Business Dependence on Trade Cycle - Admission/Application Essay Example

Business Dependence on Trade Cycle ID Since emergence of globalization and trade liberalization, scale and scope of commercial activities have significantly increased in most economies. Almost all countries in the contemporary world have adopted strict open door polices in business. The degree of business internationalization has also enhanced with the benefits of liberal market principles of modern market economies. Even so, it should be noted that extent of economic volatility and complexity has risen on the global forum and this has become an issue for contemporary business firms. This is a research proposal for a dissertation that tries to estimate dependence of corporate firms on business cycle fluctuations in the modern times. The research will be conducted with the help of quantitative as well as qualitative analysis tools. Finally, the researcher will recommend ways through which the issue of business dependence on trade cycle can be gradually resolved. Contents Introduction 4 Research Questions and Objectives 4 Theoretical Background 5 Literature Review 8 Case Studies 10 Methodology 12 References 17 Introduction Contemporary nations experience perpetual upswings and downswings in their domestic economic productivity. In this era, an unfavourable incident in one nation momentously affects other economies in the world too. So, multinational companies whose business operations spread across various nations are often negatively or positively affected due to external changes in the business environment or trade cycle. Theoretically, temporary upswing and downswing trend of an economy is explained as its trade or business cycle. During an upswing stage, overall commercial activities in a nation lower and during a downswing, trading activities remarkably takes a rise. Hence, it can be precisely stated that commercial performance of every multinational firm nowadays depends on trade cycles (Canino, 2011). This is a research proposal aims to highlight the extent to which business or commercial activities in modern nations are dependent on trade cycles. It is highly rational to conduct a research work on this concerned topic because long-term economic prosperity of a nation relies on success of its multinational companies and that of these companies depends on trade cycle trends. The dissertation research work will be useful for future researches, which will be conducted on related topics. Additionally, this research will also help small companies to assess possible challenges that they might arise in future due to fluctuations in business cycle. Such analysis would enable these firms to overcome challenges during business internationalization process (Aulakh, 2006). Research Questions and Objectives The objectives of the dissertation research will be: To analyze economic implication of the trade cycle The above research objective will be accomplished with the help of quantitative as well as qualitative analysis methods. The qualitative analysis will be accomplished through literature review; and the quantitative analysis will be conducted on the basis of descriptive statistical methods. To estimate dependence over trade cycle fluctuations in business world This objective stated above will be fulfilled in the dissertation with quantitative as well as qualitative analysis methods. For the purpose of qualitative analysis, the researcher will consider two case studies. The theoretical analysis of the case study will be empirically proved through quantitative descriptive statistical methods. To recommend ways in which companies can overcome challenges that entail business cycle fluctuations. This objective will be accomplished after performing quantitative and qualitative analysis in the dissertation and related research work will be done based on qualitative literature review analysis only. Considering abovementioned research objectives, the primary research question of the dissertation will be: Does business performance of corporate firms depend on the fluctuations of trade cycle? Theoretical Background Trade or business cycle is the graphical representation of short-term fluctuations in production, trade and other economic actions of a free enterprise economy. This denotes the trend of domestic productivity of a nation over time. The domestic productivity of an economy is estimated in terms of its value of real gross domestic products (Real GDP) (Mankiw and Hakes, 2011). This indicates real value of the final goods and services produced within domestic territory of a nation during a point of time. In the long run, national and domestic product of an economy always increases in a stable manner. Figure 1: Long Run Trend of Domestic Income Domestic Income or Productivity Long Run Stable Growth Time (Source: Author’s Creation) However, long-term stable growth of a domestic or national income of a nation is experienced through several short-term fluctuations. Such fluctuations are graphically represented as trade or business cycles (Mankiw and Hakes, 2011). Figure 1: Business Cycle (Source: Author’s creation) As shown in the above graph, a trade cycle comprises four primary stages. Peak This is the inflationary stage of an economy, where aggregate supply of money increases along with purchasing power of individuals. With higher purchasing power, market demand for goods and services rises. High market demand calls for greater production of firms as well as employment opportunities. So, it can be stated that at peak stage of the business cycle, level of revenue or income of corporate firms appears to increase (Mankiw and Hakes, 2011). Recession In this stage, aggregate level of money supply and output productivity of a nation gradually falls. This in turn lowers the level of employment and domestic demand of economies. Thus, in this stage, revenue of profit making corporate firms declines (Mankiw and Hakes, 2011). Trough A persistent recessionary phase in an economy leads to a trough stage. In this phase, nearly all productive economic activities come to a halt. It is probable that under such conditions, business firms would experience losses from their domestic market trading (Mankiw and Hakes, 2011). Expansion This is the recovery stage of an economy; here, economy experiences slight rise in its productivity from a state of complete non-productivity, with the essence of higher supply of money. With rise in money supply, aggregate demand as well as revenues of firms augments in the market (Mankiw and Hakes, 2011). Therefore, from abovementioned theoretical background, it can be precisely stated that there is a certain relationship between trade cycle and revenue or business performance of corporate firms. Literature Review According to the views of S.P. Hargreaves Heap, business fluctuations across nations have comprised special international characteristics since a long time (Heap, 1979). However, incidents of such fluctuations in business performance have gained worth and importance in recent years. On the other hand, some researchers have claimed that presently, cyclical volatilities have started to influence business performances more; this is because world economies of the contemporary world are highly integrated with each other. Certain researchers have suggested that fluctuations in economic productivities of nations have strong implications in the real world (Canino, 2011). When economic systems of most nations are synchronized, demand for necessities or primary products along with their prices experiences high fluctuations in the market (Heap, 1979). Nonetheless, high volatilities in demand and pricing patterns are assumed to generate severe export earning instabilities in third world nations. According to certain researchers, greater integrity among modern economic systems had created inflationary pressures and opportunities for economic boom in developed nations (Heap, 1979). These countries, through benefits of international trade with third world nations at the initial stages, have earned high trading incomes. Expansion of financial base in such economies has generated high market demand and price inflation (Aulakh, 2006). In addition to that, some researchers have also stated that high fluctuations in business cycles on global forum have reduced validity and authenticity of domestic macroeconomic policies of a nation. Any modern economy might face severe problems in overcoming strong negativities of recession in an integrated world (Canino, 2011). However, if recession had occurred only in a single nation that is isolated from rest of the world, then its impact on any other economy would be null. The constraints of an economy measured in terms of its balance of payment conditions is, thus, highly intensified through global characteristic features of recession or trade cycle. Hence, from the above review, it can be said that trade cycles create perilous impacts on all integrated open market economies in the present scenario. Certain researchers have advocated that success of business firms in an economy follows a unidirectional trend with respect to success of the economy as a whole. So, if business cycle impacts an economy, then it can also inflict considerable shocks on performances of business firms. Perhaps, this is the reason for which authors have claimed that long-term success of corporate firms is no longer dependent on internal competencies only. The performance of firms often relies on factors that are beyond their control. For instance, during the Great Depression in 1939, various commercial firms were forced to shut down due to lack of finances, demand and losses (Aulakh, 2006). The recession in 2008 had also created similar detrimental impact on profits of multinational firms. Thus, high dependence of businesses on trade cycle has turned out to be a challenge for most of them. At this juncture, firms need to frame ways in which they can handle such sudden changes in the external world (Aulakh, 2006). Some researchers believe that investment costs made by the firms should be intentionally overvalued, so that if losses occur at times of recessions, overall damage of the firms would be low. The firms usually acquire massive financial reserves, which is reserved for critical times. Researchers also believe that entrepreneurs should act as transformational leaders in organizations helping to forecast the upcoming phases in trade cycle (Canino, 2011). Case Studies From the above context, it can be stated that corporate firms face severe challenges or issues in business during periods of economic downturn or recession. This relationship shared by a firm’s economic prosperity and recessionary phase in a trade cycle points out the impact of trade cycle fluctuations on the business world. Validity of this relationship will be explained in the dissertation through case study analysis on two popular multinational companies (General Motors and Marks and Spencer’s). The case studies will reflect ways in which commercial performances of the two companies were negatively affected during the recession caused due to the financial crisis in 2008 (Casson and Wadeson, 2012). General Motors Due to recession caused by the financial crisis in 2008, nearly all manufacturers of automobiles had faced severe crisis in business. Researches claim that the American automobile industry had received the most severe blow. The high profit growth rate of the popular automobile company, General Motors, had notably fallen due to the recession (The Economist, 2012). The company started to face grave financial crunches in business and overall cost of procuring raw materials for manufacturing process had increased. Furthermore, constant rise in the price of fuel since 2003 had made situations worse for the firm. This recession that was initiated in the western economies had soon trickled down to other economies of the world, thereby reducing overall supply of money in marketplaces. The aggregate employments along with discretionary spending powers of consumers started to fall. As a result, consumer goods producing companies, like, General Motors, began to experience lower demands and revenue in business (The Economist, 2012). The extent of crisis was so high for the company that it was forced to cease its production unit in Geelong, Australia. The company had reasoned that operating in Australia with high currency value was not economically feasible. Moreover, due to recession, cost of borrowing finances also increased for the firm. The asset prices of the company started to decline and liabilities in business started to rise. The annual loss of General Motors was as high as $ 30.9 billion in 2008. This had led General Motors to cut down a number of recruited jobs across different markets and the amount of incentive and advantages that it received from public authorities had greatly reduced (The Economist, 2012). Marks and Spencer’s The business performance of popular U.K. based multinational company, Marks and Spencer’s, had greatly fallen due to the great recession in 2008. The company engages in production and sales of luxurious consumer items. Similar to General Motors, the company had faced significantly lower demands during recession (BBC, 2009). This is because with lower per person income level, discretionary spending level of consumers on luxury products started to fall. The chairman of the company, Stuart Rose had mentioned that scale and scope of their business operations had experienced a drastic fall during the crisis. The company had to close down more than 450 stores across its different marketplaces (BBC, 2009). This implies that like General Motors, Marks and Spencer’s had also faced severe financial crisis and reduced employments in business during recession. Hence, from above case study analysis, it can be considered that performance of multiple multinational corporations had substantially fallen due to recession caused by the financial crisis. This theoretically proves that recession in the trade cycle has become a serious challenge for nearly all multinational companies of the world. Methodology This context of the proposal will elaborate the exact method whereby research work of the dissertation will be conducted. Research Philosophies The research philosophy of the dissertation will elaborate on the precise manner in which valuable information and data will be collected for the research work. This dissertation philosophy will be based on the norms of positivism. This is because the current dissertation topic does not involve analysis of any traits of the society or human behavioural features. The research topic is quite realistic in nature and the outcomes or implications can be measured in quantitative terms. Thus, positivism is deemed as the appropriate philosophy for research work in the dissertation. Research Approach The research work will be conducted on the basis of deductive research approach. In this approach, the researcher will observe valuable information and data related to the topic and subsequently interpret them in order to formulate certain theories by end of the research work. Research Strategy The strategy of research work for the dissertation has been set on the basis of certain external exogenous determinants, which can affect research activities. Some of these factors assure handiness of data collection, appropriateness of environmental and ethical features of the research. Time Horizon There will be certain constraints faced in research for the dissertation. One of these constraints will be time span of the research work. The dissertation research will be conducted on a longitudinal pattern, which implies that information and data to be collected for the purpose of research will include several time and cross-sectional units. Method of Analysis The entire analysis of the research work will be performed on the basis of quantitative as well as qualitative analysis tools. Quantitative Method Under this method of analysis, the researcher will accumulate quantitative data on the topic and use statistical measures to analyze the same. Moreover, results of such empirical analysis will prove validity of the conclusions that will be drawn from the qualitative analysis tools. All the numerical data will be collected from secondary authentic sources (Kruger, 2008). Qualitative Method This is a naturalistic method of research work and will be conducted by the way of literature review and case study analysis. This analysis will be made with the help of special interpretive skills of the researcher (Hatch, 2002). Method of Data Collection and Sampling The approximate population, based on which the quantitative analysis can be accomplished, is huge. So, the researcher will select an appropriate sample as a subset data from the population. The method of selection will be as per convenience of the researcher. Thus, dissertation sampling method will be purpose random sampling (Kumar, 2011). The relevant variables for which data will be collected are: Unemployment Rate (U.K. and U.S.) Money Supply Data (U.K. and U.S.) Real GDP Real GDP Growth Rate Revenue of General Motors and Marks and Spencer’s Consumption Expenditure (% total GDP in U.K. and U.S.) All data will be collected for 13 time digestions (2000 to 2012). Analysis Tools Literature review and case studies will be analysis tools for the qualitative research work. Nonetheless, for the purpose of quantitative research, the dissertation will employ descriptive statistical analysis tools. Under this regime, sample features and trends will be studied on the basis of descriptive measures like, mean, median, mode, standard deviation, skewness, kurtosis and moments. The precise relationship between business performance and trade cycle will be evaluated quantitatively by calculating the correlation coefficient between revenue of the two firms and real GDP growth rate. In order to study data trends, graphical analysis tools will be used. Line and bar graphs will be plotted for presenting the data trends graphically. Ethics The research work of the dissertation will take all ethical and moral norms into consideration. All information and data to be utilized for the analysis will be highly authentic and relevant. Conclusions of the qualitative analysis will not directly influence results of the quantitative analysis. The recommendations that will be provided at end of the research work will be realistic and feasible (Kothari, 2008). Validity The data to be collected for the purpose of research work will comply with the norms of internal as well as external validity. The sample will abide by the norms of efficiency, sufficiency, consistency and unbiasedness. All the time series data will be stationary in nature. Reliability Since quantitative data collected for the purpose of research work will be valid, all results analyzed and interpreted on its basis will be reliable (Kothari, 2008). Resource Requirements Information for the qualitative analysis will be gathered from publicly published articles or scholarly authentic references. The data for quantitative analysis will be collected from authentic secondary data sources like, World Bank, European Statistics, NASDAQ and Bloomberg (Kothari, 2008). References Aulakh, P. S., 2006. Emerging multinationals from developing economies: Motivations, paths and performance. Journal of International Management, 13, pp. 235-240. BBC, 2009. M&S to close stores and cut jobs. BBC News, 7 January. Canino, K., 2011. How Trade Deficits Work. New York City: The Rosen Publishing Group. Casson, M. and Wadeson, N., 2012. The economic theory of international business: a supply chain perspective. Multinational Business Review, 20(2), pp. 114-134. Hatch, J. A., 2002. Doing Qualitative Research in Education Settings. New York: SUNY Press. Heap, S. P. H., 1979. The post-war international business cycle. Journal of Economic Studies, 6(1), pp.106 – 128. Kothari, C. R., 2008. Research methodology: Methods and techniques. Delhi: New Age International. Kruger, W., 2008. Research methodology. Cape Town: Oxford University Press. Kumar, R., 2011. Research methodology. New Delhi: APH Publishing. Mankiw, G. N. and Hakes, D. R., 2011. Principles of Macroeconomics. Connecticut: Cengage Learning. The Economist, 2012. Downturn, start up. The Economist, 7 January. Read More