DEBT
The impact of personal, corporate (private sector) and government (public sector) debt on global corporations can be deadly to the corporation under specific circumstances. This impact is sometimes too subtle to be noticed at first glance. The debt structure of a foreign country or state must be researched in depth before planning strategic initiatives that require investing in that country or state. What makes this interesting is the inter-relationship between personal, corporate and government debt; and the obligatory interaction of politics.
Historically, economies are cyclical. The frequency of the cycle is not always predictable, nor is the range always known, but they have been shown to operate in cycles. Thus, if an economy is operating in the positive portion of the cycle, it will tend towards the negative at some future point. The length of time in each portion of the cycle tends to change given the propensity of governments to intervene for their own reasons. When public debt is high, government is sometimes tempted to print money and ignore inflation. This causes an erosion of the real value of the excessive public debt.
Because of the tendency for economies to operate in cycle, debt levels must be assessed as much as possible on each level. In a strong economy, high levels of debt may not cause an economic downturn. In the event of a downturn, however, high levels of debt will at least amplify the situation that could cause the downturn to deepen into a severe recession.
CHANGING EXCHANGE RATES
The exchange rate is the value of a currency measured in how much foreign currency it can buy. In 1980 a pound could buy 525 Japanese yen. By 1995 the pound had fallen to only 135 yen. By 1998 the pound had recovered to 200yen. Clearly, exchange rates vary. They may be stable for a while, but then fall sharply. In the long term the exchange rate is determined by the pattern of international trade, supply and demand for imports and exports. In the short term, however, speculation can cause wide variations in a currency’s value.
Unstable currencies on this scale have a big impact on traders. Relative prices change dramatically. Previously profitable markets become very unprofitable. The outcome becomes very uncertain and a sharp decrease in economic activity may follow.
CHANGING INTEREST RATES.
Interest rates have an additional dimension. They have a significant impact on the exchange rate, which in turn affects inflation. When interest rates are high, capital from abroad flows into the country in order to take advantage of the attractive rates which can be obtained on bank deposits. These capital flows increase demand for the currency and tend to push up its price, i.e. the exchange rate. As exchange rates rise, export prices rise and exporters lose competitiveness. Export creates downward pressure on output and employment in Britain. It is a major factor in the way interest rates affect the economy.
Other domestic economic variables are the rate of inflation and the level of domestic interest rates, which affects the potential return from new investments and can inhibit the adoption and diffusion of new technologies. When inflation is low, interest rates are typically low, encouraging more extensive borrowing even though real interest rates are no lower. Thus firms and individuals think they can safely afford to borrow a much larger multiple of their income. Although borrowers have historically enjoyed inflation, this is a double edge sword. This same low inflation that encourages borrowing also makes excessive debt more dangerous, because unlike in a high inflation economy, borrowers can no longer rely on inflation to erode their real debt burden if they need or decide to liquidate.
It is therefore vital that marketing firms continually monitor the economic environment at both domestic and world levels. Economic changes pose a set of opportunities and threats, and by understanding and carefully monitoring the economic environment, firms should be in a position to guard against potential threats and to capitalize on opportunities.
REFFERENCE:
The times
Thursday October 2002
Page 3
ENVIRONMENTAL CHANGES AFFECTING BUSINESS.
Environmental issues are those relating to pollution, global warming, sustainable development and other elements of the green agenda. Businesses today are making more effort to measure and publicise their performance through environmental audits. The environmental issues act as constraint on the operation of business. There is little doubt that the importance of the environment as an issue for businesses has grown over the last 20 years.
Many companies, especially large public limited companies already have environmental policies. These are designed to minimise any damage their activities may cause to the environment. These policies usually cover production issues, but may be used as a positive aspect in the companies marketing activities. Relatively few firms seem to take their responsibility to the environment very seriously.
A business’s relationship with its environment is typically founded on its service to key “customers” and their satisfactions with its performance revealed by buying patterns, new legislation, party conferences, annual general meetings and stock market prices. However a typical, neutral and managerial description of environmental factors and pressures would cover the following areas; social-cultural, technological, economic and financial, political-legal events and possibilities. These are often referred to as-
S.T.E.P (social, technical, economic and political factors).
S.T.E.E.P.L.E (social, technical economic, environmental, political, legal and
Ethical factors).
ENVIRONMENTAL FACTORS AFFECTING THE TRANSPORTATION INDUSTRY.
In view of great environmental changes affecting the transportation administration and moves for the reorganisation of such administration.
1) GLOBALISATION AND DEVELOPMENT OF INFORMATION
The age of global mega competition has come with the development of transportation technologies and the advancement of information and communications. On the other hand, we see the global warming issue and other problems that must be addressed on a global scale. In recent years there has been a focus on global problems, starting with the problem of global warming due to the presence of carbon dioxide and other element in the atmosphere. These problems differ from the type of environmental problems experienced so far. They worsen little by little without affecting people’s everyday lives. By the time the damage is done the situation is beyond repair.
However, the transport sector accounts for some 20% of Japan’s carbon dioxide output. To successfully reduce carbon dioxide output, it is necessary to pursue technological development, to reduce and limit output from simple substances and to build a transport system that contributes less to carbon dioxide output.
Domestically, as ever, problem areas remain atmospheric to pollution from nitrous oxide and noise from traffic which are generally improving. A tightening of exiting traffic pollution policies is required to overcome these problems.
2) SPACE RESTRICTION
Transport facilities require large amount of space and transport capacity is limited to the space available. Space is becoming more difficult to attain. The price of land in the centre of large metropolitan centres has skyrocketed raising procurement costs. As transport demand grows, the crowding of facilities further intensifies.
Demand for space is expected to increase further on all sectors as the scale of the economy grows in the future.
3) CHANGES IN ENERGY CONDITIONS
Worldwide consumption of energy will continue to increase through maintaining expansion in developed economies and furthering industrialization in developing countries. Destabilization and a tightening in demand for oil can be expected due to the increased dependence on Middle East oil producing nations. In addition to this, new restrictions may develop due to global warming resulting from the use of fossil fuel energy sources.
On the other hand, the consumption of energy in the transport sector which is a major consumer will continue to expand at a high rate. In all transport sectors, policies need to be implemented for energy efficiency and alternatives to fossil fuels. It is necessary to restructure the transport system into an energy-efficient system.
4) LABOUR SHORTAGE IN THE TRANSPORT INDUSTRY.
The majority of sectors in the transport industry are characterised by irregular working hours and severe working conditions making it hard to attract labour. It is to establish an efficient transport system in order to achieve stable transport capacity as the expansion rate of workforce decreases.
5) RECYCLING
The extraction of natural resources is expensive and often damaging environmentically. Higher levels of recycling can reduce the need to extract more raw materials. It also reduces the amount of waste material that needs to be dumped or incinerated. Firms today are proud to display the recycling logo that tells the customer the firm is trying to minimise its use of primary materials.
Many environmentalists believe that the most important step which business and consumers need to take is to move away from the so-called ‘disposable society’. This is where products are used once and the thrown away. There may be a need to return to a more traditional situation where products are designed to last for a long time, in order to avoid the need to replace them frequently.
This therefore might threaten to reduce levels of production and presumably profit.
REFFRENCE:
The times The Ecologist
Thursday January 9 2003. Volume 32 no 7
Page 30 September 2002.
TECHNICAL CHANGES AFFECTING BUSINESS
Technological changes involve developments both in terms of what is being produced by a firm, and how it is being made.Tecnology is changing at an extremely fast rate. New products and new processes are being developed all the time. In markets such as computers and mobile phones, hundreds of new products are being launched every month. This rate of change seems to be getting ever faster. Product development times are getting quicker and consequently, more products are getting to the market in less time. The result is that the typical product life cycle is getting shorter. Naturally this creates serious problems for firms. With more and more products being developed the chances of any one product succeeding is reduced. Given the ever-higher quality demanded by customers firms have to spend more on developing products but have less time to recoup their investment.
Technology is a major macro-environmental variable which has influenced the development of many of the products we take for granted today, for example, television, calculators, video recorders and desk-top computers. Marketing firms themselves play a part in technological progress, many having their own research department or sponsoring research through universities and other institutions, thus playing a part in innovating new developments and new applications.
One of the main reasons for the rapid growth of technology is technology itself. The development of Computer-aided design (CAD) and Computer-aided manufacture (CAM) has enabled even faster development of other products and processes. This rapid rate of change creates both threats and opportunities for firms. The metal industry has been hit hard, weighing machines, typewriters; cash registers have all been replaced by CAD terminals. New product development must be programmed, driven, made cost-effective and, above all, directed to market needs.
Sony Pressman → Sony Walkman → Sony Discman → Pocket televisions
↓ ↓ ↑
Competitive walkmen → Competitive disk players
Imagine if you were still trying to sell typewriters in the U.K against the latest personal computer, for example. One example of how technological change has affected the marketing activities is in the development of electronic point of sale (EPOS) data capture at the retail level. The ‘laser checkout’ reads a bar code on the product being purchased and stores information that is used to analyse sales and re-order stock, as well as giving customers a printed readout of what they have purchased and the price charged. Manufacturers of fast-moving consumer goods, particularly packaged grocery products, have been forced to respond to these technological innovations by incorporating bar codes on their products labels or packaging. In this way, a change in the technological environment has affected the products and services that firms produce and the way in which firms carry out their business operations.
Technology can certainly make life a great deal easier for firms. Just think of how slow it would be to work out all of a large company’s accounts by hand instead of using a computer spreadsheet. If one company avoids the latest technology while its rival adopts it, it is likely to suffer real problems with competitiveness. The rivals may be able to offer lower prices or substantially better or faster service standards.
TECHNOLOGICAL CHANGES AFFECTING THE UK ELECTRICITY MARKET.
The UK electricity market; strategies for success in Europe’s most competitive market. The UK electricity market has been completely open to competition since the sub-100kw market was deregulated in September 1998.
The industry is now undergoing crucial changes, from the role of the National Grid Company to the services offered to domestic customers by their electricity suppliers. Electricity prices to industrial and commercial customers are set to change dramatically with the implementation of NETA and the climate change levy. All these factors are shifting the balance of services that are offered by suppliers and those that are required by customers. The electricity market is maturing and changing and is forcing companies to look at their revenue streams and reassess their current positions.
The UK electricity market covers every aspect of the industry, including:
- generation
- trading
- transmission and distribution
- competition in supply
- industrial and commercial market
- domestic market
- Drivers and forecast.
Competition is widespread through generation and trading all the way to end delivery and supply. There have been many mergers and acquisitions as well as investments and divestments. How will these changes drive the shape of the market in the future?
PROBLEMS OF INTRODUCING NEW TECHNOLOGY.
New technology can represent a significant investment for a firm and cannot always be undertaken. This is particularly true when technology is changing at such a rate that any investment may be out of date very rapidly. The difficulty is knowing when to buy. Technology also creates problems within the firm.
First, the managers must consider how it links up with what they have already. It is all too easy to buy one piece of equipment only to find it not compatible with other parts of your production process. For example, a retailer may have scanning equipment which cannot feed information through to the manufacturer.
Secondly, the technological change can create industrial relations problems. In some cases new technology may mean some employees loosing their jobs. This often happens with relatively routine jobs such as repetitively cutting, pressing or moving items. In other cases people will still keep their jobs but will have to retrain or learn new skills to be able to use the technology successfully.
Whether new technology provides an opportunity or a threat for an organisation, it depends on the technology itself, the resources of the firm and the management’s attitude to change. However, it may not always be possible for a firm to adopt the most appropriate technology perhaps because it does not have the necessary finance.
Organisations must also monitor the technology of their competitors. If they fail to keep up they may find they cannot match their competitor’s quality standards. However, they may be limited by their ability to afford the technology.
REFFERENCE:
The times The times
Thursday October 10 2002 Thursday November 21 2002
Front page. Page32.
SOCIAL CHANGES AFFECTING BUSINESS.
This is perhaps the most difficult element of the macro-environment to evaluate, manifesting itself in changing tastes, purchasing behaviour and changing priorities. The type of goods and services demanded by consumers is a function of their social conditioning and their consequent attitudes and beliefs. Social opportunities and constraints reflect the pressure on businesses to acknowledge responsibility for well-being of different stakeholder groups. They include ethical and environmental considerations and lead businesses to change the way they do things for reasons other than those related to straightforward profit making.
Social responsibilities involve duties towards stake-holder groups which the firm may or may not accept. In recent years there has been much greater interest in the idea that firms should pay attention to their social responsibilities. Increasingly firms are being asked to consider and justify their actions towards a wide range of groups rather than just their shareholders.
Managers are expected to take into account the interest and opinions of numerous internal and external groups before they make a decision. If a firms ignores its stakeholder groups; then it is vulnerable to pressure group action and may well lose employees and investors. If however, a firm builds its social responsibility into its marketing this can create new customers and save the firm money through activities such as recycling.
Social issues have become increasingly widely publicised, but it is harder to say whether they have become more important. Many businesses have shown over the years that their own sense of social responsibility can ensure good decision taking, regardless of external pressures. Businesses which have pioneered customer’s service strategies or environmental friendliness have often believed in their approaches as being representative of good practise.
Marketing firms have also had to respond to changes in attitudes towards health, for example, in the food industry people are now questioning the desirability of including artificial preservatives, colourings and other chemicals in the food they eat. The decline in the popularity of smoking is a classic example of how changes in social attitudes have posed a significant threat to an industry, forcing tobacco manufacturers to diversify out of tobacco products and into new areas of growth.
Changes in attitudes towards working women have led to an increase in demand for convenience foods shopping and the widespread adoption of such time-saving devices as micro-wave cookers. Marketing firms have had to react to these changes. In addition, changes in moral attitudes from the individualism of the ‘permissive society’ of the early 1970s to the present emphasis on health, economic security which are all contributory factors to a dynamically changing social environment that must be considered by companies when planning for the future.
FLEXITIME
Flexitime allows staff some freedom to vary their start and finishing times, while they are expected to be at work on nominated core times. Despite the proliferation of other types of flexible working patterns, flexitime remains as popular as ever – around ten per cent of UK employees are currently covered by formal schemes.
The working hour Directive was designed to ensure that no employee or group of employees should be forced, requested, or coerced to work long hours. It was resisted by the then UK government on the grounds that it would increase labour costs and so reduce the ability to compete. The EU therefore enshrined the working Hours Directive as a health and safety measure to ensure that the objections of one member state-in this case, the UK- would be overruled by the majority.
HEALTH AND SAFETY LEGISLATION
Health and safety is the regulation of the working practises of organisations so as to discourage dangerous practises. It usually focuses upon the avoidance of accidents rather than the active promotion of good health.
The main legislation in Britain is the Health and Safety at Work Act of 1974. This was supplemented by extra regulations which came into effect on 1 January 1996. These set out new minimum standards to which employers must maintain at the workplace and the working environment.
Health and safety imposes significant constraints upon business. Businesses incur substantial additional costs of production. Firms have to appoint safety representatives who become non-productive personnel for at least part of their time at work. Further costs are involved in providing a safe working environment, for example guards for machinery and protective equipment and clothes for operatives
Health and safety legislation does, however, provide advantages as well. A secure and safe working environment can provide a sound basis for building a motivated, participative workforce. Firms are also keen to avoid bad publicity following incidents such as the one faced by Texaco. A good reputation for providing a safe working environment is likely to assist business in recruiting high calibre employees.
REFFERENCE:
Leicester Mercury Business Issues
Monday March 10 2003 March 2003
Page 21. Page 25.
The times
Thursday January 9 2003
Page 38.
SUMMARY.
Political policies affecting business have undergone substantial changes as attitudes have changed over the time. Public ownership of key sectors of the economy has given way to privatisation. Some industries are regulated because they have the potential to exploit the customer. Other industries are deregulated because it is thought they would work more efficiently with less interference. On the whole, governments now are less directly involved in the day-to-day decisions within the economy, but more involved in creating regulations which constrain business decision. The focus of policy change has now shifted towards measures which can reduce unemployment and measures that make international trade freer.
Economic forces are potentially highly significant to marketing firms, particularly those engaged in international marketing. However, an understanding of economic changes and forces in the domestic economy is also of vital importance as such forces have the most immediate impact. By understanding and carefully monitoring the economic environment, firms should be in a position to guard against potential threats and to capitalize on opportunities.
Environmental legislation is imperfect in the U.K and throughout the EU. Relatively few firms seem to take their responsibility to the environment very seriously. Successful businesses need to consider the effects of their activities on the environment, whether positive or negative.
Technology is a persuasive force in industrial societies with widespread influence over many of man’s activities. A substantial portion of new technology can be attributed to great increases in expenditures for research and development. Technology can create major economic changes which impacts lives and institutions.
Social constraints are laws requiring social security, workman’s compensation, minimum wages, overtime pay, safe working conditions, retirement programs as well as tariffs and taxes. These are laws put on organisations to meet its needs or protect it. Organisations can be seriously affected by changes in policies such as wage and price controls, tax policies, investment credits, foreign exchange rates, consumer protection policies and so on.
