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Pob stage 1 seminar 5 sbd v3
1. Principles of Business
Seminar: Applying economic concepts
to your business
Topic Number:5
2. Overview
The economic environment is an important determinant of
business success. This seminar looks to determine the
implications and impacts of the global economy on your
business.
You are tasked with initially explaining the concept of supply &
demand and the factors that influence it in relation to your
business activity.
As part of this analysis you will determine a number of the key
economic indicators in relation to your business. As you have
recently learnt about the various strategies you can adopt when
‘going global’, determine how the theory of comparative
advantage can help your business.
Finally, if you were going to make an investment abroad explain
if you would opt for direct or indirect FDI.
3. Learning outcomes of this seminar
• Be able to explain the concept of supply & demand
and the factors that influence it in relation to your
business activity
• Identify and describe the key economic indicators
that could impact your business?
• Illustrate and apply the comparative advantage
theory in your business
• Critically evaluate and describe the various global
investment options
4. Agenda for this seminar
Explaining the concept of supply & demand and the impact of a slowing Asian economy
on the UK’s economy? How could this impact your business?
What is the impact on key economic indicators such as GDP, inflation and employment?
Explain how you would use the concepts of comparative advantage to your businesses
benefit.
If you were going to make an investment abroad explain if you would opt for direct or
indirect FDI. Explain your rationale.
5. Structure for the session
You will have
15 minutes to
discuss each
question
We will have a
debrief at the
end of each 15
minutes to hear
your thoughts
on each area
Feel free to ask
questions but
please do not
have separate
conversations
‘we are all in
this together’!
6. Explaining the concept
of supply & demand and
the impact of a slowing
Asian economy on the
UK’s economy? How
could this impact your
business?
7. Lets look at the UK & Developing Asia
According to the IMF (2012:60), developing Asia (DA) is moderating primarily
due to the slowing of exports to the EU region, reliance on Euro banks, crisis
and deteriorating business sentiment. However, domestic demand still fuels
growth in key economies across the region (e.g. China) (IMF, 2012:60).
Source: IMF, 2012
8. Implications for supply and demand in the UK
Selling UK goods/services in DA (Exports)
Demand goes
down
Short term supply
stays the same
Implication on price?
Price goes down
9. Implications for supply and demand
Selling UK goods/services in DA (Exports)
Demand goes
down
Long term supply
decreases
Implication on price?
New equilibrium price is reached
10. Implications for supply and demand
Selling UK goods/services in DA (Exports)
Quantity
Price
Initial
Demand Initial
Supply
11. Implications for supply and demand
Selling UK goods/services in DA (Exports)
Quantity
Price
Initial
Demand Initial
Supply
Reduced
Demand
12. Implications for supply and demand
Selling UK goods/services in DA (Exports)
Quantity
Price
Initial
Demand Initial
Supply
Reduced
Demand
Reduced
Supply
13. Implications for supply and demand
Selling DA goods in the UK (Imports)
Supply goes down
(as GDP in DA has
fallen)
Short term
demand in the UK
remains the same
Implication on price?
Price rise
14. Implications for supply and demand
Selling DA goods in the UK (Imports)
Demand goes
down (as GDP
decreases*)
Supply goes down
(as GDP in DA has
Implication on price?
fallen)
New equilibrium price is reached
* This is an assumption; in reality a number of outcomes could occur
15. Implications for supply and demand
Selling DA goods in the UK (Imports)
Quantity
Price
Initial
Demand Initial
Supply
16. Implications for supply and demand
Selling DA goods in the UK (Imports)
Quantity
Price
Initial
Demand Initial
Supply
Reducing
Supply
17. Implications for supply and demand
Selling DA goods in the UK (Imports)
Quantity
Price
Initial
Demand Initial
Supply
Reducing
Supply
Reduced
Demand
18. What is the impact on
key economic indicators
such as GDP, inflation
and employment?
19. Implication for UK; GDP
DA GDP
If the UK export
more than it imports
to the DA
If the UK import
more than it exports
to the DA
What about
substitution?
20. Implication for UK; Inflation
DA GDP
If supply goes down
and demand stays
the same then goods
become more
expensive leading to
increased inflation
21. Implication for UK; Unemployment
DA GDP
If DA goods prices
increase it will lead
to increased cost of
production and
unemployment could
go up
If DA goods prices
increase it will lead
to increased cost of
production and UK
companies seek to
purchase the goods
in the UK
umemployment will
go down
22. Explain how you would
use the concepts of
comparative advantage
to your business’s
benefit
24. Consider your core production lines:
Where should you produce them?
Cars Rice
100
(1C=1R)
100
(1R=1C)
50
(1C=4R)
200
(1R=1/4C)
A
B
Consider the per unit opportunity cost and go for the lowest
option
Remember
the rule to
calculate
the
opportunity
cost: Other
goes over
25. Consider why one location has lower opportunity
cost
Source: Wikipedia.org
26. How will this benefit your business?
Higher Margins
Lower Costs
More Profit
Are there any other implications?
27. If you were going to
make an investment
abroad explain if you
would opt for direct or
indirect FDI. Explain
your rationale.
28. Firstly consider the options
View video: https://www.youtube.com/watch?v=I8w7Kv2aZPg
29. Firstly consider the options
Direct Indirect
• Invests directly in
business operations in
another country
• M&A or establish a new
business
• More control
• Greater stake
• Form global synergies
• More sticky
• Investing in a company
operating in another
country through a
financial instrument
• Invest in shares or
bonds
• Less control
• Less stake
• No global synergies
• Less sticky
30. Secondly, consider what your business needs
and what its current resource position is
Do you currently
have the
ability/capability or
do you need to
acquire it?
Does it make
strategic sense for
your business?
Do you have the
required
resources?
Consider how you
would structure a
deal
31. Thirdly, identify good opportunities to invest in,
considering fit with your organisation
Determine if you will
be able to realise the
anticipated
synergies
Scan the market for
a strategic fit
