Comparing Business Systems: States and Financial Institutions - Essay Example

CBS Examination Topic 4: Comparing Business Systems – s Business systems are processes that are used to provide and deliver goods and services in an economy. These systems ensure there is constant delivery of goods which meets the demand for the same. Therefore, having appropriate systems ensures that an economy runs smoothly. However, business systems that are not effective could reflect flaws in the economy, where the supply for goods and services does not meet the demand. There are many types of business systems that are used by governments to ensure there is constant production of goods and services to meet demand (Cohen and Boyd, 2000:23). For instance, governments use trade associations in ensuring the production is meeting the demand. Therefore, the trade associations have to generate ways of stabilising production to reflect the demand levels. Similarly, governments could use cooperatives in increasing production of goods and services. These cooperatives could be private organisations that specialise in different types of production or service lines. In addition to this, a government can use multi-level production methods that increase production. A perfect example of the different business models that are used is the induction of People’s Bank of China (Luo, Xue and Han, 2010:71). This was an institution that was used to boost the outward foreign direct investment in the country. In ensuring the participation of PBC was successful, the government had to use monetary and the foreign exchange policy. As such, it motivated the Chinese firms which increased their production and extended the OFDI abroad. Therefore, it is openly displayed that some activities are deemed to increase the production of goods and services, which could also be exported to earn foreign exchange and boost local currency’s strength globally. According to historical developments, countries have used capitalism as a way of improving on their production capacities. Countries that have a strong muscle seem to increase their production by investing in a variety of businesses (McDonald, Burton and Dowling, 2002:13). As such, countries with massive investments end up benefitting more thereby increasing their economic growth. Historically, countries that relied on capitalism are more developed than those that were allied to socialism. In capitalism, different levels of production accrued different levels of profit, which made a difference in the whole economy. However, in socialism, all production levels that recorded gains were directed to the whole economy. Therefore, there was a difference in the production levels in countries that supported socialism from those that supported capitalism. In this line, capitalism has complex methods that ensure all the factors of production are fully utilised. In recent times, countries have been trying to structure better ways of production and service provision. These structures are aimed to ensure the economy is growing at increasingly fast rate. However, it all depends on the roadmaps that are used in structuring the process. As such, many countries are directed towards economic liberalisation, increasing free trade and opening new markets for their products. Similarly, some countries are enhancing the private sector production, decreasing regulations in doing business and privatising some of the public corporations (Luo, Xue and Han, 2010:73). With such strategies, the economy gains by producing more as the different parts of the economy work towards a common goal. In making this a success, many of the regulations put in place are directed towards strengthening the private sector. They deregulate the concentration of other production phases and ensure the private sector is booming and producing more. For instance, China banked on privatisation of many industries that produced more as compared to the current state; this culminated to a remarkable economic growth. Capitalism and neo-liberalism have their differences and convergent points which are dependent on the way the strategies are executed. For instance, the United States and the United Kingdom have a way of ensuring their production is maintained at high standards through continued in financing. This is both experienced in capitalism and neo-liberalism. In these markets, the shareholder value is a dominant criterion used in measuring corporate performance (Luo, Xue and Han, 2010:74). However, they have their differences where capitalism does not bank on privatisation, but ensures all aspects of production are offering optimal results. The two strategies are vital in improving an economy. Capitalism, on one hand, ensures all the aspects of the economy are financed, and it aims at optimal production; this improves aggregate production in the economy. The economy has to produce goods and services that meet the prevailing market demand thereby ensuring a more balanced economy. On the other hand, neo-liberalism increases privatisation in an economy, where the production is left to private firms. This is a situation that triggers economic independence where a person has to produce enough goods and services for the economy. With such activities, economic growth is triggered. 2. Topic 5: Comparing Business Systems – Financial Institutions Business systems are geared towards improving the economy. As such, they have to strategise on the best approach to use in making a positive improvement. In many cases, the strategies are directed towards financial institutions in an economy (Davis, 2009:28). Therefore, the financial institutions have to make directives that improve on production. Since people may need capital and other resources in production, the financial institutions prove to be vital. Nations have different approaches when it comes to improving their economies through financial institutions. These are basic strategies that should be used to make an optimal impact in the economy. For instance, a state could indulge financial institutions by encouraging an establishment and reproduction of distinctive business systems. In such an aspect, the financial institutions are geared towards establishing businesses that are unique. Production of the unique services and goods results in an overall positive impact in the economy (Abe and Hoshi, 2007:12). For instance, the market creates a demand for these products, which improves the flow of goods and services in the market. Similarly, financial institutions could develop standards across all the production firms. Producers that offer goods and services could be directed towards achieving specific standards in production. As such, they will only produce goods that are of the predetermined quality and, at times, quantity. Providing the market with standardised goods increases the demand and exchange of goods and services. Similarly, the services are exchanged at a higher rate; therefore, the return on production increases tremendously. Business systems that bank on financial institutions are related to other dimensions in that they are all geared towards making an improvement in the economy. The production is increased while the goods are produced at a higher rate. This increases the value of goods and services. As such, they are demanded more. This is also done in state corporations, where a state ensures the goods and services that are produced are of high quality and right quantity (Aoki, 2001:12). Similarly, corporate governance incepts directives that are geared towards increasing production. However, they not only increase production but also create avenues of increasing the demand for goods and services. This is by ensuring the market has a variety of goods and services that are highly attractive and affordable. As such, there is almost near certainty that there will be increased demand and supply. Financing various levels of the economy is a strategy that is geared towards enhancing production of services and goods. This not only produces a larger amount of goods and services but also ensures quality production (Sterman, 2001:11). In such a scenario, the market achieves more since there is better exchange of goods and services. An economy gains with improved exchange of goods and services. Therefore, when financial institutions are enhanced, they disburse a large amount of cash to the economy (Davis, 2009:38). When there is an increase in people’s income there is high likelihood of increased spending. However, this increased spending will only be skewed towards the goods and services that are in demand. Similarly, people will only look forward to buying goods that are of improved quality. Therefore, enhancing the capacity of financial institutions is an approach that creates high demand for goods and services, which reflects positive results on the economy. Universally, there are many countries that have the same approach when it comes to recording positive approaches to production. Firms normally benchmark other firms to ensure their production is at par. When many firms have the same approach in business, it is evident that they will have a positive accrual. For instance, firms in the United Kingdom, Japan, the United States, France and Germany have to compete with each other on the global capital markets (Kohli, 2004:9). It is evident that when there are many firms in the capital markets healthy competition emerges that concentrates on product quality. Secondly, these countries ensure there is access to capital base owing to availability of both long-term and short-term financing (Davis, 2009:42). Lastly, firms in these countries increase the pressure on others to maximise the shareholder value. In such a case, the capital in a firm should be optimised and increased with any increase in its value. As such, firms will have sufficient capital to divert to other means of production. In making this an easy task, financial institutions have been developed to assist in disbursing the highly needed capital. Similarly, the financial institutions are critical in optimising the capital base of these firms. With these strategies, the economy realises a higher production rate, which is evidently seen from the demand and supply. In conclusion, financial institutions are essential in strengthening business systems. They increase the capital formation in an economy. In many cases, capital formation is derived from financial institutions; therefore, any economy that needs to develop should start from developing its financial institutions. This will increase one of the most significant factors of production, which is capital. This will, in turn, instigate production of quality goods and services at a faster rate. References Abe, M. & Hoshi, T. (2007) “Corporate finance and human resource management in japan”, corporate governance in Japan, Oxford, Oxford University Press. Aoki, M. (2001) Towards a comparative institutional analysis, Cambridge, MA, MIT Press. Cohen, S.S. & Boyd, G. (2000) Corporate governance and globalisation, Cheltenham, UK and Northampton, MA, Edward Elgar Publishing Ltd. Davis, G.F. (2009) ‘The Rise and fall of Finance and the End of the Society of Organisations’ Academy of Management Perspectives, vol. 23, no. 3, pp. 27-44. Kohli, A. (2004) State-directed development: political power and industrialisation in the global periphery, Cambridge, Cambridge University Press. Luo, Y., Xue, Q. & Han, B. (2010) ‘How emerging market governments promote outward FDI: Experience from China’ Journal of World Business, vol. 45, no. 1, pp. 68-79. McDonald, F., Burton, F. & Dowling, P. (2002) International business, New York, Cengage Learning EMEA. Sterman, D.J. (2001) Business dynamics: systems thinking and modelling for a complex world, New York, McGraw-Hill Education. Read More