conclusion 14 References 15 Bibliography 16 Abstract Organizations around the world are facing tough situations due to the ongoing global financial crisis. Similarly the employees of those organizations are also confronting strong challenges from the rising external situations. Organizations are competing with the deepest and longest ever economic recession. Since the global economic downturn it has became more complex for the organizations to survive in the market place. In this situation, it becomes important to create new organizations and create new jobs in order to sustain. The report will discuss about the global economic crisis and its impact on the national economies of the nations. In this context it will specifically highlight the Euro crisis and its impact on the affected countries. It will also emphasize the importance of new company establishments and job creation in a country. The report will also shed light on how individuals influence the management practices of an organization. Finally the report will conclude stating the extent to which an individual impacts in company establishment and management practices. Introduction During the last 15 years, countries around the world have been able to make impressive advancement and historical transformations in their economical policies. With rapid globalization and based on the institutional establishments nations have been successful in building up effervescent private sector. It has also led the countries to participate in international trade (Rutkowski and Scarpetta, 2005, p.xiii). The economic growth has in turn helped the nations to reduce the level of poverty as well as brought higher incomes. However the global economic downturn has disrupted the growth process and clearly indicated that no economic policy is stable enough to face economic crisis. Many scholars thus highlighted that it is important for the nations to focus on reforming the financials of a country. In this context a number of scholars have highlighted that financials of a country can be best reformed by creating new business ventures and thereby creating new jobs. According to Global Entrepreneur Monitor (GEM) around the world there are 200 million who are engaged in the creation of new jobs. There are another 200 million people who are the managers or owners of newly established firms. The study was carried out in 75 countries of the world and which covered nearly 80% of the total population of the world (Reynolds and Curtin, 2010, p.1). The focus of the project will be therefore based upon the issue of how creation of new business and jobs will aid a nation to embrace economic growth. The intentions of the projects will be also to uncover how new business and jobs will be created and sustained during the crisis periods. The next half of the project will discuss all the relevant theories as well as the earlier literatures from the same field of study. Discussion In the recent past one of the major economic crisis occurred in Europe, which is also known as the Euro Crisis. It is an ongoing financial emergency that has caused difficulties for a number of countries in Europe to refinance the debt of their Government. This economic catastrophe has impacted the Euro economy to a large extant. Countries such as Greece, Portugal, Italy, Ireland and Spain or collectively known as GIIPS were the major sufferers. It has actually destroyed the economies of European Union. A number of reasons have been highlighted regarding the cause of this economical turbulence. The Euro Crisis In Europe there are 17 nations using euro as their official currency. However during the establishment of universal currency system, number of scholars warned that during any emergency situations, euro may cause huge difficulties in reforming the condition. Apart from that the financial system of the European Union was severely affected by some of the major external factors. The situation got worse to such extent that without assistance of other government it will be impracticable for the affected governments to repay their debts and reform their position. Nevertheless the root causes for this crisis varied from one country to the other. In order to cite an example, in few countries of Europe crisis took place because of increasing private debts. The reasons of increased private debts were mainly related with the fragile banking systems. On the other hand in Greece the crisis took place because of debts in public sector. The untenable remuneration and commitments of pension by the Government was the primary rationale behind the increasing public debt of the country. However the biggest reason cited for this problem is the use of common currency. Euro was also responsible for price rise in many countries of the continent. In some countries prices increased at a faster pace in comparison to the other countries. Global Economic Crisis and Its Cause Like that of the Euro crisis the entire world has also witnessed the economic downturn. There are certain reasons that caused the crisis throughout the globe. With the surge in domestic demands, the prices of domestic products also increased. The prices rose more than the goods that were exported or imported. The rapid growth in the domestic demand persuaded sharp growth in wage, which in turn outpaced the productivity. Moreover it has also led to an increase in the unit labour cost and reduction in external competitiveness. In most of the countries belonging to the GIIPS the effect of rigid labour marker was such that it has forced them to focus on labour cost. Also with the materialization of China, depreciation in currency and rapid growth in labour productivity in the export activities of Japan and US further increased the competitiveness issue in the GIIPS. The sole monetary policy of the European Union was extremely loose for the growing countries like Spain, Ireland and Greece. However it was excessively tight for Germany. The wage and the domestic demands grew slowly in Germany in comparison to the total average of the European Union. This was one of the biggest reasons for the loss of competitiveness Importance of New Business Ventures In general a new business ventures offers a lot of advantage to the society and nation. It helps a country in the process of economic growth. Also in the societal context, a new business venture offers employment to a number of people. Moreover it also assists individuals or the entrepreneurs to become self dependent (Oecd, n.d.). It is an obvious fact that new business ventures play an imperative role in the development of economies. New venture and entrepreneurship is perceived as the basis towards a strong capitalist economy. Starting a business and to get success from that is dependent upon a number of factors. The failure and success rate is directly associated with the economic policy of the country where the business is being operated. In the context of the importance of new business ventures and job creation, Global Entrepreneurship Monitor (GEM) highlighted that ‘entrepreneurship is best seen as a process rather than event’. The association also put emphasis to the fact that a large number of factors will play intricate role towards the entrepreneurial aims and goals of a particular nation. Some of the major factors highlighted are military service, education, technology demographics, media, economic development, social perceptions and the financing capabilities. The perceptions of a country related to entrepreneurship and initiation of a new venture can radically impact the growth of a national economy. It also acts as a decisive factor in competing in the international business environment. GEM has thus developed three distinct phases of an economical development. However the stages are purely based on a nation’s ability to encourage entrepreneurial or capitalist activity. The stages are efficiency-driven economies, factor driven economies and innovation-driven economies. On the other hand detailed public policy inventiveness will assist in determining a nation’s ability of encouraging capitalist activities. Furthermore it will also impact in the growth and development capabilities. A factor- driven economy is an economy that primarily consists of trade that is agriculturally influenced. In such type of economy, most of the sole proprietorship firms are manufacturing companies. Moreover due to basic and primitive nature of these nations, there is hardly any dependency of innovation and knowledge. On the other hand the economies that are factor-driven, primarily includes agricultural trade and it lacks any opportunities of innovation. Many poor countries around the world need individuals for the purpose of starting new ventures out of utter necessity. This is the reason why start-up ventures or entrepreneurship is frequent in poor economies sue to the lack of national employment policy. Some of the countries where economy is factor driven are Yemen Venezuela, Guatemala, Algeria, Morocco, Syria, Lebanon, Jamaica, Saudi Arabia, and Uganda,. The mentioned countries mainly rely upon the cultivation of petroleum, coffee and sugar. The efficiency-driven economy is much more dependent upon the manufacturing industry. Also efficiency-driven economies have low self employment rates. The economic policies are made in such a way that it becomes harder to carry out entrepreneurial activities. On the contrary it promotes large firms. The GEM efficiency-driven countries are Uruguay, Bosnia and Herzegovina, Brazil, Jordan, Chile, Peru, Columbia, Latvia, Argentina, Romania, Russia, Croatia, Dominican Republic, South Africa, China, Ecuador, Hungary, Iran, Malaysia, Panama, Serbia, and Tunisia. Furthermore the transition phase is also longer as compared to the other economies, due to its large magnitude of progress needed. Lastly, innovation-driven economies are the economies that are highly matured and are also capable enough to get the most out of innovation and education. By employing education and innovation the innovation driven economies are invigorating economic growth. In this type of economies entrepreneurial activities actually flourishes and is also imperative for the purpose of nation’s long term economic sustainability. Innovation-driven economies are: United States, Finland, Switzerland, Netherlands, Iceland Spain, Israel, United Kingdom Denmark, United Arab Emirates, Slovenia, Belgium, France, Hong Kong, Italy, Japan, Norway, Greece, Republic of Korea and Germany. Impact of Economic Downturn on the creation of New Businesses The economic downturn of the recent past has severely affected the commencement of new ventures. Hence in this context of the study, GEM highlighted that starting business in 2009 is more difficult than 2008, due to lessening capital activities. Again owing to the fact that start up factors and entrepreneurial factors varies from one country to the other, the global economic crisis has therefore affected the ventures in a different way in different countries. Hence from an overall viewpoint inanition of a new business venture is an exclusive phenomenon which impacts imperatively on the economic sustainability of a country and globalization. Importance of Job Creation and protection of individuals For a country to actually develop and witness strong growths, it is very much important to create new jobs. Creation of job is imperative for the wellbeing of a nation’s economy. Moreover creation of job features in top of list of governments wish lists. Hence it is also important to know the rationale that enhances financial opportunities (Bachus, n.d.). Job creation became more imperative soon after the global economical crisis. However jobs are only which are on the payroll or multiple job holders. Entrepreneurs or self employed individuals, and unpaid labours during business commencements are not counted as jobs. The global economic recession has caused huge unemployment and thus reduced the employment level. Scholars have highlighted due to high unemployment rates; the existing workers were encouraged as well as pressurized for more productivity. In addition employers also restricted the hiring of new employees due to increased cost of employing. Also at the same time, due to the uprising and booming of information technology and innovations in the job market employment revived to a certain extent. The innovation and technology applied in the field of employment are contracting and outsourcing. In this context higher output can be easily achieved without raising the employment. In order to cite an instance small and large firms are more and more purchasing the services of foreigners in order to perform the task that has been performed previously by the other employees (Lowrey, n.d.). Influence of an Individual towards the creation of an organization An individual can highly influence the process of creating an organization. It is similar to the fact how an effective manager influences his subordinates. However for an individual to effectively influence the growth process he/she needs to have strong leadership capabilities. By applying the capabilities of leadership an individual can excel in his or her field or can easily attain the desired objective. Moreover thorough the use of individual creativity or creativity of the group can assist in the process of forming a new venture. It also impacts in the practices of the set management practices. In order to cite an instance there are large number of organization which was formed as an entrepreneurial venture, but now has transformed into a large organizations. Organizations such as Apple, McDonalds, KFC, and GE etc. were all entrepreneurial ventures during the time of its inception. However with the course of time and reforms in economic policies has taken these organizations in the international avenue. Hence entrepreneurship activities are responsible for the formation of a company. Entrepreneurship and how it helps in the economy of a country Traditionally entrepreneurship is considered to be one of the oldest courses of action (Landstrom, 2009, p.3). Entrepreneurship is defined as the process of exploring the prospects of the marketplace and also to accumulate the capital required for exploiting the chances of market. It can be portrayed as the process of grabbing the opportunities of market place by offering superior quality goods and services. Entrepreneurship is also about making proper plans, and arranging the resources required for converting the market opportunities into reality (Dyck and Neubert, 2008, p.173). While on the other hand an entrepreneur is an individual who is focused upon the decision of allocation and harmonization of scarce resources (Casson, 2003, p.19). Bill Gates, Steven Spielberg, Sam Walton, Gordon Moore, Ted Turner and Alan Sugar are among the eminent entrepreneurs of the world (Finance in the classroom, n.d.). In this context a real life example can be cited, where Bill Gates started as an entrepreneur and now features among the list of richest persons of the world. The findings from the literature revealed that leadership qualities are very much essential for a successful entrepreneur. The chosen entrepreneur is Bill Gates who also embraces strong leadership qualities. Also the quality of taking action, authentic leadership, innovation, organization building and the qualities such as risk taking and uncertainty is present in Bill Gates. His decision purely depicts the risk taking nature and to face the challenges of the business environment. Again creativity is a constituent that increases the capability of an organization to maintain their competitive advantage over the competitors. Also is helps to stay ahead of the rivals. For organizations which are creative, the insights and ideas of their staffs are of utmost importance. Most of the inventiveness research focuses only on individual aspects of innovation. This is the reason why the products of the company highly reflect creativity and innovation. Even some of the characteristics such as commitment and dedication represent his authentic style of leadership. Therefore the statement ‘leadership qualities and creativity are essential for becoming a successful entrepreneur’ is clearly justified. Individual Influence in Management Practices Individuals, to a large extent influence the management practices. Nonetheless some of the qualities are obligatory for the individuals to influence the management practices in an organization. Some of the noteworthy characteristics are therefore highlighted below:- 1. Open Communication: -Honest and open communication is one of the most important characteristics of an individual to influence others. Also in an organizational point of view, in order to be an effective manager, open and honest communication is obligatory. The primary rationale behind the importance of communication is that, the suggestions or directives of the manager or an individual needs to be in a clear and concise manner. Furthermore a number of earlier studies have emphasized that sound communication enhances the efficiency. Hence it is extremely difficult to influence others without having proper communication skills, and therefore open communication is a key factor towards influencing others. The management of the company may also get influenced and initiate open communication throughout the organization. 2. Respect: - Lack of respect for others creates poor morale and in turn this poor morale affects the productivity. It is important to give respect, in order to influence others, as people mainly get influenced by the behaviour of others. Similarly in an organizational context, a manager need treat the employees with respect. Furthermore respect is another imperative factor that contributes highly towards the effectiveness and productivity. 3. Consistency: - Till the results are intermittent, there will be hardly any individual who will be influenced. If an individual fails to offer consistent results, there will be no one to get influenced. Similarly in organizations managers needs to be consistent with their results in order to be effective. Once a manager, with his skills get accustomed with the new management styles and provides consistent result, the upper management of the organization will also start replication the management style and practices. 4. Meeting Goals: - It becomes extremely important for in individual to meet the targets in order to influence others. A manager in an organization also needs to do the same for influencing the employees as well as the upper management. Once an individual consistently start meeting the organizational and personal goals, his/her level of influence in the company will grow to a larger extant. Conclusion The report was about how individual or collective creativity influences or plays a part in the formation of a new organization. The report was also intended to uncover the extent up to which an individual can influence the managerial practises of an organization. Now the study highlighted that individuals plays the major role towards the formation of an organization. Stalwarts such as Bill Gates, Steven Spielberg, Sam Walton, Gordon Moore and Mark Zuckerberg among others are some of the examples of how an individual can influence the establishment of an organization. On the other hand the study also reflected that an individual or a manager plays significant role in influencing the management practices within the organization. However qualities of leadership, open and free communication are needed to be an effective manager. Thus it can be concluded that to large extent an individual or a manager contributed towards the establishment of an organization and also in the management practices. References Bachus, No Date. Jobs and Economic Growth. [online] Available at: < http://bachus.house.gov/index.php?option=com_content&view=article&id=106:jobs-and-economic-growth&catid=38:issues&Itemid=97> [Accessed 06 October 2012]. Casson, M., 2003. The Entrepreneur: An Economic Theory. 2nd ed. Massachusetts: Edward Elgar Publishing. Dyck, B., and Neubert, M., 2008. Management: Current Practices and New Directions. Connecticut: Cengage Learning. Finance in the classroom, No Date. Inside the Vault Entrepreneurship. [pdf] Available at: < http://financeintheclassroom.org/downloads/Entrepreneurship.pdf> [Accessed 06 October 2012]. Landstrom, H., 2009. Pioneers in Entrepreneurship and Small Business Research. New York: Springer. Lowrey, Y. No Date. Estimating Entrepreneurial Jobs: Business Creation is Job Creation. [pdf] Available at: [Accessed 06 October 2012]. Oecd, No Date. Small Businesses, Job Creation and Growth: Facts, Obstacles and Best Practices. [pdf] Available at: [Accessed 06 October 2012]. Reynolds, P. D., Curtin, R. T., 2010. New Business Creation: An International Overview. Berlin: Springer. Rutkowski, J. J., and Scarpetta, S., 2005. Enhancing Job Opportunities: Eastern Europe and the Former Soviet Union. Washington: World Bank Publications. Bibliography Harris, B. M., 2010. New Venture Entrepreneurship and its Impact on Globalization and Economic Development. [pdf] Available at: [Accessed 06 October 2012]. Read More