International Banking Risks in China

Introduction
Back in 1970s, the implementation of various economic reforms was the focus of China. These reforms in turn resulted to a number of effects not only to the country itself but to other foreign countries as well. Before these reforms were implemented, China originally practices the command-type of economy where a significant portion of the Chinese economic outputs are regulated and distributed by the administration. The Chinese government used to be in charge of controlling market prices, establishing production objectives and allocating resources as well. While implementing this economic approach, China encountered several problems especially when the industrial period arrived. In order to cope with this period’s challenges, the country allocated large scale investments on its human and physical resources. Due to this movement, majority of the country’s industrial production was operated by state-owned enterprises (SOE); this however, prevented foreign investors and other private companies to operate in China. The purpose of letting the state own most of the economic resources is to prevent China from depending from foreign support, making the country self-sufficient. International trade was then limited to the importation of goods that was not available or produced in the country.

The constrictive Chinese policies however led to economic inactivity and inefficiency; there were limited profit incentives derived from both business and agricultural sectors. In addition, with this type of economic system, no competition was observed. As a result, progress was unattainable. This system also made the living standards in the country lower than other developing nations. The outcome of the traditional economic system then encouraged the Chinese government to come up with effective reforms that will augment the people’s living standards and the overall economic state. With the implementation of reforms, China’s major economic sectors naturally went through significant changes and development. While the reforms could have resulted to positive outcomes, certain risks are still likely to affect it and its neighboring countries. In this research, focus will be placed on the country’s financial sector, particularly on its foreign banking opportunities. The different risks involved in establishing foreign banks in the country as well as the ways on how to address them will also be highlighted in this discussion.

The Chinese Financial Sector
It was during the early 1980s when China first implemented reforms on its banking sector. This reform was focused mainly on the creation of four specialized banks separate from its central bank. The banks worked under monopolistic operations, concentrating the competition on acquiring more depositors. Eventually, bad loans started to affect the system, which resulted to quality deterioration of assets, excessive risk-taking and inflationary credit expansion (Cheng & Cheng, 1998). China then implemented new banking reforms in 1993. This time, the focus is on asset quality improvement, reestablishment of public confidence and development of genuine commercial banks. Though several analysts noted that the current Chinese banking status and general financial sector are still underdeveloped, the reforms had given the country several benefits like increased GDP and foreign direct investment. With these changes, international countries are very mush interested in putting up businesses like foreign banks in China. In addition, the country’s entry to the World Trade Organization (WTO) further increases the opportunity of foreign countries in accessing the large Chinese market. Nonetheless, analysts warn foreign investors of the different risks involved in establishing banks in the country.

Operational Risks
Among other types of risks, the operational aspect is perhaps the most complex as several factors (e.g. management, political, governance) are involved. One of the main operational risks that foreign investors can encounter in putting up banks in China is the problem on extensive administrative influence as well as the instability of regulations. As claimed by various foreign investors, the success of firms in China appears to be connected to government relations rather than to the market forces. Moreover, due to inadequate rules and regulation, problems such as investment misallocation, financial speculation as well as corruption had been rampant. International firms, particularly those in the west, usually encounter difficulty in operating in China due to lack of consistent laws. The improper enforcement of the contract as well as the lack of protection granted for intellectual properties are typical concerns as well (Morrison, 2005).
While banking entrepreneurs become attracted to the Chinese market economy, they must prepare themselves to various legal risks and issues. As pointed out earlier, the Chinese government has a significant authority over the country’s businesses. Policies and regulations applied in the Chinese business industry are subject to changes; hence, foreign entrepreneurs must be prepared to adjust. Considering that the country’s economic regulations and bureaucratic framework are still developing, changes are then inevitable (Humberg, 2003). The legal and regulatory aspects of the Chinese banking business are relatively unstable despite the reforms and developments conducted (Hu & Hope, 2005). Some legal practices in China are also different from the other common international practices. The issuance of a contract for instance, is a final matter in western cultures. However, contracts can change unexpectedly in China (Overby, 2000).

According to Hu and Hope (2005), the internal operations of Chinese banks are also problematic. The corporate governance of the country’s banks for example, is not very conducive for checks and balance systems. This problem is mainly rooted on the inadequacy of effective board members and independent directors. The banks’ culture on full disclosure should also be developed based on best and effective standards. This problem can greatly affect foreign bank operations since it is likely that its main workforce will be derived from the Chinese workforce pool, considering that it is less costly this way. If this will be done, employees and the board will expect usual corporate governance practices. Though foreign entrepreneurs can do some changes on its own banking governance once they start operating in China; the problem is whether these changes will be allowed or tolerated.

Interest, Credit and Liquidity Risks
China is relatively weak in terms of its credit or loan systems, considering its observed poor performance. The banking sector of the country is neither appropriately regulated nor properly managed. For instance, greater than 22% of the loans held by the state commercial banks are bad; young stock markets are also suffering the same state (Wu, 1998). Due to the poor state of China’s banking sector, Chinese reformers became even more hesitant to offer its banking sector to foreigners. In banking and loans, political connection is an important element; this in turn worsens the corruption within the country’s banking system. In addition, this practice widens the economic inefficiency of China as savings in general are not allocated based on the possibility of returns (Morrison, 2005). If no improvements will be done for China’s financial sector, instability is a possibility.

In order to resolve its problem on bad loans, China had decided to implement a new loan system (five-classification loan-grading system) that is based on international standards. Initially, China practices the four-classification system, which gravely defective. With this old system, endless speculations had been raised primarily on non-performing asset levels and inadequate provision of loans. While the new loaning system may benefit the country and resolve some of its financial issues, the effect of which is yet to be observed and evaluated. The possible success of this new approach is largely dependent on how Chinese regulators can effectively administer its execution (Hu & Hope, 2005). For new entrepreneurs, new systems that are not yet fully tested and guaranteed can be risky. It is then difficult to believe on the efficacy of this alternative unless concrete outcomes have already been obtained.

In terms of interest rate, regulations tightly control this banking aspect for foreign banks, making them less attractive for the market. In addition, the People’s Bank of China, the country’s central bank, is greatly protecting local banks particularly the four major banks developed during the initial reform for the financial sector. This then allows the country to cover about ninety-percent of the total lending activity (The Banker, 2001). The risk for liquidity is also a matter of concern for entrepreneurs planning on investing a banking business in China. Considering that the country had just gone through a major financial crisis during the latter part of the 1990s, liquidity in the country was greatly reduced, along with the decreasing GDP, falling export rate, declining retail price index and the slowing down supply of currency.

Market Risks
The market risks involved in foreign bank establishment in China is mainly caused by the country’s entry to the WTO. Before China joined the WTO, foreign banks that have renminbi (yuan) licenses were only supposed to lend renminbi from their deposits; access of these banks to interbank market was also prohibited, which greatly affects their capability to make loans. However, when China entered the WTO, the right to lend renminbi became limited to foreign banks that had been allowed to do this type of business. The provision of the licenses however, was only given to few selected banks. This in turn, makes the access of foreign banks to the Chinese market very restricted (The Banker, 2001).

The access to market is also greatly affected by China’s protection to its domestic firms. Local companies, including banks, had been complaining to the Chinese government and claimed that the policies implemented by the administration greatly favor foreign firms. For example, if a major foreign bank operates in China, most of the local companies offering similar financial services have no option but to close down. Eventually, as more foreign investors enter the country and operate within its banking industry, majority of the players will be foreigners. The Chinese administration is then concerned that if this will continue, more domestic industries will suffer (Chen, 1998). Hence, the government decided to control the entrance of the foreign firms in the country.

This in turn led the government to reduce the policies in favor of the foreign enterprises. In 1996 for example, the Chinese administration decided to cut down the value-added tax refund among foreign companies for exported goods from 17% to 9%. China has even planned to take out the privileges granted to foreign investors for importing capital equipment tax. This clearly implies that the country’s government has been more selective in accommodating foreign firms, which greatly limits foreign banks’ access to market (Chen, 1998).

Banking Risks in other Nations
Establishing a bank in other parts of the world such as those belonging in the European Union may be more advisable for some entrepreneurs. There are many reasons for this judgment. One of which is the fact that the European Union is a vast region of countries whose level of development varies. This means that EU offers business areas that are less developed than the other, giving better opportunities for foreign banks. Rules and regulations are likely to be more stabilized in some European regions as compared to the Chinese business setting. Tariffs or barriers to entry like taxes may also be lower in other European countries, making foreign entry less difficult. Most importantly, market diversity in EU is far larger than in China, making access to opportunities and market growth easier.

Nonetheless, it should also be considered that certain risks can also hinder the development of a foreign bank within EU. For instance, the presence of higher competition level is likely, considering that multiple local and foreign banks will be operating within the region. Moreover, though laws and regulations may be stable, differences in banking policies, operational practices and other relevant factors may make market access not as easy. From this standpoint, it becomes clear that establishing a bank in any foreign country has its advantages and downsides. This suggests that foreign entrepreneurs must be skilled in handling this possible business risks.

Means of Addressing the Risks
China and its banking sector have a lot to offer for foreign investors; however, the country and its administration must improve some of its banking aspects not only to make China more appealing to entrepreneurs but also to prevent business issues. One of this means would be the stabilization of its business laws and banking legislations. The country must have a definite ruling for both domestic and foreign banks in such a way that both will benefit from. While the Chinese government is protecting its local banking sector, it must also employ means that will make foreign bank investors less cautious. The restrictions should also be implemented at a reasonable level (Chen, 1998).

China has in fact, conducted several changes so as to be more open for foreign banks. For instance, it has attempted to improve its corporate governance by requiring and encouraging banks to introduce governing boards. Moreover, approved accounting firms are now used for auditing. Operational risks are also being handled by strengthening balance sheets; financial statement definitions are also slowly being accomplished based on international standards (Moreno, 2002).

The foreign investors themselves can apply certain means to safeguard their businesses from these recognized risks. One of the important strategies that firms should consider is to operate alongside a local business partner (Overby, 2000). This will help the firm adapt easily to the Chinese business environment. A local partner can also assist in learning the Chinese culture, practices, regulations and means of interaction. More importantly, a Chinese business partner can also help in achieving progress faster. Training the staff becomes even more important in foreign business ventures. The workforce must be supported fully particularly in adapting the business’ new concepts, standards and technologies. The management should ensure that the local staff is also well-adjusted to the new system so as to encourage them to contribute more for the business (Humberg, 2003).

In general, the investors can start off by analyzing the business environment they wish to invest on. It is important that business entrepreneurs are aware of the distinct features of each foreign setting; in this way, the investors will know how to address in the most effective way. If for example the foreign bank entrepreneur is from the West, establishing a bank in China will naturally make western and eastern difference apparent. As discussed by Ambler and Witzel (2003), Western and Chinese origins have distinct differences on various aspects like politics, philosophy, society and history. Hence, it is imperative that entrepreneurs understand their foreign prospects well. From this aspect, learning and adaptation are perhaps the two most important factors that should be present.

Conclusion
China is very appealing for entrepreneurs particularly because it offers low labor costs and a large market; similar factors have also encourages foreign banks to operate and establish branches in the country. Nonetheless, operational, credit, liquidity, interest and market risks are present, which can greatly affect foreign investors’ business goals. If banks will be established to other regions, the type and degree of risks may be different; however, risks in the banking business, irregardless of the environment, are omnipresent. For this reason, the foreign countries open to international trade as well as the investors themselves should have the appropriate qualities that will promote harmonious business relations. In conclusion, successful foreign business operations are not solely dependent on capital, connections and people but on the ability to learn, change and adapt as well.





References:
‘Knock Knock’, 2001, The Banker, May 1, viewed 4, January, 2006, .

Ambler, T & Witzel, M, 2003, Doing Business in China, Routledge, London.

Chen, R, 1998, ‘An analysis of China's economic development policies and prospects’, Business Economics, July, pp. 29-34.

Cheng, E & Cheng, Y, 1998, ‘Banking Reform and the Separation of Policy and Commercial Loans in China’, MOCT-MOST, no. 8, pp.5-21.

Hu, F & Hope, N, 2005, 'Can Foreign Entry Transform China’s Banking System?', SIEPR Policy Brief, November.

Humberg, C, 2003, ‘Successfully Moving In and Setting up Business in China’, TUV Rheinland World News, pp. 4-5, viewed 4, January, 2006, .

Moreno, R, 2002, ‘Reforming China’s Banking System’, FRBSF Economic Letter, no. 200-17, May 31.

Morrison, W, 2005, ‘China's Economic Conditions’, CRS Issue Brief for Congress, July 1.

Overby, S, 2000, ‘Taming the Dragon’, Inc.com, viewed 4, January, 2006 .

Wu, R, 1998, ‘Which Way for the Chinese Economy?’, World and I, vol. 13, no. 10, pp. 40+.

Keynesian Economics

Introduction

According to the New Keynesian Economics, market may fail to clear due to wages and prices. In economics, all of the variables are associated with one another. In terms of governmental actions, the monetary policy and fiscal policy are good indication that somehow, the prices in the market are maintained and monitored. The common concept of letting the regulation over the prices of the products is to avoid the unnecessary inflation which is definitely a hardcore in the issues in the country such as the currency risks, unemployment, oil and wages and many more. Through the help of economics, the government and organizations are agreed to have a control for both price rigidities and wage rigidities.

The Early and New Keynesian Economics

The Keynesian view of business cycles in 1980 was clouded with too many doubts. The problem was not new empirical evidence against Keynesian theories, but weakness in the theories themselves. According to the Keynesian view, fluctuations in output arise largely from fluctuations in nominal aggregate demand. These changes in demand have real effects because nominal wages and prices are rigid. But in Keynesian models have the crucial nominal rigidities were assumed rather than explained-assumed directly, as in disequilibrium models, or introduced through theoretically arbitrary assumptions about labor contracts. Indeed, it was clearly in the interests of agents to eliminate the rigidities they were assumed to create. If wages, for example, were set above the market-clearing level, firms could increase profits by reducing wages. Therefore, the early introduction of Keynesian Economics and its associated theories led the way for the economists to move toward the new classical models with flexible wages and prices – the New Keynesian Economics.

The primary disagreement between new classical and new Keynesian economists is over how quickly wages and prices adjust. New classical economists build their macroeconomic theories on the assumption that wages and prices are flexible. They believe that prices “clear” (e.ge supply and demand) by adjusting quickly. New Keynesian economists, however, believe that market-clearing models cannot explain short-run economic fluctuations, and so they advocate models with “sticky” wages and prices. New Keynesian theories rely on this stickiness of wages and prices to explain why involuntary unemployment exists and why monetary policy has such a strong influence on economic activity.

Application of New Keynesian Economics

In the price system, the adjustment of prices to changes in market conditions is the primary mechanism by which markets function and by which the three most basic questions get answered: what to produce, how much to produce and for whom to produce. To the behavior of price and price system, therefore, have fundamental implications for many key issues in microeconomics and industrial organization, as well as in macroeconomics and monetary economics. In microeconomics, managerial economics, and industrial organization, economists focus on the price system efficiency. In macroeconomics and monetary economics, economists focus on the extent to which nominal prices fail to adjust to changes in market conditions. Nominal price rigidities play a particularly important role in modern monetary economics and in the conduct of monetary policy because of their ability to explain short-run monetary non-neutrality. The behavior of prices, and in particular the extent of their rigidity and flexibility, therefore, is of central importance in economics.

In unemployment issue, normally, economists presume that an excess supply of labor would exert a downward pressure on wages. A reduction in wages would in turn reduce unemployment by raising the quantity of labor demanded. Hence, according to standard economic theory, unemployment is a self-correcting problem. New Keynesian economists often turn to theories of what they call efficiency wages to explain why this market-clearing mechanism may fail. These theories hold that high wages make workers more productive. The influence of wages on worker efficiency may explain the failure of firms to cut wages despite an excess supply of labor and should emphasize the productivity on labor and profit on the organization.

Conclusion

The unemployment in South Africa is one of the common problems that most of the regions endure. But because of the new Keynesian economics, it suggests that the macroeconomic theory being applied by the government should be matched with the fiscal policy. This might not be the most applicable solution for the unemployment rates but it is good foundation in stabilizing the labor market and coordinate with the efficiency wages. The decision should be made on whether policymakers should intervene in practice, however, is a more difficult question that entails various political as well as economic judgments.

References:

Ball, L., Mankiw, N.G., & Romer, D., (2007) The New Keynesian Economics and the Output- Inflation Trade-08 [Online] Available at: http://www.economics.harvard.edu/faculty/mankiw/files/New_Keynesian.pdf [Accessed 13 August 2010]

Holzer, H.J., (1996) Employer Demand, AFDC Recipients, and Labor Market Policy, Institute for Research on Poverty [Online] Available at: http://www.irp.wisc.edu/publications/dps/pdfs/dp111596.pdf [Accessed 13 August 2010].

Levy, D., (2007) Price Rigidity and Flexibility: Recent Theoretical Developments, Managerial and Decision Economics, Vol. 28 [Online] Available at: http://www.biu.ac.il/soc/ec/d_levy/wp/mde2.pdf [Accessed 13 August 2010].

Managerial Economics

Introduction

In an organization, it is right to give the right compensation for the performance of the employees. The compensation is not a reward or incentive but the obligation of the organization to give such credit in the efforts exerted by the individuals. For the past years, the employment is centered in different issues and concerns. As an example, the employment issue is focused in the increase of compensation or allowances and perks. The common people who demanded for the increase are the managers because they consider the stressful environment in their workplace. In this paper, however, we will discuss the negative effects that may arise as a result of increasing manager’s allowances and perks.

Manager’s Roles and Responsibilities

In the investigation of the increase of allowances and perks, it is important to firstly recognize the roles and responsibilities of the managers in different environment. The manager’s performance can be the most important factor in the success of a department because of the manager’s ability to weigh the facts, judge, create decisions, and strategic solutions. Within the global competition, the managers are expected to work even in a complex workplace. The managers can work domestically or in international workplace wherein both offer the challenges and risks.

The competition within or outside the country were influenced by the wide globalization. The effects of the rapid change can be the main reason for the manager to generate the strategic approach possible for the organization (Skordoulis, and Dawson, 2007). Managers’, however, do not influence the decision of the people above their position but prepare the possible options in which the superiors can choose. The contribution of the managers is also recognized through their approach in managing, controlling, and strengthening the employer-employee relationship and customer-organization relationship. Aside from those, the managers are often sent into different business affairs that might be consider as leisure and business travel. The organization is the one that provides the needs and allowances of the managers. However, due to growing number of stress, pressures, and other challenges that the managers receive in their position, the increase in allowances and perks are proposed.

Allowances and Perks

Allowances (e.g. travel allowances) and perks (e.g. bonuses, reimbursements) are allowed in every organization as long as all the expenses are made for the business transactions and/or with the knowledge of the superiors. The manager’s performance can be the reference of the organizational leaders to allow them participates in the meetings, business travels like convention, and others. Same is true when it arrives in giving the bonuses or to increase their compensation, the performance of the managers is the basis. The reimbursement, on the other hand, can be obtained from the medical or health concerns, gas, or other expenses but with a condition that it should be related with the business matters. The increase in the business needs of the organizations creates an impact in the allowances and perks that the organization provides (Gilbert, Geisler, & Morris, 1995).

Since all the expenses that can be appear in the account of the managers are subjected into the organizational funds, there are limitations that the manager should acknowledge. However, because of the conflict of interests coming from both parties, the managers are demanding that there should be an increase in their allowances and perks to provide the appropriate services and performance that the organization wants. There are instances that the organizations also cover the education of the manager’s children or support the family of the manager just to provide to gain the loyalty and job commitment. The negative effects in the organization may result to the sudden drop of profit. There are uncertainties and economic downturn that may affect the organization and they might discontinue the program on allowances and perks or affect the retirement and other benefits if there is an increase of demands coming from the managers. Also, the other managers might not experience the same treatment because the allowances and perks that should be allocated for the new managers are already saturated (Gupta, 2009).

Conclusion

It is not wrong to demand for the increase in the allowances and perks, as long as the managers are doing the right thing and providing the performance for the organizations. The effects will only carried by the organization if there is a sudden demand coming from the managers. The increase in allowances and perks will give more drawbacks if the managers do not use the privilege in the right way.

References:

Gilbert, D.T., Geisler, R.B., & Morris, K.A., (1995) When Comparisons Arise, Journal of Personality and Social Psychology, 69(2) [Online] Available at: http://www.wjh.harvard.edu/~dtg/Gilbert%20et%20al%20%28COMPARISONS%29.pdf [Accessed 10 August 2010].

Gupta, V.K., (2009) Demand Relating to Perks Prerequisites and other Allowances: Perspectives of Mr. Vikas Kumar Gupta, Member, Wage Revision Committee for Wage Revision on Behalf of TTAs [Online] Available at: http://www.snatta.org/main_demands/perks.doc [Accessed 10 August 2010].

Skordoulis, R., & Dawson, P., (2007) Reflective Decisions: The Use of Socratic Dialogue in Managing Organizational Change, Management Decision, 45(6): 992

Impact of Migrants on the Socio-Economy of South Africa

Introduction

The control on human mobility and efforts undermine the continuous shape on politics, economy, and society. Despite the need for improved policy responses to human mobility, reform is hindered by lack of capacity, misinformation, and anti-migrant sentiments within and outside of government. The migration within South Africa creates a tension and trend in the demographic and socio-economic values. Based on the reports, there is a significant development and potential in international migrants’ skills and entrepreneurialism.

Background and Problem Statement

In the increasing number of migrants on South Africa it enhances the remittances and trade. Thus, it also expands the markets for South African products and services, particularly in the non-nationals. Despite the potential benefits, there are severe obstacles to immigration reform, such as the increase in the population, increase in poverty, corruption, and even the health cases like the HIV/Aids. The significant problems governs the domestic mobility includes the municipal budgets. Due to the investigation of the previous studies, there are recommendations that can be applicable in South Africa (Landau & Kabwe-Segatti, 2009). However, what are the other impacts of migration that affects the socio-economic situation of South Africa?

Research Aim and Objectives

The main aim of the study is to investigate the impact of immigration on the socio-economic factors of South Africa. To support this aim, there are objectives that need to be considered. First is to identify the causes of immigration in the country. Second is to recognize the situation of the migrants as traced from the previous 5 years up to the present. And third is to compare the socio-economic situations between the migrants and the African nationals.

Research Questions

1. What are the identified common causes of migration in South Africa?

2. What are the situations of the migrants in their selected place for settlement?

3. What are the similarities and differences of the migrants and African nationals in terms of socio-economic situations and right?

Literature Review

Due to the increase of migrants in South Africa, a conceptual consideration should be rearranged and examine the documented migrants against the undocumented migrants. There are future planning and management of migrants in both regional and local authorities with an emphasis on the policies. This focus of the government on the population of South Africa is the result from the debates over the governance and development regarding the migration mainstreaming that will definitely affect the national planning, particularly on the human development (Landau & Kabwe-Segatti, 2009). For the investigation of the previous studies, there is an increase trend in the cases of HIV/Aids which gives an idea that it is associated with the continuous increase in the number of migrants in South Africa. Yearly, there is a recorded series of deaths caused by HIV/Aids and this toll increases due to the lack of the health policies and governmental regulations. In the extreme, the case of survival of both migrants and nationals is a question now that South Africa has a 70% related cases on HIV and Aids (CHG, 2004). In the comparison on the nature of immigrants from the other countries (mostly developed countries), it suggests that the labor remains a strong reason for most of the migrants. The globalization of migration in the other countries makes a more diverse socio-economic, cultural, and ethnic stream. This tends to push the appropriate government policies that attempts to ameliorate the impact of immigration, especially in the third rated countries like South Africa (ECLAC, 1998). Migration is fundamentally linked to the changes in the socio-economic status of the individuals and households. The success of the strategy depends on the employment status of the migrants. As for the “new economics of labor immigration”, the links between the migration and socio-economic status can be also identified in a response to the wage differences (Collinson, et al., 2009).

Methodology

The suggested method in the study is the use of the secondary information concerning the population and migration issues of South Africa. The materials can be used are the organizational and national reports, the case studies that presents the arguments between the migrant population and African nationals populations. The study believed that there is a conflict in between the socio-economic of South Africa and the migrants have a significant impact on this effect. Therefore, the focus of the method will fall on the examination on between populations. In addition, the important information can be also obtained from the World Bank and African Organizations.

References:

CHG, (2004) Africa: The Socio-Economic Impact of HIV/AIDS, Economic Commission for Africa- Commission on HIV/AIDS and Governance in Africa [Online] Available at: http://www.aec.msu.edu/fs2/adult_death/SOCIO_ECO_IMPACT.pdf [Accessed 18 August 2010].

Collinson, M.A., Clark, S.J., Gerritsen, A.M., Byass, P., Kahn, K., & Tollman, S,M., (2009) The Dynamics of Poverty and Migration in a Rural South African Community, 2001‐2005 [Online] Available at: http://www.csss.washington.edu/Papers/wp92.pdf [Accessed 18 August 2010].

ECLAC, (1998) The Impact of Immigration on Caribbean Microstates: Bahamas, British Virgin Islands, Saint Maarten, United States Virgin Islands, Economic Commission for Latin America and the Caribbean [Online] Available at: http://www.eclac.org/publicaciones/xml/0/10340/carg0540.pdf [Accessed 18 August 2010].

Landau, L.B., & Kabwe-Segatti, A.K., (2009) Human Development Impacts of Migration: South Africa Case Study, United Nations Development Program [Online] Available at: http://hdr.undp.org/en/reports/global/hdr2009/papers/HDRP_2009_05.pdf [Accessed 18 August 2010].

Business Economics

Introduction

Competition in many markets appears to be entering a new phase in which pricing strategies are considered but product quality and performance are becoming more important to customers than price. In such markets, the effective management of the development process is the essence of the economic profits the firm can earn. Consumption and savings and technology, shifting and stability, consumers tend to buy more goods and avail more services because of the satisfaction that it can give. However, the simulation illustrates, economic movement in accordance to the behaviour of companies and factors that these companies consider in order to gain more profit. Price setting, innovation and advertising campaign could affect the business and also the economy.

The Core Ethical Business Economical Practices

In terms of core ethical business economical practices, businesses are developing to suffice the need of the society. Consumers want to avail more products/services as the prices decreases but the sellers/businesses will be willing to offer more as the price increase. The interaction between consumers and businesses creates equilibrium price and quantity. As such market is the end product. Changes in the quantity demand and supply are solely attributed to change in price only. In the business market, there is shifting of demand and supply curve when there is already change in supply and demand. This means that the change is no longer attributed to the change in price.

On the other hand, the rapid growth of technological advancement in the society has brought people ease in all the things that they do. Part of this technological advancement is the emergence of the innovative activities for each and every organisation. Actually, “technological progress reflects to the development of new products, improvements in existing products, and the creation of new machinery and production processes that simulates investment” (McConnell & Brue 2004;p. 162). Evidence of innovation is spread thinly in the business population, as most profess that innovation brought out excellent performance for the company in terms of profit and resource maximisation. With this consideration and as part of core ethical business economical practices, appropriate pricing strategies and non-pricing strategies should be considered by business for the sake of their consumers.

Understanding Business Environment

Our environment is continuously changing and factors such as consumption and savings (McConnell & Brue 2004; p. 156) must be considered in the development of new products. Basically, the emergence and development of the products of businesses in the market is one of the innovations needed in the current era. Actually, firms with similar products are competing to achieve above normal return, but being monopoly is not the only way to achieve it. Firms can differentiate themselves with others through innovation: competing to be different. Although the innovation itself maybe profitable, the innovating firm itself may not profit from it. Therefore it is important to establish complementary assets alongside firm’s innovative capability to capitalise majority of the gain. Let as assume that a certain business is a pure monopoly but even though they are not the sole company in this type of business they still have the power to control the market because of the extensive use of their products. It seems that the consumers have no alternative options, it’s either to take it or leave it. Hence, neither special advertisement nor promotion is needed to entice the consumers to patronize their products. The company actually has the power to control their prices, they are considered as price markers or price setters, there is only limited seller (contrary with pure competition with a number of sellers).

Within the market place, one of the most important things to consider is to establish a strategy that will be useful for different activities of the organisation and enhance the value of the business as a whole. Part of the changes brought by the competition of these industries globally are the new economics, new market structure, new marketing strategy as well as the new structures of each and every industry within this field. In line with this, more and more organisations are trying to impose and implement different innovative activities that will further make their business more competent and to have a competitive position in the market place.

Social Economical Influences on the Market

It is very important to emphasize that a business procedures and plans should also consists of consumers wants and needs and not only about businesses profit generation (McConnell & Brue 2004;p. 161). In order to hold on to being a market-oriented company and in consideration to the social economical influences on the market, a business should undertake marketing investigation to gain a thorough knowledge of the market segments that it is interested in going into. Through this, areas of unsatisfied consumers’ wants and needs will surface as well.

Thus, as for non-pricing strategy, marketing communication is also important for the company to generate profits and secure their earnings from their products in accordance to their company standing. The company’s objective to differentiate itself from other rival companies as the they provides costumers whatever they desire, on time, at the lowest possible price, and with the highest quality. The company should strive to increase costumer loyalty and satisfaction.

Reference

McConnell, C.R., & Brue, S.L. (2004). Economics: Principles, Problems, and Policies. New York: The McGraw-Hill Companies.