LECTURE 22



LECTURE 22TECHNOLOGY AND THE GLOBAL BUSINESS ENVIRONMENTBusiness technology - refers to applications of science, data, engineering, and information for business purposes, such as the achievement of economic and organisational goals. The main element of technology is the idea of change, and how it can affect business and society.Role of technology in business: ICT is considered to be all uses of digital technology that exist to help individuals, businesses and organisations use information. So ICT is concerned with the storage, retrieval, manipulation, transmission or receipt of digital data. Importantly, it is also concerned with the way these different uses can work with each other. Ways in which technology has influenced banking and commerce: Through the introduction of Automatic Teller Machines (ATMs) and Automated Banking Machines (ABMs) which facilitate the deposit and withdrawal of funds, as well as other services without having to go into a bank to access teller services. The location of ATM machines in hotels, petrol stations, malls and supermarkets adds to the convenience of customers who can transact business without having to wait in line at a bank.The practice of on-line banking which enables customers to access their accounts from home and other locations using personal computers. This facility enables customers to check their balances from the comfort of their homes and permits easy and convenient payment of utility and other bills. Customers with more than one account can also use this facility to transfer funds from one account to another. Through electronic commerce (ecommerce). Using the internet, individuals and businesses are now able to make business transactions via the World-wide web, without having to visit a physical brick and mortar store. E-commerce has given rise to many on-line stores which permit customers to browse for products and pay for them electronically.Types of technology: Traditional Productivity tools, for example: - WordExcelDatabase software: AccessPresentation software: PowerPoint, Prezi;Graphics software: Adobe PhotoshopSpecialist applications: Accounting: QuickBooks. Computer Aided Design (CAD). Management Information Systems. Digital communication technologies: Internet and mobile.E-Commerce and E-Business: In both cases, the e stands for "electronic networks" and describes the application of electronic network technology - including Internet and electronic data. E-commerce covers outward-facing processes that touch customers, suppliers and external partners, including sales, marketing, order taking, delivery, customer service, purchasing of raw materials and supplies for production and procurement of indirect operating-expense items, such as office supplies. It involves new business models and the potential to gain new revenue or lose some existing revenue to new competitors. interchange (EDI) – to improve and change business processes. E-business includes e-commerce but also covers internal processes such as production, inventory management, product development, risk management, finance, knowledge management and human resources. E-business strategy is more complex, more focused on internal processes, and aimed at cost savings and improvements in efficiency, productivity and cost savings.Ways in which technology can improve business: (i) Speed and time; (ii) Easier storage; (iii) Improved sharing of information; and, (iv) Automation.Benefits of technology to business: Reach more potential customers, develop a business relationship with potential customers; Streamline operations, reduce costs, improve efficiency, maximise profit, minimise waste, devote talent to core business instead of overhead; Provide better service to customers; Support better relationships with key partners; and, Allow customers to better guide the business.Consequences of unethical use of ICT:Security; Privacy; Intellectual property infringement; Impact on humans; and, Distraction. NATIONAL INCOME ACCOUNTING & INTERNATIONAL TRADE AND THE BALANCE OF PAYMENTS(Social Accounting and Global Trade)Factors that determine a Country’s Standard of LivingThe standard of living is defined as the level of wealth experienced by a county which is indicated by the average disposable income of the population, ownership of capital equipment, the level of research and access to modern technology and the quality and quantity goods and services enjoyed by citizens.Level of goods and services available: goods and services are needed to satisfy the needs and wants of a society.Average disposable income: per capita GNP reveals the average amount of earnings of each person in an economy.Ownership of capital equipment: Capital goods/investment goods are used to create consumer goods and services locally and for export.Access to modern technology: countries with a high standard of living must have access to modern technology to remain competitive maintain a high productivity level. Research and technology leads to innovation and increases production.Difference between the standard of living and quality of lifeWhereas the standard of living is measured by physical quantity (tangible), a country’s quality of life is determined by the quality of goods and services enjoyed by citizens (intangible). These include: safety (low crime rates), good diet and nutrition, environmental quality, quality of health and educational facilities, life expectancy, rate of infant mortality and the access to public utilities such as water.Also the standard of living is mainly determined by the per capita income while the quality of life is determined by intangible subjective factors.Alternative measures of the Standard of LivingThe Human Development Index (HDI) (Per capita income, literacy rates, inflation)Physical quality of Life (infant mortality rate, literacy rates, life expectancy)Measure of Economic Welfare (NI + merit goods – demerit goods)National IncomeThe national income of a country is the total income earned by that country from the production of goods and the provision of services in a given year after deducting depreciation. It therefore measures the level of economic activity of a country within a year. Note depreciation of assets is taken into account when measuring national income.It can also be defined as the total money value of goods and services produced by a country over a year.Circular Flow of IncomeBusinesses produce and households consume. Households owns the factors of production (land, labour capital and enterprise). Firms must purchase these factors of production to produce. Wealth flows from one form to another as follows:Income = Expenditure = OutputGross Domestic Product (GDP)GDP is the total money value of all output produced within a country over a year.? The word ‘domestic’ refers to income earned from local production only.Gross National Product (GNP)GNP is the total money value of all output produced over one year, both within a country and from its overseas investments.Therefore GNP = GDP + overseas earnings by nationals (Net Income from Foreign Assets)Net Income from Foreign Assets- also called Net Property Income from Abroad. This is calculated by subtracting payments to foreigners owning local assets from income received from assets held abroad by citizens. This figure can be positive or National Product (NNP) or National Income (NI)NB:? The definition for national income includes adjustments for depreciation (reduction in capital stock).National Income (NI) = GNP- depreciationSince GNP figures do not accurately measure the standard of living, the following indices may be used.Per capita GNPThis is calculated by dividing a country’s GNP by its total population. That is,GNP????? Total populationThus if a country’s GNP is $40,000,000 and its total population is 5,000, its per capita GNP would be $8,000.40,000,000?? = 8,0005000Thus each citizen enjoys on an average $8,000 worth of goods and services.Impact of National Income on Standard of Living and Quality of LifeAn increase in National Income is usually due to increased output of goods produced, increased incomes or increased expenditure. These are all indicators of positive growth in the economy hence giving an increase in the standard of living. If the incomes are not evenly distributed then the standard of living of the population will be uneven. Additionally an increase in the incomes of the population does not mean that their quality lives have improved as access to clean water, health care and education may have received little or no investment.THERE ARE THREE METHODS OF CALCULATING NATIONAL INCOMEExpenditure MethodThe total expenditure incurred by the society in a particular year is added together to get that year’s national ponents of Expenditure:personal consumption expenditure net domestic investment government expenditure on goods and services, and net foreign investment The equation for NI using this approach is:C: Household spending+I: Capital Investment spending+G: Government spending=GNP (at market prices)+Exports of Goods and ServicesImports of Goods and Services=GNP (at factor cost) Depreciation=National IncomeThe Income Method: adding factor incomesThe net income received by all citizens of a country in a particular year, i.e. total of net rents, net wages, net interest and net profits. (GDP at factor cost).It is the income earned by the factors of production of a country.Add the money sent by the citizens of the nation from abroad and deduct the payments made to foreign nationals (individuals and firms) (GNP at factor cost) or Gross National Income (GNI).Here GDP is the sum of the incomes earned through the production of goods and services. This is:Income from people in jobs and in self-employment +Profits of private sector businesses ++Rent income from the ownership of land =Gross Domestic product (by factor incomes)+Net Property Income from Abroad=GNP Depreciation=National IncomeWe can also add income from Government Activities.Only those?incomes?that come from the production of goods and services are included in the calculation of GDP by the income approach. We exclude:Transfer payments?e.g. the state pension; income support for families on low incomes; the Jobseekers’ Allowance for the unemployed and welfare assistance, such housing benefit.Private transfers of money?from one individual to another.Income not registered with the Inland Revenue or Customs and Excise. Every year, billions of pounds worth of activity is not declared to the tax authorities.Product (or Output) MethodThe market value of all the goods and services produced in the country by all the firms across all industries are added up together. GDP+Exports - Imports=GNP - Depreciation= National IncomeProcessThe economy is divided on basis of industries, such as agriculture, fishing, mining and quarrying, large scale manufacturing, small scale manufacturing, electricity, gas, etc.The physical units of output are interpreted in money terms The total values added up. (GDP at market price)The indirect taxes are subtracted and the subsidies are added. (GDP at factor cost)Net value is calculated by subtracting depreciation from the total value (NDP at factor cost).Economic Growth and DevelopmentEconomic growth is the expansion of national income.? The rate of expansion is usually measured from one year to the next. Economic growth can be achieved if countries increase their capacity to produce. It is a quantitative increase in production.Economic growth can be generated by:The discovery of new resourcesThe more efficient use of existing resourcesImprovements in technology Improved labour efficiencyNegative Growth – This situation exists when there is a fall in productive capacity from one period to another. It may also describe a failure of the economy to expand production.Growth without Development- Economic growth can occur without development. While the economy expands and the National Income increases the poverty and unemployment rates has increased as well due to unequal distribution of income, corruption and fraud.Economic Development- This describes qualitative changes in the economy. It refers to improvements in the standard of living, human capital development and the enjoyment of freedoms. It is sustained economic growth accompanied by policies that bring about structural changes such as increase in exportation, decrease in importation, lesser dependence on foreign aid and important infrastructural development. These changes will allow for higher levels of national income. Measures of economic development include: Human Development Index, Infant mortality rate, literacy rates.Role of Education or Human Resource Development (HRD) In Economic Growth and DevelopmentInvestment in education is important for a country’s economic growth and development.? Education increases productivity as individuals who are trained and knowledgeable will be more efficient which leads to increased output and increased economic growth. Education is the process of imparting knowledge, skills, beliefs and cultures to empower and influence behaviour.The long-term returns to investments in human capital such as; on the job training, coaching, mentoring and e learning will reduce poverty.International TradeInternational trade consists of exports and imports between countries, which should cause an improvement in people’s living standards through the principle of comparative parative advantage is the idea that countries benefit from specializing in the production of goods at which they are said to be more efficient.It is an advantage for countries to be self-sufficient, but there are reasons why trade must take place between nations.Absolute AdvantageThe capability to produce more of a given product using less of a given resource than a competing entity.For example, consider again Country A and Country B. The opportunity cost of producing 1 unit of clothing is 2 units of food in Country A, but only 0.5 units of food in Country B. Since the opportunity cost of producing clothing is lower in Country B than in Country A, Country B has a comparative advantage in clothing.Thus, even though Country A has an absolute advantage in both food and clothes, it will specialize in food while Country B specializes clothing. The countries will then trade, and each will gain.Absolute advantage is important, but comparative advantage is what determines what a country will specialize in.Reasons for International TradeLack of certain natural resources to produce essential goods. Oil which is important to economic life must be imported into countries that do not possess that natural resource.Lack of capital, technology and specialist labour to manufacture certain goods on a large scale. For example, Caribbean countries import machinery equipment and vehicle.Differences in climatic conditions, e.g. many tropical countries import grapes and strawberries as these produce need cool climates to survive.Differences in the cost of production between countries.? This reason is based on the principle of comparative advantage which states that benefits will be gained from trade if countries produce goods in which they have a relative advantage.? Therefore, if two countries both produce cars and coffee but each is more efficient at producing or produces either at a lower opportunity cost either car or coffee, then trade can take place. The country that is more efficient at producing coffee should put all its resources into coffee and import cars from the other country that is efficient in producing cars.To earn foreign exchange to pay for imports.Promotes necessary political connections between countriesAdvantages of Int. TradeDisadvantages of Int. TradeIncrease utilization of productive capacity for exportProtection required by local firmsIncreased employment for increased outputDumping of goods by developed countriesImproved standard of living due to increased variety of goodsUnderdeveloped local industriesIncreased quality of goods due to competitionREGIONAL AND GLOBAL BUSINESS ENVIRONMENTStages of Economic IntegrationPreferential trading area – a free trade area or trading bloc giving preferential access to goods from different countries eg. TariffsFree trade area – a group of countries eliminate barriers between each other eg. Tariffs and quotas and may have different policies with members outside the area eg. increased tariffs.Customs Union- free trade area with a common external tariff for non-mon Market- a Customs Union with agreeing to adhere to the same product regulations and freedom of movement of the factors of production. This is also called the single market when licences, entry permits and taxes have been removed from trading.Economic Monetary Union – a Single Market with a common plete Economic Integration- final stage of economic integration; complete merging of policy making with group decisions made on matters concerning all member countries.Economic Institutions and SystemsCaribbean Community Common Market (CARICOM)A common market is an association of countries that have joined together to bring about the harmonious development, continuous economic expansion and increased stability of the countries involved. CARICOM was formed in July 1973 when Barbados, Trinidad and Tobago, Jamaica and Guyana signed the treaty of Chaguaramas.? Since then the following Caribbean countries have joined: Antigua and Barbuda, Belize, Dominica, Barbados, Suriname, Grenada, Montserrat, St. Kitts & Nevis, St. Lucia, St. Vincent and the Grenadines and Bahamas and Haiti.Associate members of CARICOM are Anguilla, Bermuda, British Virgin Island and Turk and Caicos.Objectives of CARICOM Improved standard of living.Expansion of trade.Joint negotiations internationally.Co-ordination on foreign and economic policies.Full employment of labour and other factors of production.Economic integration.Impact on the Caribbean:Allow for increased trade between Caribbean countries because of the removal of trade restrictions such as quotas and tariffs.Improved standard of living.Caribbean Single Market and Economy (CSME)The CSME was established in 2006. It seeks to transform the common market into a single market and economy. It was established to deepen the integration among Caribbean states and to respond effectively to the challenges and opportunities globally.Objectives of CSME:Deepening economic integration.Free trade of services.Free movement of capital, labour and the freedom to establish business enterprises anywhere within CARICOM states.Widening of membership.A common currency/single currency.Impact on the Caribbean:Increased economic growth amongst Caribbean states.Reduced cost of goods between member states.Caribbean Development BankThe CDB is a regional financial institution. It finances regional projects that contribute to the economic growth and development of the region. Sectors financed by the CDB includes: infrastructure, tourism, mining and refining, agriculture, agriculture, manufacturing, health and education.The objectives of the Caribbean Development Bank are:Supporting regional and local financial institutionsAssisting borrowing member countries to optimize the use of their resourcesTo mobilize financial resources regionally and internationallyTo support capital marketsStimulating growthSupporting business activitiesImpact on the Caribbean:Stimulation of business activity and improve economic growth.Maintain economic and social stability.Improved infrastructure and social servicesThe World BankThe aim of the World Bank is to reduce poverty worldwide.? It therefore assists developing countries by providing loans for projects such as housing, infrastructure and industry. The World Bank provides long term loans for developmental purposes. It is used interchangeably with the International Bank for Reconstruction and Development (IBRD). ?However, the IBRD is only one of the five agencies of the World Bank.The five agencies of the World Bank are:International Bank for Reconstruction and Development (IBRD) (loans)International Development Association (IDA) (interest free loans and grants)International Finance Corporation (Private sector investment)Multilateral Investment Guarantee Agency (MIGA) (provides insurance on investment)International Centre for Settlement of Investment Disputes (ICSID) (Arbitration and conciliation)Impact on the Caribbean:Stimulation of business activity and improve economic growth.Maintain economic and social stability.Improved infrastructure and social servicesInternational Bank for Reconstruction and Development (IBRD)The International Bank for Reconstruction and Development (IBRD) is a global development cooperative owned by 189 member countries. As the largest development bank in the world, it supports the World Bank Group’s mission by providing loans, guarantees, risk management products, and advisory services to middle-income and creditworthy low-income countries, as well as by coordinating responses to regional and global challenges.?The IBRD provides commercial-grade or concessional financing to sovereign states to fund projects that seek to improve transportation and infrastructure, education, domestic policy, environmental consciousness, energy investments, healthcare, access to food and potable water, and access to improved sanitation.Impact on the Caribbean:Improved infrastructure and social servicesOrganization of American States (OAS)The OAS was established for the main purpose of increasing interdependence and solidarity, and promoting regional co-operation and the peaceful settlement of disputes among the member countries. ?These countries include: North and South America, Canada and the Caribbean.Impact on the Caribbean:Improved international relationships between member states.World Trade Organization (WTO)The WTO is an international organization that monitors and regulates trade among the nations of the world based on trade agreements by member states. The WTO replaces the General Agreement of Tariffs and Trade (GATT).Their main aim is to encourage the free flow of trade among nations.Their objectives include:discouraging unfair trading practices e.g. export subsidies and selling products below cost to gain market sharesettling disputes among membersenvironmental protectionmonitoring and reviewing the trade policiesincreasing tradeImpact on the Caribbean:Allows for Caribbean states to have greater access to international markets.Allows for economic growthImproves standard of living.International Monetary Fund (IMF)The International Monetary Fund is an international organization that aims to promote global economic growth and financial stability, to encourage international trade, and to reduce poverty.Activities involve:SurveillanceThe IMF collects massive amounts of data on national economies, international trade, and the global economy in aggregate, as well as providing regularly updated economic forecasts at the national and international level. Capacity BuildingThe IMF provides technical assistance, training and policy advice to member countries through its capacity building programs. These programs include training in data collection and analysis, which feed into the IMF's project of monitoring national and global economies.LendingThe IMF makes loans to countries that are experiencing economic distress in order to prevent or mitigate financial crises. Members contribute the funds for this lending to a pool based on a quota system. Impact on the Caribbean:Allows for Caribbean states to access financing for further economic growth.Improves economic growthIncreased institutional strengthening through capacity building and technical advice.Economic and Social Problems in the CaribbeanINDUSTRIALISATIONThis refers to business activities such as production and manufacturing on a large scale. Major heavy industrial activities in the Caribbean are in areas such as oil drilling, natural gas extraction and bauxite. Problems involve: the disposal of industrial waste, reliance on primary production, capital intensive nature of activities, high energy costs, and opportunity cost of investment in these areas.UNEMPLOYMENTGlobalization has contributed significantly to unemployment in the Caribbean. With the removal trade barriers, some industries have not been able to compete globally. The lack adequate skills that are required for the new industrial paradigm for example, information technology skills have also contributed to the problem of unemployment.A high level of unemployment among the young people of the Caribbean may?result in various social problems, as survival may depend on illegal activities.Types of UnemploymentDisguised unemployment- a worker is working less than the amount of ours in a normal work week and not seeking additional employment in the remaining hoursSeasonal Unemployment – Persons are employed only when the season for certain types of economic activities comes around eg. During the Carnival Season.Casual Unemployment – Refers to persons who work on an on-and-off basis.Cyclical Unemployment- Unemployment that occurs as a result of the cyclical nature of the economy. People are laid off during a depression or recessionary period. Unemployment is reduced during periods of boom.Technological Unemployment- Unemployment that occurs as a result of the adoption or implementation of technology or more capital intensive means of production. Increase automation and mechanisation results in less need for human capital.Structural Unemployment- Unemployment that occurs as a result of the long term changes in the economy and results in decrease demand for a good or service eg. Movement away from agriculture based production to tertiary production.Frictional Unemployment- Unemployment that occurs as a result of the period of time between one losing or leaving a job and subsequently finding one.Residual Unemployment- Unemployment that occurs as a result of persons not having the capacity to undertake or engage in employment.Reasons for unemploymentfirms e.g. multinationals closing downlack of investment to create new businesseslack of skills trainingPOPULATION DENSITY / OVERPOPULATIONA situation where there is an excess of persons living in a defined area.Population density Refers to the average number of people living on every square kilometre in a country. The formula used for calculating population density is:Density of population =? Total population Area (sq. km.)Increases in population may be caused by:Increase in birth rateLower mortality rateMigrationNet Natural Increase = If birth rate exceeds the death rate.Very high population densities can indicate overpopulation.? This occurs when the facilities in a location, are not able to serve the number of persons in that location. This will cause heavy competition for jobs, schools, health facilities etc. as well as reduction in the standard of living and increased poverty and crime.MIGRATIONCaribbean people migrate to first world countries in search of opportunities such as employment and education.? When skilled and professional workers migrate, Caribbean countries may experience shortages in critical areas such as health care. Loss of skilled workers from industry will also retard growth and development. Social problems may arise when children are left in the care of grandparents and other relatives who have challenges to discipline them.URBANISATIONA situation where persons move from rural areas to settle in cities and towns. Problems occur in that: The rural- urban drift results in fewer persons being left in rural communities. This reduces the labour supply in those communities. Urban communities will tend to become ernment can reduce urbanisation by:Develop policies and give incentives to owners to spread industries and businesses throughout the country and not only concentrated in the towns and cities.Develop infrastructure such as roads and water in rural areas.Improve rural life to encourage persons to want to continue to live there.Require persons who because of living in the rural areas have obtained training, to stay and develop these areas.Loan schemes for rural business owners.DEBT BURDENThis arises from a country’s borrowing to finance deficits. Eventually the country has to repay the loan with interest and a substantial amount of revenue generated has to go towards financing this loan from institutions such as the IMF and World Bank. Many Caribbean countries have high debt- to-GDP ratios.? This ratio is the amount of national debt of a country as a percentage of its Gross Domestic Product.? High debt-to-GDP can stifle an economy as a large portion of its GDP is consumed in debt payment and very little is left for investment in the economy. A very low debt- to- GDP ratio is desirable for economic growth and development.SOURCING CAPITAL AND RAW MATERIALSWhile the Caribbean might be rich in certain natural resources such as bauxite, oil and gold the region lacks other very important resources such as capital and entrepreneurial skills. Capital is important as it increases production through the use of machinery, equipment and money invested. The spirit of entrepreneurship is necessary for the creation of new business ideas and entrepreneurship skills are important for the successful running of the businesses. FDI and domestic savings can be utilized to raise the necessary capital.ECONOMIC DUALISM IN THE REGIONEconomic dualism occurs in countries where there exist two opposite economic sectors. One sector is characterized by development, capital intensive industries, large scale farming and technological advancement, and the other sector is characterized by subsistence farming, labour intensive industries, handicraft industries and simple trading means of survival.Division in the economy is as follows:Technologically advanced eg. Large scale manufacturing and tourism, Finance, Insurance, Petroleum, Mining.Technologically retarded eg. Cottage Industries, Small Scale manufacturing, Peasant agriculture.Possible solutions to Economic and Social ProblemsAccess to Foreign Direct Investment (FDI)Foreign Direct Investments refers to capital investments into factories, machinery and equipment by a foreign company or an individual. FDI is important for the development of Caribbean economies as they are challenged by their high debt- to-GDP ratios and increased global competition for export earnings. Attracting foreign direct investment is a way for Caribbean countries to obtain capital for growth and development.FDI can be done in two ways:Selling securities to foreigners or through portfolio foreign investment – Shares are offered on the international stock market and foreign firms are allowed to buy shares but does not control the firm.Direct foreign investment – Investors set up their business in the country.Benefits of FDI include:Employment for nationalsIncreased access to global marketsIntroduction of advanced technologies and processesImprovement in human resource skillsDisadvantagesMost of the profits are sent to the foreign countryIn the long run balance of payments will deteriorate Foreign investment has the potential to create dualism.Development of human resourceInvestment in human resources is imperative for Caribbean economies to compete globally.? Improving the value of human resources through education and training will increase the productive capacity of Caribbean countries.Development of manufacturing sector The manufacturing sector creates value added products which increases export earnings for Caribbean economies. Developing the manufacturing sector therefore will impact on the potential economic growth of a country.Methods of developing the manufacturing sector:Encouraging Foreign Direct InvestmentRetoolingResearch and developmentTechnological advancement ................
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