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Lecture 5

MGM101 Lecture 5 - Book+Lecture notes

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Dave Swanston

Lecture 5 October-11-13 7:37 AM Businesses are always changing (Rules, goods, values are changing..) Decisions has to be based on this - constant evaluation is needed As managers, which ones impact us and how do we manage these changes? These changes must be anticipated. This is to make us successful. Article (TSX falls on budget crisis worries) - Variable: american governmentshut down - this can affect surrounding - There is no budget so business has to stop - Corporationwho sells weapon can't earn - because governmentcan't buy these - Governmentplans to estimate max amount to limit expenses - If don’t pay debt, then governmentgoes bankrupt - a real RISK - This creates uncertainty - which will affect the market - Basic necessities we need which stay consistent despite of economiccrisis - the prices go up - Energy resources respond to the conflict - Essentially the article is about what business conditions are so we can evaluate changes The Business Environment • Business prosperity and future opportunities are contingent on economicconditions at home and abroad • Managers must understand how economicchanges impact their businesses and establish the contest for decision making • Canada possessesone of the most fully developed economicsystems in the world - we are in a healthy position, we are a good business model • Canada has one of the most fully developedeconomicsystems in the world • Canada’s abundance of natural resources,skilled labor force and sophisticated technology- based businesses have enabled the economyto grow and poster over the past 200 years Macro analysis PESTEL Analysis:assessment of political, economic,social, technology,environmentaland legal trends that can/will impact markets an organization competesin Trends that can or will impact the markets within which an organization competes Political Economic - interest, inflation, gross Social - trends Technology - innovation, how they are being used, current generation vs. older ones, access to knowledge in a different way, change leads to opportunitiesand threats Environmental- consumers,changes in climate and geography (global warming) Legal - risk of being sued Protectionism- outcomeof the intent of economicpolicies that are put in place to protect or improvethe competitivenessof domestic industries via impeding or restricting the openness of a market or marketsto foreign competitorsthrough the use of tariffs, trade restrictions,quotas, artificial control of currency values, or other related activities Bigger risk = bigger return to justify Managers must constantly look to see where and how their markets are changing in light of competitiveinfluences Types of competitiveenvironments 4 key competitive models: 4 key competitive models: 1. Purely competitivemarkets - no product differentiation, many suppliers ○ markets characterized by a number of similar products/services.Absence of a dominant market leader, few barriers to entry (e.g. agriculture) 2. Monopolisticmarkets - limited number of suppliers, there is opportunity to differentiate value propositions ○ markets that possess a number of different suppliers of products and services but nature of product/servicehas enabled differentiation to set it (e.g. cell phones) 3. Oligopoly-based markets- smaller group of competitors,consumers have some choice. Ex. Gasoline companies ○ The price you pay is almost the same ○ markets that contain a small number of suppliers that control a larger percentage of market shares within the market (e.g. airplane manufacturers) 4. Monopoly-basedmarkets- Single supplier. Ex. TorontoHydro ○ Make sense because you can't have a lot of electric suppliers, you don't have alternatives ○ Usually have great degree of governmentregulation (an advantage) ○ markets that are served by a single product/serviceprovider (e.g. utilities) • How you make decision is influence by the position you have in the market Porter’s Five Forces Model Used for assessing changes in market sectors 1. Rivalry among existing competitors 2. Threat of new entrants 3. Threat of substitute products/services 4. Bargaining power of suppliers 5. Bargaining power of buyers Primary economic indicators - research most recent - Unemploymentrate - drops to 6.9% in September ○ Higher rate provides both disadvantage and advantage - Inflation rate - 1.10% ○ Some inflation is good - means somerecedes, so supply needs to be used to support this - Consumer price index (CPI) - New housing starts - Manufacturing inventory - a good thing if there is high level of sales during peak season - Consumer confidence index - Price per barrel of crude oil - Stock market indexes (TSX, S&P 500, Dow Jones) - Currency exchange rate - Monthly retail sales - Industry-specific indexes - Be familiar with indicators - the trend of these, how do they impact businesses What are the characteristicsof the Canadian economy that make it strong and competitive? • Abundance of natural resources - question: should we be selling or protecting them (so they are renewable)? • Skilled labour force - knowledge base jobs vs. labour work, blue collar people (understaffed and there is huge demand), most people are educated, very qualified • Sophisticated technology-base • Agricultural to a diversified system • Productivitygains • Strong business investment • Technological innovation • Moderatewage increases • Moderatewage increases • Favourable currency exchange rate - exchange rates in other countries affects price of products in that country ○ Ontario is particularly affected because we have more global exposure • Products driving current trade performance ○ Oil/gas ○ Canola ○ Wheat ○ Gold, nickel, potash, sulfur ○ Telecommunications ○ Aerospace ○ Forestry-related ○ Automotivesector products • Canada is member of G7/8 (quasi-organization comprising the world’s major fully developed economies) Contributing Factors to Economic Development - A core requirement to the stability and growth of an economicsystem lies in its ability to service and promoteboth the current and future economicactivitytaking place Comparative advantage - the ability of a country to produce or supply goods or services at a lower cost than other countries or to possess resources or unique services that are unavailable elsewhere Trade deficit - buy more than we sell Trade surplus - sell more than we buy (this can bring in more $ to country) Foreign Direct Investment (FDI):occurs when company or individuals from one country makes investmentinto a business within another country (reflect physical ownership of productive assets or purchase of a significant interest in the operations of a business) • FDI into Canada has been increasing; it topped $500 Billion in 2008 • 53% of FDI flowing into Canada comes from the USA • Canada is viewed as a safe and lucrative place to do business • Canada is viewed as a safe and lucrative place to do business • Canada has a comparativeadvantage in commoditiesand energy market sectors • Is FDI desirable? 3 Fundamental Market Composition Principles: Balanced relationship need to exist between three principles in order for economicsystem to develop and grow 1. Law of Supply and Demand ○ Ability of market, independent of external influences, to determine the price for which a product or service will be bought and sold 2. Allowance for priva
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