Joint Ventures


joint venture (JV) is a business agreement

A joint venture (JV) is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity.

By Alla Gul (MBA)Our Contributor

A joint venture (JV) is a legal organization that takes the form of a partnership in which individuals, groups of individuals, companies, or corporations jointly undertake a transaction for mutual profit (“Joint Venture”, n.d.).

The parties agree to create a new entity by contributing equity.

Then they share in the revenues, expenses, and control of the enterprise. This paper discusses why joint ventures may be formed and what benefits may be expected when domestic and foreign companies form a venture. Then resent joint venture example is briefly illustrated.

The partnership can happen between big companies in an industry to differentiate, for example. The joint venture can occur between two small businesses that partner in order to successfully fight their bigger competitors. In addition, companies with identical products and services can also join forces “to penetrate markets they wouldn’t or couldn’t consider without investing tremendous resources” (“Joint Venturing”, n.d., p. 2). Next, a large company can decide to form a joint venture with a smaller business “in order to quickly acquire critical intellectual property, technology, or resources otherwise hard to obtain, even with plenty of cash at their disposal” (“Joint Venturing”, n.d., p. 2). To add, “There are good business and accounting reasons to create a joint venture with a company that has complementary capabilities and resources, such as distribution channels, technology, or finance” (“Joint Ventures (VS)”,  n.d.). Below are some major reasons for forming a joint venture:

Internal reasons

1.         Build on company’s strengths

2.         Spreading costs and risks

3.         Improving access to financial resources

4.         Economies of scale and advantages of size

5.         Access to new technologies and customers

6.         Access to innovative managerial practices

Competitive goals

1.         Influencing structural evolution of the industry

2.         Pre-empting competition

3.         Defensive response to blurring industry boundaries

4.         Creation of stronger competitive units

5.         Speed to market

6.         Improved agility

Strategic goals

1.         Synergies

2.         Transfer of technology/skills

3.         Diversification

(“Joint Venture”, n.d.). 

Joint ventures between companies headquartered in different countries can be particularly beneficial. First, companies may use joint ventures to gain entrance into foreign markets. For example, foreign companies form joint ventures with domestic companies that already are present in markets the foreign companies would like to enter.  Moreover, due to local regulations, some markets can only be accessed via joint venturing with a local business (“Joint Venturing”, 101, n.d., p.2). For example, China and to some extent India, require foreign companies to form joint ventures with domestic firms in order to enter a market (“Joint Venture”, n.d). Next, the foreign companies “generally bring new technologies and business practices into the joint venture, while the domestic companies already have the relationships and requisite governmental documents within the country along with being entrenched in the domestic industry”( “Joint venture”, n.d.). For example, joint ventures are common in the oil and gas industry, and are often formed between a local and foreign company. “A joint venture is often seen as a very viable business alternative in this sector, as the companies can complement their skill sets while it offers the foreign company a geographic presence” (“Joint Venture”, n.d.).

Recently the Hindustan Aeronautics Limited (HAL) and CAE, Canada signed an agreement to establish a joint venture company that will open a helicopter simulator training center in Bangalore, India.

The company, Helicopter Academy To Train By Simulation Of Flying (HATSOFF), will be owned equally by HAL and CAE. The training center is expected to begin operations in late 2008 by providing both civil and military helicopter pilot and maintenance training services. (“HAL”, 2007)

Questions to Answer Before You Approach a New Joint Venture Partner

Questions to Answer Before You Approach a New Joint Venture Partner.
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CAE is a world leader in providing simulation and modeling technologies and integrated training solutions for the civil aviation industry and defense forces around the globe (“About CAE”, n.d.). The Hindustan Aeronautics Limited (HAL) is in the list of top 100 defense companies in the world (“HAL 34th”, n.d.). Among its products are helicopters, aircrafts, advances communication and navigation equipment, and aerospace equipment (“Our Products”, n.d.). By forming the joint venture, the CAE is trying to extend its business-jet training network, to expend its distribution channels, to increase sales of its stimulators, and to capture and extend into India’s growing market (“Remarks for”, 2007,  p.3).  For the Indian partner, this joint venture provides the opportunity to differentiate, to acquire new skills and technology and to extend its marketing reach. Finally, both companies are expected to benefit from a development of a new market and from growth in revenues and profits.

To conclude, a joint venture is a strategic alliance where two or more parties form a partnership to share markets, intellectual property, assets, knowledge, and,  profits. (“Joint Venturing”, n.d., p.1).  The partnership may be formed between domestic companies or between domestic and foreign partners. When carefully planned and successfully implemented, joint ventures bring multiple benefits to parties involved

 By Alla Gul (MBA)Our Contributor


References

About CAE. CAE Inc. Retrieved September 26, 2007 from

 http://www.cae.com/www2004/About_CAE/index.shtml

HAL, Canada’s CAE ink joint venture for helicopter simulator training center. (2007).

Yahoo Business News. Retrieved September 26, 2007 from  http://in.news.yahoo.com/070926/139/6l8gn.html

HAL 34th among top 100 defense firms. Hindustan Aeronautic Limited. Retrieved

 September 26, 2007 from http://www.hal-india.com/34th.asp

Joint ventures. Cornell University Law School.  Retrieved September 26, 2007 from

 http://www.law.cornell.edu/wex/index.php/Joint_venture

Joint venture. Wikipedia. Retrieved September 24, 2007 from

 http://en.wikipedia.org/wiki/Joint_venture

Joint ventures (JVs). E-coach: Sharing Capital, Technology, Human Resources, Risks

 and Rewards. Retrieved September 26, 2007 from

 http://www.1000ventures.com/business_guide/jv_main.html

Our products. Hindustan Aeronautic Limited. Retrieved September 26, 2007 from

 http://www.hal-india.com/products.asp

Remarks for first quarter fiscal year 2008 results. (2007). CAE. Retrieved September 26,

 2007 from

http://www.cae.com/www2004/Investor_Relations/PDF/2008/CAE_FY08Q1_Remarks-en.pdf

Scott Allen. Joint venturing 101. About.com- Entrepreneurs. Retrieved September 26,

 2007 from http://entrepreneurs.about.com/od/beyondstartup/a/jointventures.htm

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Variety of studies shown that hostile takeovers actually are efficient


By Alla Gul (MBA) – Our Contributor

“Hostile takeover usually involves a public offer of a specific price, usually at a substantial premium over the prevailing market price, for a substantial percentage of the target firm’s stock” (Jarrell, n.d.).  This type of takeover is called hostile because it goes against the wishes of the target company’s management and board of directors.  Hostile takeovers are often seen as inefficient and undesirable. On the other hand, as Lee and McKenzie (2006) stated, there is plenty of evidence that the shareholders of the target company in a hostile takeover realize large gain.

Constant fear of takeover can hinder growth and stifle innovation, as well as generating fears among employees about job security.

Who Benefits from a Hostile Takeover?

Critics of takeovers state that these gains ignore the economic loses that takeovers impose on other groups connected with the target firms (Jarrell, n.d.). However it has been shown in a variety of studies that hostile takeovers actually are efficient. At the same time, even if it is accepted that hostile takeovers are generally efficient, there still should be corporate defenses against such takeovers (Lee & McKenzie, 2006). Among the most common reasons for defense are the desire to retain autonomy or management control, the preference for an alternative partner, and the desire to negotiate a more favorable financial takeover (Pearce & Robinson, 2004). Opposing hostile takeovers, managers of target companies have access to a variety of anti-takeover defensive strategies. The efficiency of hostile takeovers and several anti-takeover defensive strategies are discussed in the sections below.

The efficiency of takeovers

Takeover bids increase the wealth of the corporation’s stockholders significantly (Lee & McKenzie, 2006). But what about other parties involved?

First, critics of hostile takeovers argue that the acquiring corporation often bids too much and loses in the deal. However, Lee and McKenzie (2006) have shown that for the acquiring corporation’s stockholders, their wealth is not greatly affected since “the winning bid for the stock of a corporation targeted for a takeover will fairly accurately reflect the value of that corporation to the winner” (p.510).

Second, also unsupported is the charge that losses to bondholders finance the shareholder gains from takeovers (Jarrell, n.d.). According to several studies mentioned by Lee and McKenzie, takeovers do not impose losses on bondholders, and “…any losses to bondholders do not come anywhere close to offsetting the gains to stockholders” (2006, p. 511). Considering shareholders of bidding firms, “…the studies that find net losses from bidders also show that these losses – at 1 to 3 percent of the stock price – are minuscule compared with the enormous gains to target shareholders” (Jarrell, n.d.).

Next, there is also an opinion that the constant threat of hostile takeover forces corporate managers to stress short-term policies at the expense of more valuable long-term plans, “thereby impairing the economic health and competitive vigor of their companies and the nation” (Jarrell, n.d.). However, the research has shown that the threat of a hostile takeover is not a reason for managers to become short-sighted. Moreover, making decisions that increase the long-term profitability of the firm even if those decisions temporarily reduce profits is the best protection against a takeover (Lee & McKenzie, 2006).

What Yahoo has, Microsoft wants, but Yahoo continues to play hard to get. Even as talks start, stop, and sputter, the two companies still face a formidable foe in Google--and many questions about what they'll do next.

Microsoft’s hostile bid for Yahoo

Also, after a corporation is taken over, often it is broken up as the acquiring firm sells off divisions, often ones that have been profitable. And, therefore, as critics of takeovers state, takeover is disruptive and inefficient. However, multiple examples have proven that by spinning off some of the acquired firm divisions, its total value often increases (Lee & McKenzie, 2006).

To continue, there is a claim made that although stockholders gain from takeovers, they do it at the expense of workers being laid off. But the fact that workers are laid off after hostile takeovers is consistent with the view that these takeovers promote efficiency (Lee & McKenzie, 2006). Lee and McKenzie (2006) further argued that one of the advantages of the market for corporate control is the increased pressure on managers to keep the size of their workforce under control. In addition, most of the harmed workers are not necessarily made worse off by the system that encourages takeovers. “Workers harmed in the case of their firm’s takeover can receive offsetting benefits from the efficiency improvements they, the workers, realize through the lower price of the goods they buy” (Lee & McKenzie, 2006, p.515).

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Takeover defenses

 

 

They can be classified into two categories: preventive and reactive. Preventive strategies are taken by executives to make the firm less attractive as an acquisition target. Reactive strategies are used when a hostile takeover has begun because the particular suitor is not wanted (Pearce & Robinson, 2004). Poison pills and golden parachutes are examples of preventive defenses’ forms, and greenmail and litigation are the forms of reactive anti-takeover defenses.

A poison pill is a very effective way for managers of a corporation to defend against a takeover. It is a defensive strategy that allows shareholders of the target firm to acquire additional shares at attractive prices to dilute the stockholdings of the acquiring corporation causing attacking firms to lose money on its investment (Lee & McKenzie, 2006). Based on results of several studies, the poison pill is a highly popular and effective defensive strategy and may be beneficial to the target firms (Pearce & Robinson, 2004). However, as Lee and McKenzie (2006) have stated, studies indicate that they are in general harmful to the wealth of the target corporation’s shareholders.

Golden parachutes are another form of defensive strategy. Golden parachutes are special, valuable compensation packages that are distributed to a selected group of executives ‘if a pre-specified threshold of outside stock ownership is acquired in a takeover bid” (Pearse & Robinson, 2004, p. 19). Lee and McKenzie (2006) have pointed out that golden parachutes reduce management opposition to takeover bids that benefit shareholders. They can also encourage executives to take greater risks, “given that they know that they will receive a significant severance-pay package if the risks they take result in losses and they lose their jobs” (Lee & McKenzie, 2006, p.517). However, as Lee and McKenzie (2006) continued, ” There is at least tentative support for the proposition that that golden parachutes, across a range of companies, tend to promote the interest of shareholders… by bringing the interests of top managers more in line with those of their shareholders ” (p. 517). Moreover, according to Pearce and Robinson (2004), many studies have indicated that golden parachutes have low effectiveness as a defense strategy and have negligible effects on stockholder wealth.

The next strategy, greenmail, involves repurchasing the shares of stock that have been acquired by the aggressor at a premium in exchange for an agreement that the aggressor will no longer target the company for a takeover (Pearse & Robinson, 2004). Some studies suggest that greenmail can result in small gains for the repurchasing firm’s shareholders. However, any gain to shareholders may encourage others to attempt a takeover (Lee & McKenzie, 2006). Other studies indicate that greenmail has medium effectiveness as a defense strategy and that the effect of greenmail payments on shareholder wealth is generally negative (Pearce & Robinson, 2004, p.21). In addition, Lee and McKenzie (2006) concluded that paying greenmail consistently does not promote the long-run profitability of a firm.

Finally, litigation is a defensive strategy that involves pursuing a legal sanction and restraining order against a pursuer to block that company from acquiring additional stock until the pursuer can prove that that justification for the injunction is unfounded. Litigation is often undertaken to extend the negotiation period so that more attractive offers can be solicited and/or to insure a higher probability of a successful takeover (Pearce & Robinson, 2004). In general, according to a number of studies, the strategy has low effectiveness as a defense mechanism against takeover but has a positive wealth effect for stockholders (Pearce & Robinson, 2004)

To summarize, some individuals and groups do lose in any takeover. However, “The empirical studies offer little or no support for the notion that the huge gains to shareholders reflect similarly large loses to related parties…On average, takeovers reflect wealth-enhancing and socially valuable redeployment of corporate recourses…  Huge gains to target shareholders created large net economic gains”( Jarrell, n.d.).

At the same time, even if it is accepted that hostile takeovers are generally efficient, there still should be corporate defenses against such takeovers (Lee & McKenzie, 2006). It is difficult to define what the best means to protect a corporation against hostile takeover are. Strategies vary in their efficiency and effectiveness. However, “The best defense is efficient management that provides shareholders with a competitive return on their investment” (Lee & McKenzie, 2006, p.516).

The main consequence of a bid being considered hostile is practical rather than legal. If the board of the target cooperates, the bidder can conduct extensive due diligence into the affairs of the target company. It can find out exactly what it is taking on before it makes a commitment. But a hostile bidder knows only publicly-available information about the target, and so takes a greater risk. Also, banks are less willing to back hostile bids with the loans that are usually needed to finance the takeover. However, some investors may proceed with hostile takeovers because they are aware of mismanagement by the board and are trying to force the issue into public and potentially legal scrutiny

References

Jarrell G. Takeovers and leveraged buyouts. The Concise Encyclopedia of Economics. Retrieved on November 5, 2007 from http://www.econlib.org/Library/Enc/TakeoversandLeveragedBuyouts.html

Lee, D.R. & McKenzie, R. B. (2006). Microeconomics for MBAs. New York.

Cambridge University Press

Pearce. J & Robinson. R. (2004). Hostile takeover defenses that maximize shareholder wealth. Business Horizons. 47/5, pp.15-24

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Pricing Strategies. Several major factors influence the pricing for a product or service.


what-is-marketing

Marketing is the process of communicating the value of a product or service to customers

By Alla Gul (MBA) – Our Contributor

Pricing analysis is an important part of marketing.

In marketing Price Analysis refers to the analysis of consumer response to theoretical prices in survey research.

In general business, Price Analysis is the process of examining and evaluating a proposed price without evaluating its separate cost elements and proposed profit/fee.

Price analysis may also refer to the breakdown of a price to a unit figure. Usually per square metre or square foot of accommodation or per hectare or even square metre of land. The price with suitable adjustment for various differences, is then applied to the valuation problem.

The following are the foremost strategies that businesses are likely to use:

First, strategic goals greatly influence pricing.
For example, if the business really wants to get into a new market, then it might charge lower than usual prices in order to generate more customers who buy the service.
Penetration pricing is one of the methods to be used in this case. Next, the business might consider changing pricing if the demand for its products is very high or low.  Promotional pricing is going to be appropriate in this situation. The lose leader strategy may be implemented as a kind of a promotional pricing. Finally, competitor pricing also has a great effect.  If competitors are charging much less, then the business might do well to lower prices. Similarly, if the competitor is charging much more, then the business might consider increasing its own prices.  Market pricing method may be used here.

Below are examples of companies that use different pricing methods appropriate to their particular circumstances.

  1. Penetration pricing: Price way low to enter the market.

This practice generally involves pricing below the competition to gain market entry. Penetration pricing is the pricing technique of setting a relatively low initial entry price, a price that is often lower than the eventual market price. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume. For example, penetration pricing was implemented by Vietnamese manicure and pedicure salons to gain market entry and to increase its market share. About twenty years ago, only wealthy women routinely had manicures and pedicures. Then, Vietnamese manicure/pedicure salons were introduced. While the old shops charged about $25 for a manicure and $45 for a pedicure, at a Vietnamese shop the price was as low as about $25 for both plus additional free services. As a result, many traditional salons lost their loyal customers to new Vietnamese places. In addition, many new customers for these services appeared since prices became more affordable. Today millions of ‘regular’ women make the weekly or biweekly trek to have a manicure and a pedicure in these salons regardless of slightly increased prices.

  1. Personalized pricing: Firms charge different prices to different consumers.

Many companies use personalized pricing to sustain competition, to remain in business, and to grow their business. For example, the United States Postal Services has been offering Negotiated Service Agreement (NSA). It’s a contractual agreement between the Postal Service and a customer to provide pricing incentives to the customer in exchange for a shift in their business mailing practices. According to Stephen M. Kearney, Vice President of Pricing and Classification,

Negotiated Service Agreement, or “NSA,” simply means negotiating pricing with our customers. In many cases, the customer’s behavior change may result in a substantial increase in their mail volume that benefits both the customer and the Postal Service… Today more than ever, the marketplace is very competitive. Businesses need to negotiate pricing to retain customers, to reflect customer needs (such as volume or ease of service), to encourage customer reliance for long-term growth, and to encourage customers to try new products or services. There are many alternatives to mail, and most of them claim to offer better economics, either in cost or return on investment (ROI). Many Postal Service competitors negotiate pricing to win business. The Postal Service needs to negotiate pricing in order to retain and grow its business.

Note: Please read complete interview at the USPS web site at http://www.usps.com/mailerscompanion/mayjune2004/mc0604art1.htm

3. Market pricing:Pricing at the same level as the competition.

A firm has to assess how its product relates to a competitive product and set its price at a comparable level to stay competitive. For example, most agricultural commodities are sold in markets where price has been established by broad market forces. For example, livestock, milk and dairy products, meats, grain, poultry, eggs, etc. are sold at this pricing. While producers in such markets can’t set price, they usually have a ready market for their entire production. Sellers in commodity markets are basically price takers and have to accept the market price. The Upstate Dairy Farms (NY), our local dairy company, is using a market pricing technique for its products. In fact, prices for their milk, butter, and other dairy are very close to similar products of other producers. Another example of companies that use market pricing is fast food restaurants. Their prices are based on market prices that is, what the market will bear. For instance, the market has a set price for a cheeseburger, and restaurants must follow that price. If McDonalds or Burger King will offer a $15 cheeseburger, a vast majority of their current customers (if not all) will not buy it. In other words, the market simply wouldn’t bear it.

  1. 4. Cost-plus pricing:The cost of production plus a designated percentage is cost-plus pricing.

This method is useful in situations where costs are not known in advance. An example would be custom orders in the initial stages of developing a new product. For example, a group of friends of mine opened a company named InfoTech some time ago. They provide different IT services. As they explained to me, often it is very difficult to set a price at the beginning of the project, since projects sometimes are very different and additional details are reviled only in the middle or at the end of the project. So, first they calculate approximately what the price should/could be in order to cover all expenses and add  money on top of it. The price quoted to the buyer is “cost plus” rather than a specific price, and the final price will be established after completion of the project, when all costs are known. The company uses this methodbecause it is relatively easy to implement. However, the cost-based pricing ignores the competition and doesn’t consider what the product is worth to the buyer. A pricing procedure that is not responsive to changes in the market may work initially, but can be a significant obstacle to long-run success.

5. Loss leaders: A company loses money on one service but earns on a related product.

This strategy is often implemented as a part of a promotion campaign. The intent of this practice is not only to have the customer buy the (loss leader) sale item, but other products that are not discounted. These bargains will attract customers who may then purchase other products/services even if they don’t buy the product which price had been initially reduced. This is where a company will make up for the loss as it will be selling other items that generate high profits. One example is HP inkjet printers that are often sold to retail customers below their true value, at a price which seems to be affordable to most consumers.

Moreover, these printers are sometimes offered for free – free after rebate, free with a purchase of an HP computer, etc. However, consumers have to pay the regular price for ink cartridges. It is ink cartridges, not the printers that generate high profits for the HP.

Another example is Gillette’s safety razor handles that are sold at a loss, but sales of disposable razor blades are very profitable.

Major forces influencing pricing are company’s strategic goals, demand for its products or services, and/or competition. Management should pay particular attention when deciding on pricing methods since the success of the entire business depends on it.


Short WIKI.

What is MBA anyway?
An MBA is a post graduate degree in business communication. MBA stands for Masters of Business Administration and is a very popular course for business students the world over. The MBA program is recognized worldwide and is considered as a major step towards a successful business management career.
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Economics and its Effect on Business. This is economics and history as they are meant to be: fascinating, informative, and motivating.


Economics and its Effect on Business and on Human Resources and Marketing

In short: Economics is the study of how people choose to use resources.

Economics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία (oikonomia, “management of a household, administration”) from οἶκος (oikos, “house”) + νόμος (nomos, “custom” or “law”), hence “rules of the house(hold)”.[1] Current economic models developed out of the broader field of political economy in the late 19th century, owing to a desire to use an empirical approach more akin to the physical sciences

What is Money?

Economics aims to explain how economies work and how economic agents interact. Economic analysis is applied throughout society, in business, finance and government, but also in crime, education, the family, health, law, politics, religion, social institutions, war, and science. The expanding domain of economics in the social sciences has been described as economic imperialism

Economics and its Effect on Business

Economics is the study of how society manages its scarce recourses (Mankiw, 2004, p.4). Since all businesses are part of the economy, the way economy works has a major influence on all functional areas of business. This paper shows how changes in economic activity and inflation affect business as a whole and its Human Resources and Marketing functional areas in particular (“Level 2 Business,” n.d.).

Economic activity changes due to different reasons. Rate of growth at which economic activity changes is called economic growth (“Level 2 Business,” n.d.).  At the time of slow economic growth or recession, people loose their jobs, unemployment level goes up, and income level decreases. As a result, demand for goods and services falls and sales slow down.  Businesses have to consider accommodating to such changes in demand. To illustrate, in order to adjust to a falling demand, a company tries to cut prices to increase sales while suffering lower revenue and decreased profit margin .Thus, the firm might decide to cut back on production and/or reduce number of employees (“Level 2 Business,” n.d.). At the time of economic growth demand and sales increase, unemployment falls, and production goes up as businesses try to cope with the increased demand, Businesses try to accommodate these changes. For example, in order to keep up with the growing demand and increase in production level, firms might reconsider changes in the use of production equipment, changes in equipment or production facilities,  amount of  recourses needed (“Economics Basic,” n.d.  Time and Supply section, para. 1).  All of the above might bring production costs up. This, in turn, brings up prices for goods and services (“Level 2 Business,” n.d.). To control growing cost of production, businesses might decide to cut waste, to change the way people work, to use new technology, or to reconsider number of staff they employ.

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Money, Banking and the Federal Reserve

(45minutes video documentary ..we might not agree with some of the opinions but it worth to watch…

This is economics and history as they are meant to be: fascinating, informative, and motivating.
Thomas Jefferson and Andrew Jackson understood “The Monster”. But to most Americans today, Federal Reserve is just a name on the dollar bill. They have no idea of what the central bank does to the economy, or to their own economic lives; of how and why it was founded and operates; or of the sound money and banking that could end the statism, inflation, and business cycles that the Fed generates.

Dedicated to Murray N. Rothbard, steeped in American history and Austrian economics, and featuring Ron Paul, Joseph Salerno, Hans Hoppe, and Lew Rockwell, this extraordinary film is the clearest, most compelling explanation ever offered of the Fed, and why curbing it must be our first priority.

How an Economy Grows and Why It Doesn’t (by Irwin Schiff)

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Inflation is a rise in a general price level over a period of time (Mankiw, 2004, p.12). For example, prices for goods and services, prices for raw materials, and prices for individual as well as firms insurance go up. It becomes difficult for businesses to plan ahead since inflation affects not only the amount received from for sales but also the prices of input.  Businesses might start paying higher salaries to their employee to keep up with inflation. In addition, prices of raw material go up.

As prices of input increase, a cost of production goes up causing an increase in prices. If wages do not rise by the same level as inflation, spending power is affected, savings level can also fall. This leads to a decrease in income and decrease in demand and sales follow. Again, firms take action in order to accommodate these changes (“Level 2 Business,” n.d.).

Motivators More Powerful than Money?

What Is Economics?

Human Resources (HR) and Marketing areas of business are affected by changes in economic activity and inflation. Because Human Resources functional area is responsible for recruitment, retention, training, conditions of work, health and safety, and worker representation, it has to consider rising or falling unemployment that results from changes in economic activity or inflation. When unemployment rate is rising, the HR department must deal with issues associated withlayingoff firm’s employees, for example. The department can take necessary actions to make this process less painful and less problematic as possible for both the company and its employees. For example, it assists employees to understand and adjust to a new situation. In addition, Human Resources may provide job training to the remaining employees in order to meet changes in their new or expanded job duties.

During increase in economic growth or inflation,   when the level of unemployment is low and firms are in need of more workers, it becomes difficult to recruit necessary employees. The department has to make additional efforts in recruitment in order to get labor. Human Resources is also responsible for retention of company’s labor. The department usually plans for and takes actions that will help a firm to retain its workers. For example, they can provide develop and foster programs aimed at increasing employee satisfaction. The department often considers a possible pay raise to hire new or retain its existing labor force.
Because Marketing department is responsible for market research, market analysis, market strategy, and sales, it pays particular attention to the economic situation to see how current or future demand, prices and sales are going to be affected. This helps to determine actions a firm should take or plan on taking in order to succeed or, at least, to stay in business. For example, observing slow economic growth or inflation when demand and sales are falling, the department will try to cut production and selling costs (“Level 2 Business,” n.d).

Changes in Economic Activity

Changes in Economic Activity

Moreover, it may reconsider and adjust projected sales and prices as well as company’s marketing strategy.  In the time of economic growth when demand and sales increase, unemployment falls, and production goes up, Marketing must consider how to accommodate these changes and adjust production and sales strategy as well as prices accordingly.
In addition, knowledge of current or anticipated economic situation is essential when planning for a new product. Based on the discovery and recommendations of the Marketing department, other departments can properly plan or adjust their work.

To summarize, all functional areas of business including Marketing and Human Resources are affected by changes in economic activity, changes in inflation rate, and other possible changes in economics. These departments as well as entire company should recognize the impact of current and possible future economic situation on business, and take actions in order to accommodate these changes.

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References

Economics Basics: Demand and Supply. Investopedia: A Forbes Media Company

Retrieved September 3, 2007 from http://www.imvestopedia.com/university/economics/economics3.asp

Level 2 Business and economics: The Economic context of business. Level 2

Business and Economics Education. Retrieved September 3, 2007 from

http://www.bized.co.uk/educators/level2/external/lesson/context1.htm

Mankiw, G. (2004). Principles of Economics.Mason, OH: Thomson South-Western

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