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Comm 103 Midterm Review Notes.docx

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COMM 103
Gary Bisonnette

Comm 103 Midterm Review Notes – Marinés Rojas Chapter 1:  Business—view it as a system of integrated actions designed to ensure that an organization develops and grows a market for its good and/or services in a manner which creates organizational value (wealth) on behalf of its stakeholders  An efficient and effective operating platform will posses three fundamental characteristics against which it can be assessed o Commercial Endeavors: markets which the organization serves, the products and services which it offers, and the needs which it professes to meet in the marketplace o Employee Interaction: the value-creating skills which an organization’s employees bring to the marketplace o Organizational Efficiency & Structure: a reflection of the complexities of the business activities which circulate within an organization. It is reflective of the development of the infrastructure and its related culture (decision making, managerial hierarchy, operating process)  These 3 characteristics result in an understanding of a business system whose end result is the design, production, distribution and communication of goods and services (sought after by the marketplace and valued by the customers) What is Business?  Mission-focused activities aimed at identifying the needs of a particular market or markets, and the development of a solution to such needs through the acquisition and/or transformation of goods and services that can be delivered to the marketplace at a profit  Managers—attempt to initiate/control activities in a way that results in the most efficient and effective approach to the marketplace  Organizations will build their business model/system around 4 core fundamental resource areas: o Assets:  infrastructure and resource base of the organization (land, buildings, process & infrastructure base, equipment and/or technology framework, raw materials, and brand power) o Labour: human resource requirements of the business o Capital: the money needed by an organization to support asset-based expenditures, meet operating cash requirements and invest in the development of new products and/or services which the organization desires to introduce into the marketplace o Managerial Acumen:  the foresight, drive, knowledge, ability, decision-making competency, and ingenuity of the organization’s key individuals (its owners/top-level managers)  Visionary Leadership: the ability of managers to establish a direction for the organization based on the needs identified in the marketplace and the mission of the organization  Anticipate, recognize, and sense opportunities to create a product/deliver a service which is felt to be unique, important and of value to customers  Combined, the application of the 4 resource areas, in support of the transformation and sale of goods and services, determines a company’s cost base and overall operating platform (also called business model or system) Strategy & 3C assessment:  Analyzing the resources available to the organization, and the capabilities and competencies which it possesses  Strategy—specific objective which an organization hopes to achieve during the planning cycle  This defines the capacity of what the organization can and cannot do, which then enables the management team to define how and to what extent it can capitalize on its identified strategic opportunities  5 outcomes of the Strategy & 3C assessment: o Create, revise or confirm vision o Validate market size and direction remains sufficient enough to sustain operation o Recognize the success of current planning cycle which has just ended o Identify opportunities and threats o Identify 3C strengths and weaknesses in support of vision  Competitive Advantage: company can offer customers a product/service that has more value to them than similar products by other companies  Steps o Strategy & 3C assessment o Business Plan Development o Business Plan Execution o Company Performance & Profitability o Company Growth and Reinvention  Businesses need to set objectives which will enable them to achieve a position in the marketplace (SMAC) o Specific o Measurable o Actionable o Controllable  Need implementation strategy to get to this goal within a time frame  Not reaching objective of planning cycle: o Result of poor position, poor operational execution or combo o Flattening or declining revenue indicate whether a plan is working o Will need to re-direct the current organizational effort in order to get back on track and achieve its revenue and profitability targets Planning Cycle Staging:  Direction/Positioning o What do we want to do? o Why do we want to do it? o Can we do it?  Implementation o How will we do it? o What needs to be changed in order for us to succeed? o Where will resources be allocated?  Assessment o Did we meet our goal? o What need to be changed or improved? o What systems require fine-tuning? o What further capacity adjustments are required? Not-for-profit Organizations: not in business to make a profit, but seek to deliver services to the people, groups and communities which they serve o Still need a business plan, operating model and business system that will enable them to cover operating costs and to employ strategies to fund the ongoing delivery of meaningful services Fundamental Objectives of a Business:  Short-Term Profit o Profit is necessary in the immediate term in order for the business to pay its bills and reinvest in the future  Long-Term growth and profitability o New products and services will need to be developed in order to ensure that the organization remains healthy and continues to grow  Ethics, social responsibility and environmental sustainability o Individual managers are challenged to make decisions and implement actions which conform to the highest ethical standards o Managers are expected to place society, the organization, and the organization’s stakeholders ahead of personal gain when making decision and interacting with the market place  Stakeholders: people with interest in the business  Non-profit organizations need to create operational surpluses and acquire external capital funding commitments which will enable them to reinvest in the organization in order to ensure it remains receptive and responsive to community needs  Too much emphasis on short-term profitability may result in decisions which are detrimental to long-term market opportunities and fall short of social responsibility expectations  Too much emphasis on developing future products/services versus responding to customer needs today may result in liquidity issues for the business if it is unable to cover its expenses in the short term The Difference Between Profit and Profitability:  Profits: ―bottom line‖ results for a given period of time o Total revenue – expenses = profits  Profitability: efficiency and effectiveness of an organization to use its assets and its capital to generate profits for the organization over a period of time o Takes into consideration factors:  Return on capital invested  Return on equity  The financial leverage  Level of pre-tax income it earned o Focuses on comparisons between competitors to determine which organization are the most effective in their utilization of their resources Creating a Value Proposition  The way that the management team of a business accomplishes the need for businesses to design, produce, and communicate to the marketplace the products/services which they offer  Statement which summarizes whom a product/service is geared towards and the benefits the purchaser will receive/realize as a result of the product  *Develop these to communicate to customers how their products/services are different and the important benefits they offer*  Value proposition= service benefits + product benefits + brand benefits + cost benefits + emotional benefits Impact of Price:  Price is also a key component in the assessment of an organization’s value proposition on the part of potential purchasers  Purchasers—assess the price/quality relationship of one competing business’ value proposition and measure it against those offered its competitors  Important to offer attractive price/quality relationship o Benefits can be tangible (product features) & intangible (emotional benefits, status, image, etc.) o Reflection of the relationship between what consumers are bring asked to pay for a product against what they expect to receive (benefits)  More unique, important & value drive the product is, the greater the opportunity to communicate to purchasers, a value proposition which has a price/quality relationship more superior than competitors  Understanding the needs and desires of the marketplace and offering a product/service which responses to those needs  Business is also about recognizing that segments within the market will have different feelings as to how these needs can be met 5 fundamental questions to develop a value proposition:  What is my cost base for producing and/or delivering this product to the marketplace and how does this compare to my main competitor (s)?  Do I have a strong brand profile in the marketplace which I can leverage as part of the benefit to the customer when purchasing this product?  Are the emotional benefits which the customer will attach to this product/service being offered? If so, how can I use this to assist me in strengthening my value proposition?  Are there unique service benefits which I can incorporate into this value proposition that will assist me in supporting potential and existing customers?  In analyzing the above-mentioned questions, can I create a strong enough value proposition which will enable to successfully compete against other competitors in the market segment in which I choose to compete? Understanding Cost Base:  Asset Based Expenditures: incur in commencing a business operation or expanding its capacity o Ex: purchase of equipment or buildings  Operating expenditures: expenses from normal business operations o Ex: Employee wages, purchase or raw materials, shipping costs, advertising, etc.  These costs must be recognized within their business plans and pricing strategies in order to ensure that the costs of the operation and other related financial obligations are fully offset by the revenue generated by the business, and that acceptable levels of profit are realized Business Decision-Making Model:  Create a vision of the opportunity in the marketplace  Confirm that the market size of customers is large enough that once commercialized, the opportunity can enable the organization to make a profit and sustain this profitability for the anticipated planning cycle and beyond  Confirm that a position within the market is feasible, which will enable the company to compete in a manner which is superior to its direct competition  Confirm that the market situation will stay right long enough for the business plan to be developed and executed  Confirm that the business has the resource base and the capability to execute the strategy  Execute the strategy in an efficient and effective manner, achieving the objectives set forth within the business plan created Strategy vs Tactics:  Strategy: development of plans and decisions which will guide the direction of the firm and determine long-term performance o Focuses on the vision and the opportunity which it believes exists in the marketplace o Checks that the life expectancy of the product/service is long enough to ensure that the initial investment can be recovered and the firm can make a profit  Tactics: immediate-term actions which a firm executes in order to meet the short-term objectives set forth in the current planning cycle o Need to ensure that the right product reaches the right customer at the right time and the right place for the right price  Well directed and Positioned Strategy + Efficient and Effective Tactics Execution = Business Growth and Profitability Chapter 2: The Canadian Economic Environment  Economy remaining resilient and competitive now and in the future o Productivity gains o Strong business investment o Technological innovation o Moderate wage increases o Favourable currency exchange rate Key Economic Influencers -Contributing Factors to Economic Development  Essential Factors of Production in Canada o Roads o Ports o Utility systems o Educated work force o Technology-based business management systems  Comparative advantage Underlying Economic Model -Law of Supply and Demand  Ability of the market to determine the price for which a product/service will be bought and sold  Demand o Number of purchasers willing to pay for a product/service o Elastic or inelastic dependent on quantity demanded  Supply o How much of a product/service producers are willing to provide the market o Suppliers need to think about the cost of production vs. the revenue which will be received from selling their product  Perfect equilibrium –supplies equals quantity demanded with no shortage or surplus of either  When prices fall too low o Shortage may occur due to demand exceeding supply or willingness to supply  When prices move higher o Surpluses within the market may occur due to purchases becoming unwilling to pay the higher price  Price may be influenced/controlled by o Duties o Tariffs o Subsidies o Regulatory practices -Allowance for Private Ownership, Entrepreneurship and Wealth Creation  Openness of the market to support, encourage and promote the concepts of private enterprise, personal ownership, entrepreneurship and wealth creation -Government Involvement in Influencing Economic Activity and Direction  Act as a customer purchasing goods and services  Regulator, restricting access or defining competitive protocols as a manager though powers granted to crown organizations  Taxation Agent  Economic stimulation agent grant and subsidy programs, infrastructure development programs and specific industry or company bailout programs  Competitor providing services in direct competition for private sector businesses  Open System o Governed by the law of supply and demand o Provides full and open access to the principles of private ownership, entrepreneurship and wealth creation o Absence of regulation by the government o Foreign trade and movements in labour and capital are largely unrestricted  Controlled Systems o Planned and controlled o Fundamentals of supply and demand, private ownership, entrepreneurship and wealth creation are restricted or absent o Government fully controls economic direction and activity on behalf of all o Economies which operate with, or experience minimal external trade  Mixed Economic System o Significant emphasis on the law od supply and demand, private ownership, entrepreneurship, and wealth creation o Significant economic management role undertaken by government Canada – A Mixed Economic System  Economy allows the law of supply and demand to significantly influence the market  Principles of private ownership, entrepreneurship and wealth creation (risk and return opportunities) are present and supported  Government attempts to manage and influence economic activity through a cooperative/competitive model  Government will become more or less engaged when it believes that it could be in the best interest of our nation in order to protect and regulate industries and guide economic activity  Manages economy via o Taxation o Regulation o National debt targets o Provincial transfers o Monetary policy control The Economy in Simple Terms 1) Expenditures  Purchases in support of your day to day economic activity  Valued in meeting needs and improve quality of life  Clothing, food, housing, transportation 2) Savings  Dollars set aside today  Will support economic activity and wealth creation in the future  RRSP (Registered Retirement Savings Plan)  GIC’s (Guaranteed Investment Certificates)  Savings then lent to others in the hopes of stimulating their economic activity 3) Capital Asset Investments  Investments made today in order to further expand your capacity to conduct and expand your productivity and overall economic capacity 4) Credit  Borrowing dollars to support expenditures or investments being made  Economic Activity = Expenditures + Savings + Investment + Credit  Economies move and grow as a result of the activities of everyone (consumers, businesses and government) in the same areas  Economic growth relies on the equilibrium of these factors Economic Growth Cycle  Gross Domestic Product (GDP) o Total market value of goods and services which a nation produces domestically over a defined period of time (1 year) o Goods and services which are produced and purchased domestically o Business investments within the economy o Goods produced for exporting o Government spending o Track GDP to determine if economy is growing or contracting  Movement of economic activity within an economy can be visualized as follows o Growth in economy via GDP results in an increase in corporate revenue and profits and government tax revenue o As a result of increase in profits and tax revenue, both business and government will possess increased capacity to invest in new infrastructure and new product/service offerings for consumers  Investments expanded economic infrastructure to meet growing needs of economy and further stimulate economic activity o Increased business activity requires more employees  Expansion of employment opportunities o With an increase in the need for workers, employers are forced to pay higher wages to attract and retain employees  Higher wages result in additional dollars for workers to spend and contribute to economic growth o Broad base of economic activity enables our Canadian economy to withstand economic downturns in one sector, thereby preventing it from having a detrimental influence on economic activity as a whole Managing the Movement in the Economy  Growth needs to be managed in a way which stimulates investment, yet maintains control of inflation  The Government of Canada seeks to maintain equilibrium between growth and inflation in order to provide an environment which makes the best us of the capacity and capabilities of our economic platform  Regional disparity will exist in terms of growth rates and future economic potential  Challenge will be to incorporate actions which will stimulate growth in Central and Eastern Canada without compromising the expected returning higher than average growth rates of the western provinces  Without causing further inflation Trends Impacting the Canadian Market -Inflation  Inflationary pressures will negatively impact economic growth in Canada  Robs economy of true growth and negatively impacts the confidence levels of consumers and businesses  Energy sources o Lack of control on prices -Geographic Clustering  Occurs when regional economies develop into being distinct from one another and separated by significant geographic space where interdependency upon each other is minimized  Distinct regional economic platforms occur  Enough interdependency exists at regional and national levels to mitigate negative consequences on the economy  Danger occurs when distinctness occurs at the macro level o Results in the inability of governments to implement national-based economic management actions to control expansion/contraction via monetary policy or inflation control mechanisms -Currency Exchange Rate Impact  Strength of Canadian dollar has assisted in reducing the price of goods/services being imported  Trips to U.S. less expensive for Canadians  Overall appreciation has resulted in the revenue received from exports o Energy, natural resources  Impacted tourism and manufacturing export sectors o Canadian goods/service more expensive o More expensive to visit Canada now  Canadian dollar will remain near or above parity ($1 U.S.) going forward -Branch Market Impact  Strong demand for Canadian natural resources, energy and commodity-based goods and services  Global organizations have looked to purchase Canadian-owned companies  Danger of losing control of its economic base and the risk of becoming a branch market economy -Sustainability and Green Initiatives  Companies will seek market positioning and cost advantages through green-based strategies as part of their business plan  More emphasis on green products o Environmentally friendly packaging o Reduce carbon emission o Greater sensitivity to the use of finite resources -Aging Workforce, Immigration and Multi-culturalism  As baby boomers retire – increasing concern about intellectual capital shortages o Information technology o Health care o Education o Skilled trades  Strategy is immigration for replacing retiring workforce (low birth rate)  Need to import skilled and well-educated workers  Recognition of skill and degrees earned abroad  Challenge of ensuring that immigrants posses the required language and critical thinking competency skills necessary for function in todays marketplace  Emergence of new ethnic markets o Business opportunities -Long-Term Competitiveness  Canada will be challenged to maintain its competitive advantages in the marketplace  One of the largest exporters of natural resources, commodities and energy o Should continue to grow and enable sections of our country to realize ongoing GDP growth  Challenged to improve productivity levels, increased cost base (strong currency), ability of businesses within developing countries to operate with lower costs  Ongoing development of knowledge-based industries where business acumen will enable global leadership  Education, banking and financial services, sophisticated operational process development o Must continue to excel to protect and enhance economic platform and quality of life -Small Business Emphasis  Small business make up the most significant portion of the fabric of our marketplace  Businesses which are largely owned and operated by sole proprietors make up over 56% of our country’s businesses  Entrepreneurship drives small business creation  Domestic ethnic market development, global niche market, specialty goods and services -Globalization  Growing interconnectivity of the world and heightened interdependence  Internet o Ability to reach potential buyers with little to no boundaries  Canadian businesses will need to adapt to remain competitive  Become more efficient and effective in operational processes  Improving productivity of workforces  Reinventing businesses as global market needs change  Becoming increasingly innovative and entrepreneurial Managing in Challenging Times  As managers it is fundamentally important to understand what is happening in both our domestic economy and the global economies which influence our overall economic activity and prosperity  Questions to answer to understand where the market is going: o What are the general indicators saying about the current economy and the current relationship between the variables governing our mixed economic system?  Law of supply and demand  Entrepreneurship  Wealth creation  Private ownership o What broad level changes are occurring within the sectors of the economy which impact an organization’s growth and market position o What specific current competitive actions may disrupt the way in which business is done within my organization’s particular market sector?  PESTEL Analysis o Political  Looking for trends in government legislation and activity which may signal a change to the management of the economy and the equilibrium relationship  Protectionism o Economic o Social  Trends which may change the way in which consumers want, need, or use products/services  Changing composition of the marketplace o Technological  Constantly assess the speed and direction which could potentially render current products/services/operational processes obsolete o Environmental  Changes with environmental compliance regulations and other environmental sustainability obligations o Legal  Changes in the legal sector  Employment law  Product liability risk exposure  Contract law  Consumer rights Understanding Competitive Models  Fundamental to creating strategy and understanding the allocation of resources  Non are static (one industry can shift from one to another) -Purely Competitive Markets (perfect competition)  Characterized by a number of similar products/services  No single competitor has a dominant market leader position  Absence of differentiation  Possess few barriers to new market entrants  Suppliers are largely unable to create distinctions between the products/services being offered to the target audience  Impact is on price (tendency to push prices down) o Unless demand significantly exceeds supply  Prices rise o Prices are dominantly comparative o Drive costs down because there will be downward pressure on price  Commodity-based and agricultural markets – good examples -Monopolistic Markets  Posses a number of different suppliers of products/services  True differentiation - benefit  Ability to create relative position in the marketplace not based on price  Branding and marketing become more important  Products/services are somewhat different and uniquesignificant shift in the development and marketing of value propositions  More competition = lower prices  Protect intellectual property  Very competitive  Manufacturing of cell phones – good example -Oligopoly-base Markets  Contain a small number of suppliers who control a large percentage of market share within the market  Compete on the basis of products/service which have achieved success in distinguishing themselves from their competitors  Result of the significant capital investment required to enter into an industry  Significant economies of scale and scope necessary to be competitive  Have greater control over the price being charged due to the limited competition  Less competitors = stable prices  Possibly less differentiation  EX: Airlines, Banks -Monopoly-based Markets  Served by a single product/service supplier  Many are government regulated  A single entity can provide the product/service more efficiently and at a better price point than an open-market concept would  Important to recognize the market configuration and composition (not static) Porter’s 5 Forces (Assessing Industry Attractiveness) 1) Rivalry Among Existing Competitors  How many competitors are currently challenging us for customers in our industry/markets  Strength of competitors  More competitors = more intense the rivalry to attract customers and grow market share  Compete on the basis of price  Example: Zellers vs. Walmart o Before Walmart, Zellers was leading supplier in the low price market sector o Walmart enters the market, selling with lower prices o Zellers’ defensive strategy was to cut price to meet Walmart o Walmart and Zellers kept lowering prices until Zellers would have to operate in losses (cost base too high) o Walmart wins (lower cost base and lower prices, yet greater profit margin compared to Zellers) o Basically, you cannot compete against Walmart on the basis on price o Shoppers for example shifted to cosmetics to compete against Walmart  Shopper’s Optimum loyalty card  Seek a position in the marketplace that is different from your competitors 2) Threat of New Entrants  Probability that new entrants will enter our industry/markets  Where will they come from  How will their products/services impact our growth and ability to train our market share  You can create a barrier to entry 3) Threat of Substitute Products or Services  Probability that our product/service could be rendered obsolete  Probability that overall sales potential significantly impacted by a substitute  Do we see such substitutes emerging 4) Bargaining Power of Suppliers  What is our relationship with our suppliers  How much control do suppliers have in influencing our operations and overall cost structure  Are we able to extract concessions from them  Is it easy for them to shift their efforts to supporting one of our competitors  Are we significantly dependent on them for critical aspects of our product/service  Control the price o Lack of choice for companies gives the suppliers’ power o No alternatives for the companies have to eat the cost of buying supplies because they have no other choice  Suppliers protect their profit 5) Bargaining Power of Buyers  How much choice do buyers have in the purchase of products/services within our industry  Is it easy for them to switch from one product to another  What substitutes are currently available  What potential substitutes are threatening to attack our industry/market Chapter 3: The Global Marketplace Our Changing World  Today’s growth continues to reply on significant U.S. capacity  In the next few decades: o Shift as China, India, Brazil and other economies mature and benefit from the foreign direct investment currently underway o And benefit from the overall development of their monetary banking systems, transportation facilities and competitive business models and operating platforms The Global Marketplace  Global marketplace home to many of the largest international-focused business organizations  Companies from developing countries starting to compete on the international stage, seeking to gain access to the global marketplace  Also small and medium-sized businesses are expanding beyond borders to join the global marketplace  Becoming home to an increasing number of businesses seeking to operate via an international- based business model o Operational growth o Strategic alliance o Formal partnership Why So Global? -New Market Opportunities  New opportunities for untapped markets need to form a part of the strategic planning process  As domestic markets become saturated, organizations will begin to look beyond their current countries and markets in effort to discover and leverage new markets for their products/services  Ex: Canadian banks investing in new market opportunities in US, Central and South America and Asia  Not only an approach for countries will fully-developed economies  Companies from emerging economies also looking for new markets around the world  Ability to assess global needs, manufacture products/services in response, and then engage in global trade to gain access to those markets has been fundamental to the development of today’s global marketplace -Cost Reduction Opportunities  Companies will locate in places where the costs of productive resources give them a competitive advantage  Companies are attracted to countries where labour costs are low and occupational skills are high  Allows organizations to lower its overall cost base  Ability to differentiate products and services being manufacturers is difficult as competition increases  Businesses sensing pressure to use price as a weapon of competitive rivalry  Organizations must reduce their cost base in order to protect their profits  Ability to reduce labour costs  Offshoring and outsourcing  Lower raw materials, energy costs, technology costs, etc.  Companies will seek the most efficient and cost-effective product/service delivery system to maintain cost competitiveness and earn higher margins and profits  By investing in these markets, foreign firms can diminish concerns regarding protectionism, duties and other tax levies (designed to protect domestic economies) -Resource Base Control  Organizations look globally to ensure that their business portfolio continually add the required resource base necessary to ensure that an adequate future supply exists to support the product/service they offer to the marketplace  Very true in energy and commodity-based resource industries  Canada – resources and energy  Fundamental in resource based acquisition strategies lies in seeking to control supply sources and influence the use of such sources  Important to be able to generate lower costs and better value by having more control over resource-based factors of production -Closeness to Market  Establishing facilities within these developing economic regions enables companies to operate closer to these emerging markets and to react more quickly to market opportunities or trends  Becoming a domestic produce in these areas also enables such companies to create a stronger affiliation for their products/services o Reinforcing the value to the local market of their presence  Returns the added benefits of identifying new ideas o Developing new products/service in response to those needs o Gaining greater market diversification as new markets grow o Benefits from learning new business methods -Economies of Scale  Organizations seek to develop, manage, and leverage global production and distribution networks  Can be realized in the sourcing and production of products  Centralization of services, such as marketing  Sharing of manufacturing and infrastructure facilities to supply products and services to the global market  In order to facilitate operational efficiency and spread development and production costs across larger volumes, the products are purposely designed for global consumption Global Market Stability – The Role of Government  Governments across the globe are committed to developing such a regulatory environment with the purpose of managing financial and market risk in a steadily-evolving global market  For growth to continue, it is essential that governments focus on and support the key fundamental building blocks of global market development o Essential in ensuring that the global marketplace grows in a manner which:  Minimizes economic disequilibrium from occurring within singular economies  Avoids an over-dependency towards protectionist-based marketing practices  Manages financial and market risk in a manner which minimizes the potential for unsustainable growth or counter-productive practices  6 fundamentals which governments globally need to commit to: -Ongoing Commitment to an International Trade System  Need of countries to commit and adhere to the trade policies and agreement overseen by the World Trade Organization  WTO o Main role is to establish the parameters for multilateral trading now and for the future o Provides regulatory and policy-based guidance on issues relating to:  The flow of goods/services  Protection of intellectual property  Dispute resolution associated with trade quarrels between countries  Trade policy review associated with the policies which individual countries are putting into place o Ensure transparency exists between countries and globally o Objective is to ensure that trade flows smoothly, fairly and predictably  Creating rules relating to the use and acceptance of tariffs and subsidies  Antidumping measures o Provides support to developing countries and emerging economies -Market Openness  The need for developing countries to maintain a focus on the core elements of an open economy o Law of supply and demand o Entrepreneurship and wealth creation o Private ownership  Willingness of countries to open their borders to competitive goods/services to maximize benefits to their citizens  Supporting the movement of goods/services, capital, foreign trade, and labour into and out of the country with little to no restrictions  Open Market System: o Development of free-trade agreements o Minimization of trade disputes o Resistance to the concept of nationalization of core economic sectors o Abolition of the use of tariffs o Tax duties to control prices o Elimination of unfair trading practices -Absence of Protectionism  Protectionism: intent of economic policies which are put in place to protect/improve the competitiveness of domestic industries via impeding or restricting the openness of a market/markets to foreign competitors through tariffs, trade restrictions, quotas, artificial controls of currency values  Protectionism – detrimental to the global marketplace  Often results in economic inefficiencies and higher prices for consumers due to the absence of or significant restrictions levied against, external competitors -Adherence to the Fundamentals of Fair Trade  Relates to the commitment (on part of governments): o To support and enforce the intellectual and patent property rights of companies o Adhere to generally-accepted labour practices o Commit to environmental standards agreed upon by the global marketplace  Expectation – governments will seek to eliminate black market activities which violate the intellectual and property rights of developers and manufacturers of products/services -Balanced Economic Development  Governments must work towards the development of well-balanced economic growth with their respective economies  Total focus of economy not only export focused  Intent of supplying products/services of other countries  Development of domestic side o Minimize reliance on external buying sources  Development of internal markets for goods/services results in a stronger economic base and expanded economic activity  essential for creating stability and growth in standard of living  Fundamentals of market stability o Well-developed factors of production o Well-managed monetary policy and banking system o Ensuring that debt levels remain manageable o Keeping inflation low o Ensuring a climate of political stability  Purchasing power with domestic consumption of goods and services must occur  Export-driven manufacturing and/or production considerations  Internal exchange of goods/services drives economic vitality creating domestic-based wealth -Responsible Sovereign Debt Management  The obligation that government leaders have to manage their economies in a fiscally-prudent manner  Countries will need to develop and carry deficits in order to effectively manage economic volatility and meet the diverse needs of their citizens  Emerging economies need financial support to initiate the required fundamental changes need to get economic activity off the ground  Debt must be utilized in a way that recognizes the obligations which it will inflict on both current and future generations  Countries must seek to develop stable economic platforms which result in long-term balance of trade positions and do not jeopardize economic growth due to overburdening deficit obligations  Too much deficit : o Negative pressure on the ability of an economy to grow o Loss of control over inflation o Political unrest due to the magnitude of taxation o Reduction in services required to restore fiscal balance Global Market Trends 1)  Global marketplace will continue to grow  Emerging economies growing even faster  Brazil, Russia, India and China should continue to lead this emerging economy impact on the global marketplace  Emerging nation growth – Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africe  Middle East will grow as well  Domestic economic growth and high levels of government investment in infrastructure and social benefits will be key drivers of growth 2)  Economic specialization will continue to be the trend as the ongoing evolution towards the implementation of global free trade continues  Use of technology and supply chain logistics will continue to act as primary drivers of this market approach 3)  Recession in 2008 will continue to impact the global marketplace in the near term  Greater fiscal and financial regulation will result in tighter credit markets (small business sector) – will lead to a slower pace of global economic growth  Europe could be vulnerable to a drag on growth 4)  Energy prices will continue to have an influence on the cost base of many businesses  Oil prices will continue to rise as demand for energy increases  Government will continue to press alternative energy sources forward  Non-fossil-fuel-based business opportunities will continue to grow o Wind o Solar o Alternative transportation fuels o Electric battery research  Reconsideration of fossil-fuel-based energy exploration policies in highly-sensitive environments and the use of nuclear power as an energy substitute (oil rig explosion, nuclear meltdown in Japan) 5)  US and China relations will remain critical to global health  Significant trade imbalances which exist between these countries will need to be closed through a cooperative management process  Access and openness to China will be a major priority 6)  Demographics will continue to influence both trade and political decisions  Broader immigration policies in order to meet the employment, productivity and social service funding needs (countries with aging populations)  Countries with younger populations will be challenged to meet the employment needs of their youth 7)  Agricultural subsidy programs will remain a major focal point of global trade discussions  Emerging economies will continue to lobby for the elimination of agricultural subsidies in fully- developed nations  Subsidies keep prices low in fully-developed countries making it more difficult for developing economies to penetrate these markets and harming their efforts to grow their economies (from position of emerging economies)  Fully developed economies view these subsidies as necessary to protect their agricultural industries 8)  Inflation could become a potential drag in the future  Debt loads which accrued and money supply expansion which occurred as a result of the meltdown of 2008, could put pressure on interest rates and market prices going forward  Ability of governments and their central banks to manage monetary and credit policy individually/jointly will have significant bearing on inflationary pressure in the years to come 9)  Global warming, carbon cap and trade legislation and Kyoto Accord will become more integrated into the decision-making process of businesses and government  Nations will need to work together on a global response to growing environmental and sustainable business practices in a way that meets societal concerns and maintain a level playing field for businesses within their respective borders 10)  Global marketplace will become a more political economy  Interdependence between countries will continue to grow  As trade growth exceeds infrastructure growth, bottlenecks will occur and strain will be placed on the global trading system  Free-trade agreements will continue to evolve Concept of International Trade  Trade occurs between organizations and individuals  Specialization is the separation of tasks within a system o Recognizes that by having some entities provide certain parts of the process, greater efficiencies and productivity will result  International trade recognizes that the most efficient and effective mechanism for the production of goods and services lies in the development of clusters of specialization across countries  Organizations have developed international trade based on specialization as the framework for meeting the needs of the global marketplace -Evolution of a Global Presence pages 92-96 in textbook **** -Note on Currency Exchange Rates – How Are They Influenced?  Devaluation of the ―euro‖  Euro today continues to remain strong against the U.S. dollar as the U.S. is now facing a debt management crisis of its own  Sovereign debt issues still remain within the European Union and additional instability which could send the Euro tumbling again  Strong economic growth (domestically and internationally) improves the standard of living and is developed within a context of government debt and fiscal management in an environment of controlled inflation will result in an upward value of a nation’s currency  As emerging nations increased their demand for the products/services Canada exported, our economy grew Chapter 4: The Environment & Sustainable Business Practices Goal: design and redesign business processes in a way that will allow for increased wealth and enhanced competitive advantage, while incorporating the principles of humankind and resource protection and sustainability for the future Societal Response to Environmental Degradation:  Unabated Consumption  Regulatory Compliance Legislation and Standards  Eco-Management Initiatives  Full Integration of Business Strategies and Environmental Responsibilities Sustainability Challenge (5 Great Sustainability Challenges):  Climate Change  Pollution and Health  The Energy Crunch  Resource Depletion  The Capital Squeeze Climate Change:  Time is running out on our ability to respond to the climate change trends under way, and if we don’t, we will place our planet at significant risk  1 degree rise massively damages corn crops  Building A Reduced-Carbon Economy: o Improving energy efficiency o Decarbonizing the energy supply o Transportation innovation o Biodiversity o Human behavior modification  Kyoto Protocol  It is you and I, as managers and individuals, who will need to take climate change responsibility into the boardroom and into the business operation to ensure that the behaviours to be exhibited reflect a true integration of environmental sustainability practices into our organizational and corporate strategies Pollution & Health:  The cause of death is due to the air we breathe and the water the we drink  Our health is also affected by the toxins released into the air and environment The Energy Crunch:  Energy requirements are expected to rise from a level of 495 quadrillion BTUS to 622 quadrillion BTUS between now and 2020 o 88% of this energy coming from the tradition energy sources (oil, gas, coal and electric power)  Do we have enough resources for the 26% energy gain? Depends on: o Resource availability o Improvements in energy productivity from the sources we have available Resource Availability:  Peak Model: the finite supply of these non-renewable sources is coming to and but focuses more on the key factors which determine our ability to draw on existing resource availability at this time  The 7 key factors: o Current Supply Development Constraints  How quickly can we develop the production of existing known resource supplies  Relates to how quickly capital investment in existing sources of energy can result in such energy sources being moved from a state and known to ―into the pipeline‖  Includes the cost/benefit tradeoff to developing such opportunities  Includes transportation capacity constraints which could impact the delivery of final products to users o Political Impact Factors  Political, legislative or environmental action which constrains the ability of companies and organizations to proceed with supply development  Feed in Tariff: Subsidies and other grant/investment programs developed by governments to support the development of energy alternatives and/or improvement in energy productivity  Political impact and be either positive or negative influences on supply o Rate of New Discoveries  Identification of new sources of fossil fuels o Declines in Current Production  The reduction in current supply volume due to energy sources drying up, or being taken offline o Immediate Access to Additional Capacity  The ability of current suppliers to tap into excess capacity to meet the demand needs of the marketplace o Geopolitical Instability  Instability in the countries and/or regions which supply our global energy needs o Development Speed of Alternative Energy Sources  Speed at which alternate energy sources can be brought online and achieve the necessary scale and cost structure to be viewed as viable options for energy consumers to consider when looking to meet their current and future energy needs  Political action may, or may not, be a primary drive of this scale and cost structure development process Improvements in Energy Productivity:  Improving the efficiency of energy production currently taking place, as well as reducing the overall demand for such energy in a manner which does not compromise economic growth  Energy productivity is a measurement of the productivity achieved from each input of energy consumed Resource Depletion:  Resource Management: ability to actively mange existing supplies and regenerate new supplies materials in such a way that we minimize resource depletion  Being felt across such areas as mining, fishing, agriculture, and water  Groundwater in countries containing over half the world’s population o Essential for agriculture, industry and domestic use Capital Squeeze:  Capital reserves and rise of Sovereign Wealth Funds (country or state-owned investment funds) has resulted in the global marketplace having access to cheap money in volumes  Add this to low saving rates and developed economies have high dependency on emerging economies  Problem because growth in developing countries will create a really big need for capital (ex. Infrastructure in Asia, Africa, Latin America)  Consequence for this massive capital requirement and projected capital shortfall are: o Access to capital being very difficult, due to low saving rates of their citizens (resulting in little investment capital being generated internally) and the increasing need of developing economies to use their capital reserves for internal, domestic investment— reducing supply which they are able to lend elsewhere o Reduction in savings will occur among citizens in developing economies (in order to enhance their quality of life, citizens will save less and spend more obtaining goods and services which will make their lives easier) o Cost of Capital: will increase as the demand for capital, for investment purposes, exceeds the supply  For governments who financed their current deficits with the low interest rates, their cost of debt will rise as their credit facilities mature and require renewal underwriting o Financial Protectionism could creep into the global capital marketplace as countries with surplus seek to keep their capital for internal and external investment in a way that provides them with global competitive advantage, offering lower cost of capital rates to domestic players, and higher, risk-laden cost of capital to external borrowers  End Result: access to cheap capital will no longer be the large contributor to global growth as it has been in the past Business’ Responses To The Sustainability Challenge:  Top level management will respond to eco-efficiency management and trade management  Sets sustainable development policies and objectives, designs and executes an implementation plan integrated within an organization’s overall strategic plan  Organizational culture and stakeholder community support will respond to top level management Trade Management:  Shifting the impact of trade and economic development away from being the primary driver of environmental harm and planet degradation to that of a process which exists in an arena of environmental sustainability  Participants in trade and economic development must agree to pay for the social costs of environmental degradation  Participants across markets need to support and accept pricing policies which reflect the full cost of expenses incurred in order to achieve environmental sustainability o Recognizes the reality that costs associated with the development and application of new technologies and sustainability processes need to be recovered as a part of an organization’s pricing strategy  Participants must block the ability of market players from obtaining and leveraging a competitive advantage as a result of efforts to avoid environmental costs  Trade management is shifting the impact of trade and economic development away from being the primary driver of environmental harm and planet degradation, to that of a process which exists in an arena of environmental sustainability Eco-Efficiency Management  Tactical shifts required within our business operations in order to maximize the efficiency of our resource utilization and minimize or eliminate the resulting current degradation to the planet which such operations bring  Consists of 2 categories of operational reassessment: resources management and emissions management  Resource Management o Focuses on shifting away from the old consumption model whereby resources acquired entered into the transformation process with the end result of producing a produce and disposing waste o What was not sold to market was simply tossed out o Resource Management Model  First shift—recognition that resources are finite  Second shift—recognition that resource efficiency, while leading to possibly slightly higher costs, in the short run, can lead to lower overall costs in the long run  Third shift—societal pressure  Reduce, reuse, recycle, recover  End result: more companies are taking a 4R (reduce, reuse, recycle, recover) approach to resource management, which has resulted in a more circular approach to the consumption model  Goal  Zero waste (eliminates further degradation of the environment due to the cessation of landfill-based pollution-creating activities)  Preservation of resources (prolongs ability to tap such resources into the future) o Accomplished through modifications to internal resource and product/service transformation system via a) technology and resource substitutes b) where finite resources are required, the development of reusing excess resources  The goal is to create a sustainable resource management model geared towards reducing the material and energy intensity of creating products and/or services, while still being able to produce economically-vial products and services which enhance the lives of global residents Emissions Management:  Focused on our ability, across the globe, to achieve a position of zero global emissions  To accomplish such an objective: o Market participants must commit to attacking pollution at the source rather than after created  Looking at current inputs included in an operational process and seek to develop substitutes for such inputs or invest in or create technologies which eliminate such waste prior to it moving into the air o In situations associated with new operations, market participants must be able to prove that the processes being employed, prior to their implementation, will not do any harm to the air Sustainability Balancing Act:  ―Are we doing the right thing for society ―must equal ―can we continue to be a successful business‖ Are we doing the right thing? = Can we continue to be successful? Waste Management Competitive Advantage Human Health and Safety Capital Costs Planet Stewardship Operating Costs Energy & Resource Management Operating Risks Strategic Integration:  Businesses need to see environmental sustainability as an integral part of value creation and that this creation includes sustaining and enhancing the resources which we depend on well into the future Long-Term Benefits of Environmental Sustainability Strategic Integration:  Short Term Outcomes: o Improved Corporate Image o Regulatory Compliance  Long Term: o Pricing Power: stronger brand increases an organization’s pricing power o Enhanced Efficiencies: resource intensity reduction techniques lead to greater long-term operating efficiencies and stronger supply chain management (can lead to higher margins and overall lower cost base—leveraged into competitive advantage) o Customer Retention: improved customer loyalty leads to lower customer desertion rater, resulting in greater opportunity to leverage additional revenue from these customers and lower customer transaction costs o Stronger Employee Base: employee engagement via sustainability initiatives can result in greater employee retention, stronger recruitment positioning, and higher levels of employee motivation and productivity o New Business Options: can lead to new skill development within the organization, which can lead to the creation of new business opportunities and an enhanced ability to enter into new markets How to Integrate Environmental Sustainability:  Define sustainability within the organization  Identify the opportunities, threats, and gaps  Build the business case  Establish targets  Commit the resources Productivity Cycle:  Processes involved in transforming materials into a product or service available for the sales in the marketplace o Nike incorporates used waste back into productivity cycle Chapter 5: Ethics and Corporate Social Responsibility Ethics:  Reflect the moral principles or beliefs about what an individual views as being right or wrong  Built around the norms or standards of conduct which society views as being acceptable behavioural practices  Can be thought of as an invisible hand which is inside each of us and guides us as we make decisions Ethics Wheel:  Individual o Personal values o Spiritual influences o Past experiences o Past environments o Cultural influences o Social image  Societal o Societal interpretation o Societal conditioning o Legal and regulatory guidelines (Sarbanes-Oxley, SEC, OSC)  Business Culture o Pressure to meet company objectives o Structure of ―reward‖ systems o Pressure from superiors o Corporate ―ethics‖ guidelines o Stakeholder influences  Professional o Professional designation & association influences o Industry practices (GAAP, IASB, IFCA)  In making decisions, we need to think in terms of what is not in our personal best interests, but what is in the best interests of the stakeholders and the public at large Triple ―Yes‖ Rule  Yes #1: Does the decision which I am making fall within the accepted values or standards that typically apply to all organizational environments?  Yes #2: Would I be willing to have this decision communicated to all of my organization’s stakeholders, and have it reported on the front page of the newspaper or serve as the lead story on a news channel?  Yes #3: Would the people in my life with whom I have a significant personal relationship, as well as managers of other organizations, approve of and support my decision?  Using this approach causes one to fully assess, ethically, the ramifications of the decisions made and the preservation of personal integrity—fundamental to managers, employers and individuals Ethical Decision Making Process:  Identify if an ethical dilemma exists  In recognizing the dilemma, gather as many facts about the situation as possible  Evaluate the alternatives available fro the perspective of the various ethical positions  Choose what you believe to be the best alternative, and then test it, with a valued advisor, to ensure your correct interpretation  Initiate your decision and closely monitor the results  When you think about it, the most important skill which you can bring to the workplace is your integrity Ethics and Culture:  Just as companies are vulnerable to shifts in market conditions, changes in the intensity of competitive rivalry, disruptive technologies, and changing customers, so, too, are they vulnerable to the serious consequences and brand equity erosion which accompanies unethical behavior within their management and employee ranks  Board of Directors o Needs to define the parameters of what is meant by ethics and integrity o Develop the necessary structure and processes which will enable it to keep its finger on the pulse of the conscience of the organization o Trying to establish what is considered to be the accepted zone of business actions and activities for an organization o Responsible for ensuring parameters which define ethical behavior and business integrity are in place o Unethical behavior with their management and employees causes serious consequence and bran equity erosion  For Boards to effectively create a culture of ethical behavior and financial integrity, they must commit to the following specific actions: o Clearly define and establish boundaries of acceptable behavior and financial integrity, and create performance standards to evaluate adherence to these parameters o Boundaries must be clearly understood and communicated to all employees in the form of a policy or code of conduct. The code is not limited to financial integrity only, but should identify boundaries associated with ethical behaviour (internal and external) and the consequences for failure to adhere to such a policy/code of conduct o Appoint a representative (at Board level), whose responsibility is to audit managerial and employee performance and action in critical areas of this policy/code of conduct o Create and support a mechanism for the reporting of ethical concerns  Whistle Blowing: process which ensures that employees who utilize such a process are not penalized/ostracized o Interact with senior management and external agencies monitoring the organization’s activities in order to discuss issues which could arise, with respect to management/employees and represent the best interests of the organization and its shareholders (with respect to questions of ethical behaviour/financial integrity)  To truly create a culture of ethical behaviour and financial decision integrity, the Board of Directors must be active in the ongoing monitoring of the organization, and take a leadership role in the tightening of such processes when and where it is required  The Board of Directors, as representatives of the stakeholders of an organization, must see itself as the creator and sentinel of the organization’s conscience Regulating Ethics:  Forensic Accounting: look beyond the number in order to interpret what exactly is transpiring within an organization o Integrates accounting, auditing, and investigative skills Corporate Social Responsibility:  Understanding that the purpose of an organization is to create shared value by strategically integrating into its actions a partnership mentality with society where the objectives of both parties are met  Why is CSR so important? o Social responsibility has remained an important issue in the minds of over 75% of the consumers surveyed o The ability to leverage CSR initiatives as a key differentiator between two businesses is an important part of an
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