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!