Business Strategies in Different Economies - Assignment Example

Business Economics Introduction UK follows a mixed economic system. In UK, all the economic decisions are left to the market and only the decisions related to the welfare of the society such as transport, education, infrastructure, health are taken by the government. Being the origin of industrial revolution in the 18th and 19th century, UK was on the forefront of technological advancements. However, the researcher discusses the various factors of the UK economy and about Sainsbury’s, a chain of supermarkets situated in the UK. There is often scarcity of resources within the nation and hence the resources are to be allocated rationally such that the production can be carried out with the scarce resources. There are various types of market within the economy and Sainsbury’s has been considered as a monopolistically competitive market which has various features such as the firms produce differentiated products which helps the customers to choose among the products and the firms within the market have the authority to set the prices of the products. Further, UK also enjoys a comparative advantage in specialising over some products that the country exports to other countries. However, the Global Financial Crisis of 2008 had a severe impact on the UK as the growth rate within the economy declined. There were other problems of low production, high inflation and unemployment within the economy which in turn affected Sainsbury’s production levels. Task 1 A. There arises a problem of scarcity due to the limited number of resources within the economy such as labour, capital and raw materials (Ergin, 2002). Scarcity of resources is one of the most important problems that the economy faces and scarcity also arises within an organization where there is often shortage of labourers as well as the capital and this in turn hampers the progress of the organization. Scarcity of workers in an organization leads to low level of production and output generation (Engwall and Jerbrant, 2003). In case there are limited resources within an economy, the production also takes place at a slow pace and the company lacks in competition with other organization in the international market. A good is considered to be scarce in an economy if it faces a non-zero cost to consume. Sainsbury’s is considered as the second largest chain of supermarkets in the United Kingdom which faces the problem of scarcity and resource allocation within the economy. Due to shortage of labour, there is low production within the economy and low output generation. However, the main purpose of the economic activity within an organization is to produce goods and services in order to satisfy the demands of the consumers. Sainsbury’s produces according to the demands of the consumers that rises as means of survival and also for improving their standard of living (Persad, Wertheimer and Emanuel, 2009). As the resources are scare and the wants are never ending, the managers within the supermarket allocate the resources within the economy in order to maintain the level of production according to the customer’s demands. During the resource allocation, few things are considered regarding the production and the appropriate way to control the production levels (Engwall and Jerbrant, 2003). However, by increasing the number of workers, the production level as well as the output in the market increases and the supply of goods matches with the demand in the economy. B. The type of the product and the density of the producers comprise of the different market system within the economy and the efficiency of the market is also important. The major objectives of the efficient market system are that of proper allocation of the resources, creation of the wealth and promotion of the economic growth within the economy (Whitley, 2000). Another objective deals with the fact of maintaining the stability of supply and demand within the market. A market system comprises of a buyer and a seller and the exchange of goods takes place among the producer as well as consumer. There are problems within the market related to the demand and supply issues and the production within the market may not meet the actual demand of the consumers (Mahoney and Chi, 2001). Further, there is another solution that the consumers can adopt in case their needs for goods are not satisfied, which deals with the concept of opportunity cost within the economy. The opportunity cost refers to the phenomenon that the consumers can substitute their choice for some other good that offers them better utility (Humphrey and Schmitz, 2002). The objective of Sainsbury’s is to maximise profit by gaining comparative advantage in producing some of the goods. The concept of the opportunity cost plays a key role in the business decision making as well. According to the researcher, as Sainsbury’s has scarce resources it has to take an important decision regarding the allocation of these scarce resources within the economy (Hinrichs, 2000). The supermarket applies the cost-benefit analysis in the process of economic decision making and estimates the cost of allocating labour and capital in the production process. C. Elasticity of demand is an important concept in case if the demand within the market varies. The elasticity of demand can be inelastic, elastic or unitary elastic. An elastic demand is the one in which there is a change in the quantity demanded due to the change in price (Hitt, et al., 2000). The inelastic demand is the one where the quantity demanded does not change even when there is a change in price. The unitary elastic demand refers to the phenomenon of the proportionate change in the demand and supply within the economy. Sainsbury’s serves as an important supermarket company that provides its customers with large number of products and some of the products are demand elastic while others are demand inelastic. Goods that are purchased rarely such as the consumer durables that are washing machine, automobile are demand elastic and the consumers wait for the price to fall (Demirel and Kesidou, 2011). However, the goods that are necessary for the daily consumption such as food and fuels are demand inelastic. This refers to the fact that the customers of Sainsbury’s purchase these goods as and when required without waiting for the price to fall. There is income elasticity of demand as well as the cross price elasticity of demand. The price elasticity indicates the fact that the demand varies due to the change in prices in the economy. This means the demand rises with the fall in prices of the goods in case of normal good. The income elasticity of demand refers to the fact that change in income of an individual affects the consumption pattern. As income increases, the demand for superior goods increases, whereas, that of the inferior goods falls. There are various types of customers in Sainsbury’s supermarket company and their preference pattern varies with the quality of goods sold in the market. Task 2 A. Pricing decision is very important for a company’s long term survival. The researcher has considered that pricing is the only element of the marketing mix that generates some sort of revenue for the firm while all other factors are related to the expenses. The pricing methods are the procedures by which the firms arise at the pricing decisions within the economy. There are three types of pricing methods namely the cost-based method which involves an addition of the profit margin on services average cost (Selwyn, 2002). Competition based method where the pricing depends on the competitors or it is according to the average price set in the market. The third pricing method is known as the demand based method where the price of a commodity is set depending on the customers’ perception of value within the economy (Selwyn, 2002). Likewise, Sainsbury’s has a huge customer base and the prices of the commodity sold by the company depend on the value given by the customers to the products sold in the markets. The objective of a company is to maximise profit within the economy and hence managers of Sainsbury’s always try to adopt strategies in order to maximise the profit (Marshall, 2009). The company fixes prices for its products as per the demand of the customers. The company also sets the prices in order to sell the goods to the customers at low prices and earn a higher profit. The demand and supply conditions within the economy also depends on the prices set by the market and in case there is excess demand and supply in the market, the problem is resolved by imposing tax on the goods to control the excess demand (Common, 2004). Further, in case of the excess supply, the government reduces the tax such that the goods can be sold to the customers at low prices. B. The pricing decision is a significant decision that the firm makes in any kind of market structure. In case of a perfect competition, the firm is considered as the price taker in the economy and it operates at whatever price is set by the government. The firm cannot sell the good at a price higher than the specified price in the market. While in case of the other imperfect markets such as monopoly, oligopoly as well as the monopolistic competition the firm is considered as the price maker that is the producers within the markets sets the price at which the products are to be sold in the market. In case of monopoly, there is only one seller and many buyers and the monopolist sells the product at the price decided in the market. Further, in case of the monopolistic competition there are many sellers in the market selling differentiated products, whereas in case of oligopoly, there are few sellers in the market. C. Sainsbury’s is a company with supply chain of supermarkets with a large number of brands selling different products (Common, 2004). Hence, the pattern is similar to that of the monopolistically competitive market where the products sold are not homogeneous. Therefore the production decisions that are to be taken by the managers depend on the demand for various products in the market. Under this kind of market, the firm has some authority to fix the price of the goods that are to be sold in the market and as the market sells differentiated products, it will lose the customers in case it increases the prices of the products. The researchers say that this market is a combination of both perfect competition as well as the monopoly because it has the features of both the markets. D. There is entry regulation of the firms within the industry dynamics in the UK that further has an impact on the growth opportunities of the economy. The researcher says that the regulation is required in order to achieve a socially efficient outcome (Nachum, Dunning and Jones, 2000). The entry regulation is expected to have a direct impact on the industrial structure by affecting the cost of starting a new enterprise. However, in the industries with low natural entry barriers there is a little impact on the quantity as well as the average size of the firms within the industry. Since Sainsbury’s follows a monopolistically competitive market structure within the economy, the firm has the freedom to set the price and the firms’ produces differentiated products. There are many firms within the markets meeting a large number of the customer demands and there is no possibility of the entry and exit of the firms in the long run. The firms take their decision regarding the production as well as the price that is to be fixed for the goods produced by the firms (Davis and Weinstein, 2003). The firms are expected to enjoy some degree of market power as they have the authority to set the prices within the economy depending on the demand and the supply conditions in the international markets. There are large number of brands sold within the chain of supermarkets and these brands have some unique features as well as they differ in prices set by the firms such that the consumers do not get confused about which brand to purchase from the market. The researcher often says that it has the characteristics of both monopoly as well as the perfect competition. Each of the brands within the market enjoys a sort of monopoly power within the economy, whereas; the market has large number of firms just like perfect competition. Thus, the market power of the firm depends both on the monopoly as well as the perfect competition. Task 3 A. The economic development that took place in the UK economy in 21st century is a result of the structural transformation that involves the reallocation of the productive factors from the traditional economy to the industrialised modern economy. In case if there is a successful economic growth, then there occurs a shift of the resources from the low productive sector to a high productive sector (Golub and Hsieh, 2000). Innovation has been considered within the economy with the development of new economic activities or design new ways of carrying out the existing activities. Innovation also involves developing new marketing networks as well as development of the new organizational structures as well as the practices is important for the company to grow. Technological change within an organization is important to accelerate the production process within the company. Sainsbury’s also adopt technological innovation in order to bring in some improvement in their production process and to produce for a large number of customers in the international market. The company plans to further expand its business and it can only be done if the company adopts technological change that helps the company to produce innovative products that attracts huge customer base (Davis and Weinstein, 2003). Further the company needs to adopt change in technology not only to produce for its customers but in order to compete with the other strong competitors in the international market. Apart from the enhancement of the capital intensive technologies, the company can also hire labourers and thus increase the employment opportunities within the economy as well as the production levels of the chain of supermarkets. B. The macroeconomic policy variables deal with the fiscal and the monetary policies undertaken by the UK government. The fiscal and the monetary policy of the UK government have an impact on the performance of Sainsbury’s as Supermarket Company (Davis and Weinstein, 2003). In case of recession, the government of UK increases their expenditure by purchasing the goods and services from the markets of Sainsbury’s so that the flow of money increases in the economy and the individuals can raise their consumption levels in the economy. The researcher says that the UK government also collects funds from Sainsbury’s in order to finance several events and social activities. Further, it is in the hands of the government to control the excessive flow of money in the economy by collecting taxes from companies like Sainsbury’s in order to balance the economic business cycle. Further, the monetary policy formulated by the government also affects the company’s pricing strategies. The government of the UK orders the banks to lower the interest rate such that the company can borrow loans and finance its activities as well as expand its business in the international markets. In case if the bank charges a higher interest rate, then the company will not be able to invest in the purchase of raw materials and equipments (Nachum, Dunning and Jones, 2000). Hence, the mangers of the company have to set the prices of their products very high in order to earn a profit. Further, the company also needs to invest on the new technologies and the innovations that are adopted by it in order to compete with rivals in the market. The government is also expected to impose a low tax on the imports of raw materials by the company otherwise it would be difficult for the company to raise its production levels with the rise in demand from the customers in the international markets (Nachum, Dunning and Jones, 2000). However, the company sets the price of its products depending on the demand of the customers as well as the production capacity of the workers within the company. C. The macroeconomic performance of the country involves how well a country is performing as compared to the other developed countries. The gross domestic product implies the total amount of goods and services within the geographical boundary of the country. The macroeconomic performance of one nation depends on the events and policies of the other nations. The Gross Domestic Product in the UK economy increased 0.30% in the first quarter of 2015 and there was a slowdown in the business and financial service sectors (Nachum, Dunning and Jones, 2000). United Kingdom is the world’s sixth largest economy. However, the researcher says that although UK is considered as one of the biggest manufactures in the world its total production comprised only 10% of GDP. The production within the economy was low and hence the economy could not grow. Due to the low GDP growth rate in the UK economy, there was a further impact on the Sainsbury’s performance in the international market. The low production created excess demand within the customers for the company’s products and the company cannot meet the problem of rising demands. Further, due to the low production, the firms within the supermarket raise the prices of the products manufactured by Sainsbury’s and there occurs a problem of inflation within the economy. There are other reasons for the low production levels that are the engagement of few workers in the production process (Nachum, Dunning and Jones, 2000). Unemployment of productive workers as the firms is unable to hire more workers due to the reason that they have to pay high wages to these newly hired workers. Thus pressure on the few workers in the market reduces their efficiency and their productivity decreases and the firms are unable to satisfy the customers. There arises a possibility that the firm may lose its customer base and they would be incapable of competing with the other competitors in the international market. Task 4 A. The theory of comparative advantage deals with the fact that a country can manufacture a particular good at a lower marginal cost as well as a lower opportunity cost compared to another country. The concept explains the way in which trade can create value for both the countries even when the only one country produces all goods at a lower marginal cost. The theory was proposed by Ricardo in order to provide opportunity to the technologically backward countries so that they can be a part of the trade that takes place within the developed and the developing nations (Humphrey and Schmitz, 2002). According to Ricardo, there is a comparative advantage between Portugal and England as Portugal is famous in producing cloth whereas, England is famous in producing wine. Hence, there occurs trade between the two countries. The advantage for this theory is that it influences trade within both the countries but there is a disadvantage for this theory that is it does not consider the terms on trade (Humphrey and Schmitz, 2002). Further, under this theory a country specialises in one particular product and exports that product in order to have a trade relationship with other trading partner. Free trade within the economy takes place when there are no artificial barriers to the exchange of goods and services. Thus free trade enables the countries to specialise in one particular product and the exchange of goods takes place between them. The advantages of free trade are that the countries can take advantage of the efficiencies generated through their specialisation on particular products (Humphrey and Schmitz, 2002). The international trade has the tendency to increase the size of the market and increase in production. However, with the specialisation the countries try to set monopoly power of the other trading partners in order to export that particular product. Further, the comparative advantage that UK enjoys with other trading partners helps the economy to grow. It also affects the Sainsbury’s which comprises a chain of supermarkets that specialises in producing various products. Thus, export of the company’s products takes place due to the free trade practised within the economy and thus the company can expand its business in the international markets. B. The BRICS nations comprises of mainly Brazil, Russia, India, China and South Africa who have emerged as significant in terms of domestic economic growth. However, the Global economic crisis had a huge impact on the BRICS nations to a certain extent and it provided an important opportunity to control the increased growth rate within nations (Selwyn, 2002). Russia is considered to be a commodity driven economy and China signifies the powerhouse of exports. India is a domestic demand driven economy where the rise in demand from the customers raises the production levels. Brazil comprises of a much developed economic structure and South Africa is considered as the fast growing region of Africa. Researcher says that all the five BRICS nations play a key role in constructing financial stability as well as global economic policy (Selwyn, 2002). The financial market in BRICS has expanded rapidly due to the economic growth that took place after the global financial crisis. During the initial stage of the crisis, it seemed that the BRICS nations would be able to overcome the crisis period. However, the real GDP of BRICS was 8% in 2010 that declined to 6.5% in 2011. The GDP growth rate has further declined in the recent years (Common, 2004). Due to the fall in real GDP within the economy, there was a fall in production and the output levels. The crisis had a serious impact on UK as the GDP growth rate fell and the impact was severe on the supermarkets of Sainsbury’s where the production levels declined and the company was unable to meet the demands of the customers (Common, 2004). Gradually, the company was losing its customer base and also the market share that it had captured through the large variety of the products it used to produce. It seems that the company is able to overcome the crisis situation within the economy and expand its business in the international markets (Common, 2004). The company plans to raise the level of production by hiring more workers within the markets and thus meet the rise in customers’ demands. 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