Risk Management, Elasticity of Demand and Other Economic Factors in the Global Business Context - Case Study Example

Global business context Name: Number: Title Tutor: Date: Global business context Elasticity of demand is how consumers respond to price changes. For instance salt, an increase will not affect the consumption of this commodity. Ice cream however, will cause a sharp cut back on consumers if at all the price is increased (Sedghi, & Ami, 2011). It other words, it is how consumers react to a change in price of a given commodity. Commodities differ in their demand. Commodities that are basic to human life will not have much impact if its prices are increased unlike luxurious items such as ice creams. Elasticity of demand abbreviated as Ed can be calculated by dividing the percentage change in price from percentage change in quantity demanded (Sedghi & Ami, 2011). Currently, India is known for its fast growing population. This, therefore, calls for more concern in terms of food demand (Mason, & Rowena, 2009). According to UN, Indian population will soon exceed that of China. In addition, it is expected that at least 54 percent of Indian population will live in the urban centers. Statistics as at 1996 claim that Indian population is 1.5 billion and out of these, 250 million are middle-class consumers, this is an indication that their economy will prosper with population growth (Mason, & Rowena, 2009). Demographic factors have an impact on dietary preferences though not similar to other countries as they known to be vegetarians (Mason, & Rowena, 2009). Rapid growth in population, rise in income and other demographic factors means a high demand for food in India as per developing economies. To the southern part of India, rice is a staple food. Its elasticity is inelastic because a change in price won’t have an effect on its demand. Even if the price of rice in increased, consumers will continue consuming the same quantities (Perry et al., 2009). Rice in India has no substitute; this is why its demand is inelastic. In Gurcharatti, a shop in Bunjab, India, the price of rice was reported to have increased by 12% which affected demand by a 6% decrease (Perry et al., 2009). This is computed by dividing the change in demand from the change in price: Ed= Change in demand / Change in price Therefore: = 6%/12 0.5 (Inelastic) (Perry et al., 2009). Scholars carried out a research in India in the year 2007 and came out with the graph below that illustrates the elasticity of demand of rice. Perfectly inelastic curve Through this diagram, we learn that quantity demanded is constant no matter the price increase. This is because rice is a staple food in India and therefore has a less impact on demand. In the U.K, there are several types of food that Britons consume as their daily meals. Traditionally, their foods are normally in form of pork, beef, lambs, fish and chicken. In the UK, there is also some of the food which the British people can take to supplement, this can be sandwich, spies and roast dinners. Like any other country, UK has their staple food (Ferguson, Niall, & Empire, 2004). Focusing on bread, it has numerous substitutes. In the UK, bread is consumed as a luxury food. A rise in price of this commodity will imply that majority of consumers will not consume the product. Its elasticity will be greater than one (E>1) (Conway, & Edmund, 2008). An increase in price means a drastic fall in demand. Basing on one of the Bakeries in London, they reported that after an increment of prices of bread by 10%, demand for bread dropped by 20% (Conway, & Edmund, 2008). The above data is computed as: Ed= Change in demand / Change in price =20%/10% =2 (elastic) Perfectly elastic curve This curve clearly states that there are plenty of substitute commodities that can be used in place of bread. Lastly, we focus our concern in the North Pole; this region is associated with snow. Bicycles are meant for a given class of people; majorly young boys and those who participate in bicycle races. An increase in price change of each unit will lead to an equal fall in demand change (Bawden, (2009). The change in price is equal to the change in demand. A survey was a carried out in one bicycle outlet and the following was found out: When the price change by 5% quantity demand also changed by an equal percentage. Ed= Change in demand / Change in price =5%/5% =1 (unitary) In this case, the change in price is equal to the change in demand of bicycles (Mason, & Rowena, 2009). When the prices of goods and services shot up in an economy, this situation is termed as inflation. In other words, the purchasing power of money during this period is weak, as a given unit of currency will purchase fewer goods as it use to be in the normal condition (Hillford, & Officer, 2002). Inflation leads to shortage of goods because in an inflationary condition where there in a greater supply of money than the recommended in an economy, consumers tend to purchase more and more goods thereby having a negative impact on supply (Conway, & Edmund, 2008). In the UK, economic growth rate was successfully achieved when Tony Blair was in power. He managed to plan for his ten year period summing to 40 quarters of economic growth (Allen, & Katie, 2010). This has been documented as one of the highest economic growth rates ever realized in the entire continent of Europe. In the early 1990s, growth of GDP was 4% but declined soon after that, while in the 1970s, the highest point of GDP was realized at 6.5% during this period, GDP was easily predicted it was smooth and more so it was consistent (Conway, & Edmund, 2008). According to IMF, the growth rate annually between 1992 and 2007 was calculated at 2.68%. During this period, finance sector was realized to be having contributed a greater deal to the economy (Robertson, & Davidson, 2009). Soon after Blair got out of office in 2008, UK experienced recession mainly caused by financial growth that affected the whole world. As a result of this, a good number of banking institutions were effectively nationalized (Hillford, & Officer, 2002). For instance, The Royal Bank of Scotland Group was at one time amongst the best of five banks in terms of market capitalization in the world was fully nationalized in October, 2008 while Northern Rock was publicly owned in 2008 others being partly nationalized. This caused a sharp rise in unemployment by over 900,000 in a period one year (Hillford, & Officer, 2002). In the early years, UK economy was known to be strong in terms of inflation, unemployment and interest rates as it has always been low only until the 2008-2009 recession periods (Hillford, & Officer, 2002). Currently, UK has experienced its highest unemployment peak of 7.8% (2.6 million) for the last 15 years. On interest rates, it has been reduced by 0.5%. IMF gave a signal to the UK that the prices of commodities had risen (Hillford, & Officer, 2002). Although the UK received revenue from the exportation of financial services, their finished products and food recorded a great loss. In respect to it, the IMF advised them to review their fiscal policy so as to accommodate external balance (Hillford, & Officer, 2002). Statistics reveal that the UK suffered negative growth for nearly six consecutive quarters in between 2008 and 2009. It is documented that due to this rapid recession, the UK economy drift to 4.9%, this made the 2008-2009 being the longest recession period ever to be realized (Barry et al., 2011). Moreover statistics carried out proved that there was further economic fall by 0.2% as compared to 0.6% for the previous quarter (Hillford, & Officer, 2002). Due to this unfavorable economic conditions UK has been known to officially record recession for the first time since 1991, this was followed by unemployment rate which rose from 5.2% in 2008 to 7.6% in 2009 (Hillford, & Officer, 2002). Inflation in the UK has also had a great impact on development of infrastructures and social utilities. The development of such real estates facilities is known to support the growth of the country’s economy a great margin. In UK, renting of houses and its related facilities boosted the economic growth by gross value of $83,03.7 million in the year 2004 as the real estates contributed up to the gross value $ 175,33.3 million (Hillford, & Officer, 2002; Allen, & Katie 2010). In UK, the property business was in its peak for a period of seven years up to 2008 and dropped in other parts for a period of time. The rise in the prices of the properties had both positive and negative impacts to the UK economy (Allen, & Katie, 2010). The country realized low interest rates, economic growth and speedy development of residential properties. Case study of risk management Introduction With the start of a new business come the risks associated with it. These risks tend to affect business operations in negative directions if not well taken care of. McBride Financial Services will be faced with threats eminent in Sioux Falls. With the start of a new branch, this will mean development of ways to avert the potential risk that can be posed to the business. For the purposes of this paper, categorization of risk has been done in two ways: Risks from the external environment Internal risks External Risks Sioux Falls City is the largest city in South Dakota. The city enjoys a fast growing population, which also translates to better business. This, however, has put pressure on the available resources. The road network is the major form of transport in the area. Roads provide an avenue for transportation of bulky and heavy products as well as passenger transport. This has caused huge traffics in the area, causing a lot of noise pollution. There is the risk of people who live near roads developing noise-pollution-related health concerns. The big trucks that carry many substances are the major contributors of the problem. It cannot be forgotten, moreover, that due to heavy rains at times, there is likelihood of accidents in the area. The likelihood of trucks that carry poisonous and hazardous substances being involved in accidents is there. The possible harm that this can cause to the near population can be adverse. Since McBride Financial Services is planning to have its offices next to road network, it is prudent to note that the same will be at risk of exposure form these hazardous substances. Another external risk faced by the company is security-related issues. Forced entry is a possibility that cannot be overlooked (Andrew, 2004). The company is planning to locate its business next to estate residence. In most cases, crimes are committed in living estates as opposed to city centers. This is a threat, therefore, that the company will face. Internal Risks Internal threats are those threats that arise from within the organization. These threats can be related to technology and information systems used. Since the company will be using an online presence in the day-to-day carrying of their services, there is a risk of interference from hackers. For the purposes of this paper, hackers and external forces threats have been considered as internal threats because they aim at attacking the internal infrastructure of the company. This threat is not seen to pose a serious risk to the company; however, care should be taken to curb the possibility of competitors or sabotage from exploiting the new systems that are to be implemented in place (Business Leaders Program, 2007). Employees can also pose a risk to the operations of the company. The threats posed by employees can be accidental or non-intentional. If employees do not have a clear understanding of the working environment in Sioux Falls, then their decisions could put the business at risk. Target groups Due to the possibility of these risks, business will be affected in various ways. The first group that will be affected would be the company staff. If the staff are exposed the hazardous chemicals, the influence it will have on their health will not be desirable. It will therefore affect efficient working of employees in the branch; customers also could be affected. Threats related to unauthorized access to information systems by hackers or internal actors could cause the company to lose important information, which could lead to losing its competitive advantage or even attract lawsuits from the affected. Control measures The risk posed by the possibility of hazardous chemical spills is beyond the control of the company as it is. However, in the past the relevant bodies have been able to transport these substances in tightly sealed strong containers. Even though this is the case, the possibility of the worst happening cannot be overlooked. The company needs to ensure that its employees in the Sioux Falls are protected from the same by provision of tightly sealed and self-sustaining room in the proposed office. Ensuring that physician security is implemented is the key to reducing forced entry risk. Strong gates and entrances should be used in the office, not forgetting security guards. Alarm services can also be implemented in the premises (Andrew, 2004). Due to advancement in technology, the company can curb the problem associated with its information systems by implementation of firewalls and other security measures as well as application of strong policies with regard to systems access methods (Andrew, 2004). Staff should be adequately trained and experienced staff should be the lead personnel in jumpstarting the branch. Reference: Allen, K, Katie, T 2010, “Economy tracker”, The Guardian, Retrieved on 13 July, 2011: http://www.bbc.co.uk/news/10613201. Barry, G, Mason, J, & Britain, I 2011, Income inequality at record high, International Committee of the Fourth International, London. Bawden, D 2009, “Gordon Brown plans tonic for pharmaceutical industry”, The Times, Vol. 4, Issue 6, pp. 54. Bawden, T 2009, Brown Gordons plans tonic for pharmaceutical industry, Wales Publishers, London. Conway, B, Edmund, T 2008, “UK is the only major economy to face recession this year, OECD warns”, The Daily Telegraph, Vol. 42, No. 5, pp. 54. Ferguson, I, Niall, T, & Empire, N 2004, The rise and demise of the British world order and the lessons for global power, Basic Books, London. Hillford, G, & Officer, H 2002, Exchange rate between the United States dollar and forty other countries, Cengage Learning, New York. Mason, B, & Rowena, G 2009, Let the battle begin over black gold, Wales Publishers, London. Perry, L, Marvin, G, Chase, T, & Myrna, G 2009, Western civilization: Ideas, politics, and society, Boston: Houghton Mifflin Harcourt. Robertson, T, & Davidson, J 2009, The Aerospace industry has thousands of jobs in peril, Routledge, London. Sedghi, D, & Ami, F 2011, “How Fitch, Moody's and S&P rate each country's credit rating". The Guardian, London. Read More