Mar 29, 2019 in Business

The Business Environment: The Role of Business

Describe the Role of Business in the Economy

Businesses are important fundamentally because they fuel the economy. Businesses are in charge of producing goods and services, which they offer to households at the markets. Businesses are also in charge of demanding labor from households and compensating them with wages (which they can use to consume the goods and services offered, and by so doing increasing their standard of living). Ideally, markets are regulated so that perfect competition between businesses can be ascertained. Under the perfect competition, businesses cannot affect prices individually; they must take the prices that the market imposes (which are advantageous for consumers). Furthermore, under perfect competition businesses must strive to keep production costs (and prices) down, while at the same time offering maximum quality and differentiation. Here again, businesses are important because they effectively contribute to the economy’s growth and sustainable development. Of course, there are different types of businesses, and inevitably, there are different market structures that involve different forms of competition (monopolies; natural monopolies; oligopolies; monopsony). Each of these forms of completion will inevitably lead to equilibrium, which is a condition in which the demand and supply of goods and services in a given market are equal (meaning that the market clears out). On this point, it is important to stress that perfect competition is the ideal form of competition, given that it enables businesses to be most efficient, while at the same time allowing for households to reach maximum well-being and utility.

Compare and Contrast the Roles of For-profit and Non-profit Organizations in the Economy

Both for-profit and non-profit organizations have major roles in the economy. First of all, for-profit organizations are organizations that operate in a market and strive for increased returns; these returns are then distributed among the shareholders/owners. The goal of these organizations is to maximize revenue; they strive for cost optimization and increased production so that more people could consume the goods/services offered. On the other hand, nonprofit organizations do not distribute returns among shareholders; returns are retained and reinvested in the organization’s operations and projects. Nonprofit organizations, unlike for-profit organizations, are not all about generating returns, but actually about contributing effectively to society (helping society increase its quality and standards of living). 

Discuss the Impact of Current Fiscal and Monetary Policy on the Economy

At present, the tendency has been towards relatively high public spending (which hints a mildly expansive fiscal policy), but government has clearly decanted in favor of stimulating the economy through expansive monetary policy. Since 2008, interest rates have been decreased consistently in an attempt to stimulate the economy through increased borrowing. As well, inflation has been kept in check (at a 2% margin) in order to guarantee macroeconomic stability. Both approaches (to fiscal and monetary policy respectively) have had little impact in terms of stimulating the economy into completely overcoming the Great Recession (which, by now, appears more to be a depression). Government did intervene with a fiscal stimulus plan that included spending (and tax cuts) in the order of 787 billion dollars. This increase in fiscal spending contributed in stabilizing the financial market, and it effectively stopped the sharp economic decline that the economy underwent between 2007 and 2009. However, the economy was not stimulated into generating employment or growth. Furthermore, decreased interest rates did nothing to stimulate consumption, which ultimately prompted the economy to fall into a liquidity trap. At present, monetary policy can do nothing more (as interest rates cannot fall below zero); a truly positive impact can only be found in expansive fiscal policy.

Select a Product or Service with Which You are Familiar and Outline a Strategy for Accessing Global Markets

The service chosen is news media. In order to outline strategies that might be pursued in order to access global markets, it is helpful to touch on the experience of Rupert Murdoch’s NewsCorp. NewsCorp is the company that has immersed itself in the profound process of internationalization. First, it is clear that it has developed vertical integration, which is a type of management control characterized by the ownership of several companies, each of which produces a different product/service. They all combine to satisfy the one common need which in NewsCorp’s case, is entertaining and informing the public all over the world.  The company owns newspapers, magazines, satellite news channels (DIRECTV), and even a film studio (Twentieth Century Fox), thus, confirming that it is, in fact, a vertically integrated multinational firm. Technology transfer is another strategy that can be found in Murdoch’s NewsCorp. The company has always strived to be at the vanguard of the telecommunications industry, and proof of this lies in the fact that it was among the first to put direct-to-home satellite broadcasting television network into operations during the late eighties (the network was called Sky Television). Finally, when analyzing the NewsCorp’s plight since its foundation, one can also see that Rupert Murdoch has always implemented the style in which the Monozukuri spirit and Friedman’s triple convergence are present.  Firstly, one can see that Murdoch is not so much interested in revenue and profit, as he is concerned with perfection and innovation (canons of the Monozukuri spirit). For example, this can be confirmed upon seeing that Murdoch kept on investing in projects he believed in, despite being indebted. Now, when talking about Friedman’s triple convergence, one sees that NewsCorp also exhibits this strategy; workflow software/hardware has made it possible for Murdoch to build a mass media empire in less than fifty years (although, it must be said that the adoption of capitalism in eastern Europe and Asia undoubtedly helped the company grow as rapidly as it did).  

Select an Organization with Which You Are Familiar and Discuss the Impact of That Organization’s Level of Social Responsibility on a Stakeholder Group of Your Choice

BP is a multinational operating in the oil industry; at present, it is one of the most important companies in the world oil industry. Since its creation in 1954, the company has been growing tremendously, to the point of being considered as the eighth largest company in the world, with presence in over one hundred countries and a total employed labor force of over 96,000. The company began implementing the strategy that primarily focused on innovation and Corporate Social Responsibility (CSR) in the 1990s. At the time, the company was reorganized into smaller autonomous units (which were more productive and efficient).  This enabled the company to increase its aggregate value by learning from past mistakes and preventing the new ones. As well, it has also been able to recognize the society’s increasing pressures for CRS; efficient, environmentally friendly technologies are in high demand as the world has become increasingly preoccupied with protecting the environment (primarily due to the strength that the global warming phenomenon has taken in recent years), and so the company has pushed forward a very aspiring vision, which basically is “to do no damage to the environment” – a challenge that stimulates BP “to find innovative ways to manage our environmental impact at local, regional and global levels” (Article13, n.d.). The approach of BP is multi-pronged. It addresses climate change through a combination of biodiversity, energy efficiency, (lower carbon products and flaring reductions), water usage, and air and waste emissions. Surely enough, the company has found it hard to get the public’s support given it is involved in the oil business, which is extremely harmful to the environment, but the company continues in its attempt to produce the cleaner energy solutions that protect civil society from the pollution that fossil fuels have historically generated.

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