Intro to Business, Ethics Business 40 Week 2 Carole K. Meagher 26 January, 2005 Agenda Roll call, introductions, project ideas Article analysis Before you leave tonight… I need a roster with your group and project idea Week 4 Lead-in WSJ – “Socialism in Football” Count off by 4s… 1. Is the NFL better off overall if the teams work together? Why or why not? 2. What types of revenue that are shared? Not shared? Why do some teams make more money than do others? 3. What arguments do the larger-market team owners offer to defend their demands for greater shares of the NFL revenues? 4. What arguments do the smaller-market team owners offer to defend their demands to keep their shares of the NFL revenues? Economics: Create Wealth Use Scarce Resources to Produce Goods & Services To Distribute Among Competing Groups/Individuals Micro v. Macro Resource Development Four “Whats” of an Economic System $ What is produced? $ What amount is produced? $ What is the method of output distribution? $ What is the rate of economic growth? Adapted from: Edwin Mansfield Economics (New York: W.W. Norton, 1976), p.8 Primary Economic Systems Mixed Socialism (Highly Controlled) (Little Control) Communism Capitalism Economic Theories: Capitalism Adam Smith (1776) Early industrial revolution, studied a pin factory Core tenets: Freedom is vital “Invisible Hand” “If everyone maximizes their own good, the overall good will be maximized” Base of microeconomic theory Flaw: Micro + Micro + Micro ≠ Macro Supply Curve High Price(P) S Low Quantity(S) High Demand Curve High Price(P) D Low Quantity(D) High Equilibrium Point Surplus High Market Equilibrium Price S Low Shortage Quantity D High Free-Market Competition Monopolistic Oligopoly Competition One Many Perfect Competition Monopoly Sellers Limits of Free-Markets Inequality of Wealth- Causes National & World Tension Greed Compromises Ethics Potential Environmental Damage Limitations Push Country towards Socialism = Government Regulation Economic Theories: Communism Karl Marx (1867) Observed extreme, harsh conditions in Europe midIndustrial Revolution Core tenets: Control of capital invites abuse, thus revolution “From each according to his ability, to each according to his needs” Centralize control in order to avoid problems Base of macroeconomic theory Flaw: Power still corrupts Government is not as efficient as market Economic Theories: Socialism Frederick Engels (1880) “Mellower” version of Communism Core tenets: Sees capitalist system as fundamentally a good way to produce goods and manage an economy Encourages democratic, widespread distribution of wealth, profits Base of most of world economies Flaw: Will people take advantage of a system that protects them from poverty, no matter what? Economic Theories: Keynesian John Maynard Keynes (1936) Observed Great Depression Core tenets: Maximize “aggregate output” Described “market failures” Role of government is to prevent boom/bust, thus stabilize economy Base of current US policy Flaw: Very theoretical… rarely tested in “real life” circumstances. Industrialized Nations’ Tax Rate U.S. Austria/Japan Italy Canada Germany Spain/Sweden France Finland Denmark 0% Source: Parade Magazine, Apr. 12, 1998. 10% 20% 30% 40% 50% 60% 70% Why is the U.S. an Economic Success? Major Reason Percent* Constitution 85 Free Elections 84 Free Enterprise System 81 Abundant Resources 78 Cultural Diversity 71 * Respondents could choose more than one. Source: Investors Business Daily Survey U.S. Economy Key Economic Indicators Productivity Business Cycles Recession Depression Recovery Stabilization Fiscal Policy Monetary Policy National Debt Key Economic Indicators Gross Domestic Product (GDP) Unemployment Rate Price Indexes Consumer Price Index(CPI) Producer Price Index(PPI) U.S. Gross Domestic Product 12,000 10,000 8,000 In Billions of U.S. $ 6,000 4,000 2,000 0 1940 1950 Source: U.S. Dept. of Commerce, Bureau of Economic Analysis 1960 1970 1980 1990 2000 2002 U.S. Unemployment (%) 16 14 12 10 8 6 4 2 0 1940 Source: U.S. Bureau of Labor Statistics 1950 1960 1970 1980 1990 2000 2002 What Makes Up The Consumer Price Index? Recreation Apparel 5% 6% Medical Care/ Insurance 7% Medical Care 6% Other 5% Housing & Util. 39% Food & Beverage 16% Transportation 18% SOURCE: U.S. Bureau of Labor Statistics Consumer Price Index 200 180 160 140 120 100 80 60 40 20 0 1982-84 = 100 1940 1950 Source: U.S. Dept. of Labor, Bureau of Labor Statistics 1960 1970 1980 1990 2000 2002 % Change in Labor ProductivityU.S. 9 8 7 6 5 4 3 2 1 0 -1 1950 1960 Source: U.S. Dept. of Commerce, Bureau of Labor Statistics 1970 1980 1990 2000 2002 Chapter 3: Break… Video… Discussion Count off by 3s… 1. Why did Coca-Cola decide to expand into Russia? 2. How did Coca-Cola expand? What steps did they take? 3. Why do Russians buy Coca-Cola instead of local brands? Growing World Population Source: Population Research Bureau By Region/Country - % of World Source: Population Research Bureau Company % of Earnings From Outside U.S. Pfizer Microsoft Intel Gillette Coca-Cola AIG 0% Source: Investment Advisor, August 2000 20% 40% 60% 80% 100% Leading Goods Exporters/Importers (2001) In Billion $ Country United States Germany Japan France United Kingdom World Total Source: World Trade Organization Exports 731 571 404 322 273 6,155 Imports 1,180 493 350 326 332 6,441 Leading Services Exporters/Importers (2001) In Billion $ Country United States Germany Japan France United Kingdom World Total Source: World Trade Organization Exports 263 80 64 80 108 1,460 Imports 188 133 107 62 92 1,445 Why Trade With Other Nations? Allows specialization to maximize production Different natural resources makes trading beneficial U.S. Trading Partners Region Asia West. Europe North America Latin America Middle East Africa C./E. Europe/ Baltic States/CIS Total Source: World Trade Organization, 2001 Exports 26.5% 24.0 22.5 21.8 2.7 1.7 Imports 36.3% 20.8 18.7 17.3 3.3 2.3 0.9 100% 1.3 100% Global Competitiveness Country Strengths United States Technology, R & D Spending Finland Univ. Enrollment, Efficient Legal System, Business Ethics Taiwan Cell-phone Ownership, Tech. Innovation, Local Firms Competitiveness Singapore Savings Rate, Math/Science Education, Political Trust Sweden H.S. Enrollment, Press Freedom, Phone Access Global Trade Goods & Services Importing Exporting Measuring Trade Balance of Trade/Payments Trade Deficit U. S. Trade in Goods & Services ($ Billions) 1400 1200 1000 Balance of Trade 800 600 400 Exports 200 Imports 0 1975 1980 1985 1990 Source: St. Louis Business Monthly, Oct. 1999 & World Trade Organization 1995 2000 2002 Sources of U.S. Oil Imports 471 In Millions of Barrels 307 495 509 Source: USA Today Saudi Arabia Mexico Canada Venezuela Nigeria 588 U.S. Trade Experience Balance of Payments Debtor Nation Foreign Direct Investment Dumping Sources of Foreign Direct Investments In the U.S. Japan 5% Canada 11% Other 4% Europe minus Britain 32% Asia 13% Latin America 17% Source: U.S. Commerce Dept. Britain 18% Strategies for Reaching Global Markets Licensing Exporting Joint Ventures Strategic Alliances Subsidiaries-MNCs Franchising Foreign Direct Investment Contract Manufacturing World’s Largest MNCs- 2002 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) Wal-Mart Stores Exxon Mobil General Motors BP Ford Motor Daimler Chrysler Royal Dutch/Shell Group General Electric Toyota Motor Mitsubishi Revenue ($Billions) 217 213 175 174 162 136 135 125 121 112 Forces Affecting Trading in Global Markets Socio-cultural Economic & Financial Legal & Regulatory Physical & Environmental Trade Protectionism Global E-Commerce-Future Cultural Differences in Global Markets Language Aesthetics Religion Materialism Values & Attitudes Did You Know? In Turkey it’s rude to cross your arms while you are facing someone. In the Arab world the left hand is considered unclean; don’t eat with it! In India never pat someone’s head, it’s the seat of the soul. The Chinese associate gifts such as straw sandals, clocks and handkerchiefs with funerals. What’s the 2nd Most Valuable Global Business Language? German 4% Other 6% Chinese 11% Japanese 16% Source: Accountemps Poll Spanish 63% Nations That Have Not Converted to the Metric System United States Brunei Yemen Liberia Myanmar (Burma) Economic & Financial Forces No Worldwide Currency Currency Fluctuations Floating Exchange Rates Bartering/Countertrading Developing Countries Need Infrastructure 1.2 billion people lack clean drinking water 2 billion people lack electricity 3 billion people lack adequate sanitation Legal & Regulatory Forces Inconsistent Laws & Regulations Foreign Corrupt Practices Act of 1978 Local Business Contact Required Protectionism Tariffs Protective Revenue Import Quota Nontariff Barriers Long-standing relationships Regulations inside countries Trade Agreements General Agreement on Tariffs & Trade (1948) Uruguay Round of GATT (1986) Lower Tariffs Extend Rules World Trade Organization (1995) Common Markets European Union (EU) Mercosur North American Free Trade Agreement (1994) Future Global Trade People’s Republic of China Russia & Others Internet Bypassing laws Greymarkets Items for sale that are otherwise illegal Week 4 Lead-in Chapters 5 and 6 – Starting your own business Find an article talking about something related to starting your own business, and tie it back to the text. Or, whatever you want, just be thoughtful and “buzzword compliant” Group rosters!